Clinton Plan Leaves Out Costs of S&L; Bailout
President Clinton and his advisers made the federal deficit look smaller in their new economic plan by leaving out the costs of the savings and loan bailout, senior Administration officials have acknowledged.
They said the Administration decided against including the additional $15 billion to $25 billion it will cost to finance the remaining portion of the bailout when it formulated the economic agenda unveiled during Clinton’s economic address on Feb. 17.
The costs may also not be included in deficit projections for the full budget Clinton is scheduled to release in early April, they said.
Senior White House officials agreed that their official deficit forecasts for fiscal 1993 and 1994 could be as much as $25 billion too low as a result.
The decision to ignore the costs of the S&L; bailout altogether, rather than to include some estimate in the deficit forecast, may call into question assertions by the Administration that it has issued a budget without any of the “smoke and mirrors” used in the past.
However, White House Budget Director Leon E. Panetta said he excluded the S&L; costs because he is still uncertain exactly how much more money will be needed to complete the bailout of the nation’s sick thrift institutions. Lower interest rates have helped salvage some weak S&Ls;, meaning that the government doesn’t have to seize and dispose of as many institutions.
“We looked at it, and said you got to deal with that on a separate track, . . .” Panetta said.
“The economics of the last few months have helped a little bit,” by bringing lower interest rates, he said, adding that “we need to analyze that before we decide” how much more money will be required by the Resolution Trust Corporation, the federal agency charged with cleaning up the problem.
“When I ask for money from Congress, I want it to be a number that will cover us for a period of time, and I don’t want it to be a situation where we have to go back every three months,” he said.
Panetta also noted that there is no way to know how soon Congress will be willing to act on funding for the bailout of the thrifts.
Over the past year, Congress has repeatedly refused to approve more money for the RTC even though the federal government, which provided deposit insurance to the thrift industry, must by law eventually do so. As a result, the RTC has been unable to close down many ailing thrift institutions, leaving them in limbo.
Despite similar uncertainties about congressional funding, the George Bush Administration always included estimates of the bailout costs in the government’s official deficit projections. The ever-rising price tag of the thrift crisis--now expected to total $130 billion--was one of the most important reasons that the deficit continued to worsen even after the Bush Administration and Congress agreed to a five-year deficit-reduction program of tax increases and spending caps in the controversial 1990 budget agreement.
The Clinton Administration’s failure to squarely confront the costs that the government must bear could lead to the same kind of problems for the President’s economic plan, which he pledges will cut the deficit by $325 billion over the next four years.
The White House is apparently not too concerned if its deficit-reduction targets over the next two years are skewed, preferring to focus instead on fiscal 1997--which coincides with the 1996 election year--when Clinton has promised to have cut the deficit by $140 billion a year.
“I think Clinton will be a lot less worried about the deficits in 1993 or 1994 than in the 1996 or 1997 period, where he has promises to keep,” observed Allen Schick, a visiting scholar and budget expert at the Brookings Institution.
“It (the omission of the bailout costs) is a blip up and down,” said one White House economic adviser. “It could alter the deficit numbers, but it won’t change the economic outlook and it won’t change the long-term glide path that we’re projecting for the deficit out to 1997.”
The official said annual cash proceeds to the government from the sale of real estate and other assets seized from failed S&Ls; should begin to offset the government’s yearly S&L; losses by the end of Clinton’s term.
The admission by White House officials that they ignored the bailout costs also comes in the face of mounting criticism of the Clinton economic package on Capitol Hill, where Republicans charge it includes too much new federal spending and relies too heavily on tax increases rather than spending cuts to curb the deficit.
The Administration’s decision to count a number of user fees and an increase in the tax on Social Security benefits for retirees as spending cuts, for example, has led critics to charge that the White House is trying to mask that it is raising taxes far more than it is cutting spending.
And the Administration’s decision to use a little-known measurement of income, called “economic income” to gauge the impact of its tax increases on the middle class has also prompted complaints.
The economic-income figures include, in their measure of annual income, such things as the income value of a consumer’s home and the value of employee fringe benefits. As a result, economic income is a much higher figure than the annual salary of a worker.
Critics charge that the White House has used the economic-income figures to make it appear that its tax increases will not affect people making less than $30,000 a year, when in fact they will affect those earning just over $20,000.