Separating Pork, Beef in Clinton Plan : His Economic Agenda Falls Down Some on Close Scrutiny

Throughout his presidential campaign, Bill Clinton promised to revolutionize Washington with an economic agenda that would shift the federal government’s focus away from wasteful spending on today and toward long-term investments in tomorrow.

“The heart of this plan deals with the long term,” Clinton declared last month when he unveiled his long-awaited economic program. “It is an investment program designed to increase public and private investment in areas critical to our economic future.”

But a close look at the fine print in Clinton’s four-year, $160-billion investment agenda suggests that his promise is only partially fulfilled.

Some of the largest proposals in Clinton’s program clearly hold out the promise of significant long-term payoffs in public infrastructure improvements, advanced technology research and defense conversion initiatives.

Examples include $5.6 billion to expand the federal highway program, $720 million to upgrade the air traffic control network, $210 million for fusion energy research, and $1.3 billion for the National Institute of Standards and Technology, the only federal laboratory whose main mission is to support U.S. industry.

Yet critics argue that Clinton, in his zeal to renew funding for traditional domestic spending programs that languished during the 12-year Reagan-Bush era, has so broadened the concept of “investment” as to render it almost meaningless.

For instance, the nation’s big cities--traditional sources of Democratic political support--would receive an extra $282 million in community development block grants over four years, with few strings attached. Public housing agencies in urban areas would get $206 million in new operating subsidies.

Other proposals on the President’s list seem equally difficult to classify as long-term investments: $9 billion to expand the food-stamp program, for example, $2.4 billion for an extension of unemployment benefits, $246 million to plant trees on public property, and $716 million for rent vouchers for the poor.

“There is a lot in here that you would have difficulty calling investments,” observed Barry Bosworth, a former White House economist in the Jimmy Carter Administration. “I would say that about one-half to two-thirds of the spending programs are real investments. But there is at least one-third that you’ve got to say: ‘Come on now, that isn’t an investment.’ ”

“There is some pork in there,” acknowledged a Clinton White House official who requested anonymity. “You and I may disagree on how much and whether it is just on the fringes of the package, but there is some.”

So far, Clinton’s investment agenda has survived the early congressional efforts to recast the Administration’s multi-year budget blueprint.

Originally, Clinton proposed to raise taxes and reduce spending by a combined total of roughly $490 billion between 1994 and 1997, with about two-thirds of the savings, or $325 billion, going for deficit reduction and the rest to pay for Clinton’s investment proposals. Now, Congress is demanding far more spending cuts than Clinton proposed, but has not yet decided exactly where those cuts should come from. Ultimately, such a lower spending ceiling may force Clinton to scale back his investment agenda, but the Administration still plans to urge Congress to preserve the new investments and reduce spending in existing programs instead.

The Clinton investment agenda calls for about $100 billion in new federal spending and $60 billion in tax breaks, including a big expansion of the earned income tax credit for the poor as well as new tax incentives for businesses.

(Separately, the Administration has proposed a $30-billion short-term stimulus plan, including $16.2 billion in new spending using 1993 funds, as a “down-payment” on his longer-term investment program. That stimulus package is also coming under fire for being laced with pork.)

The Administration defends its decision to seek new spending--at a time when middle-class Americans are being asked to accept higher taxes on energy and retirement benefits--by arguing that the nation faces an “investment deficit” every bit as severe as the budget shortfall.

“Investment is the key to a growing economy that produces good jobs and high-quality goods and services,” the White House stated in the economic plan it presented to Congress. “We must invest more in our people, our plants and equipment, our infrastructure and our research and development if we are to restore the American dream for our children.”

That argument rests on the assumption that the standard of living enjoyed by ordinary Americans cannot rise over time unless economic productivity--the average amount of goods and services produced by each worker--also shows steady gains. Indeed, the relatively stagnant living standards of the last two decades correspond with a significant decline in productivity growth.

To a large extent, productivity gains are achieved within the private sector. Steel mills install new furnaces that produce more tonnage with fewer people, for example, and banks invest in computers that take over tasks once assigned to clerical workers.

But economists generally acknowledge that public sector investments also increase the nation’s productivity. Better roads and bridges reduce the costs of transporting goods across country, producing the same kind of macroeconomic effects as a private shipping firm’s purchase of more efficient trucks.

Many economists believe that investments in people qualify too, although the results are harder to measure. Public funds spent on worker training, for example, yield a more skilled work force capable of producing more and better goods and services.

In the view of some analysts--and the new Administration--the government should spend more money for such purposes even if it has to use borrowed funds to do it.

In fact, Clinton and some of his advisers have even advocated dividing the federal budget into two sections: funds used for current consumption and funds allocated to future investments. Increasing the deficit for current expenditures would be bad, the argument goes, but borrowing more money for long-term investments would make sense.

“Like private investments, well-chosen public investments raise future living standards,” the Administration argued in its economic plan. “Deficit reduction at the expense of public investment has been and will continue to be self-defeating.”

The White House warns that America’s investment deficit is becoming a critical issue in the nation’s economic competition with global rivals such as Japan and Germany. Long-term public investments have steadily declined in the United States from an annual rate of about 3% of the nation’s economic output in the mid-1960s to about 1.5% today, the Administration says. Meanwhile, Japan is investing in public works at triple the American pace.

Labor Secretary Robert Reich, who has written a book emphasizing the value of public sector investments, said the Clinton investment agenda focuses on “education, training, roads, bridges, infrastructure--all of the building blocks of a modern 21st Century economy.”

Some outside analysts are convinced that Clinton’s plan represents a radical transformation of the federal budget.

The Progressive Policy Institute, a Democratic think tank with close ties to the Administration, estimates that the program, if enacted, will reduce the annual rate of growth in consumption spending built into the federal budget to 4.3%, down sharply from the current annual pace of 5.3%. Meanwhile, investment spending, now flat, would rise 3% a year.

Many economists, who have been longing for Washington to at least recognize that public investment is important, find such a transformation refreshing, even if some of Clinton’sprograms don’t quite live up to their investment billing.

“I think his investment agenda is 80% on the level, and only about 20% gentle hype, and that is about as good as it gets for politicians,” said Amitai Etzioni, a Washington-based economic and political analyst who supports the Clinton plan.

Still, while the package clearly achieves some of Clinton’s stated goals, it also includes billions of dollars for programs that look more like current expenditures than long-term investments, some economists say.

For example, Clinton’s investment agenda includes $2.5 billion for additional staffers at Veterans Administration hospitals. While the goal may be laudable, it is something of a stretch to argue that hiring more hospital workers today will increase living standards tomorrow.

“Clinton has decided that investment is a good word,” said Martin Feldstein, a Harvard University economist and former chief White House economic adviser in the Ronald Reagan Administration. “But it is hard to think of anything in the budget that couldn’t be construed as investment. Defense is an investment in the nation’s security. Medicaid is investing in the health of the poor. The term becomes meaningless.”

Such labeling has troubling implications for budget analysts. By defining an array of popular spending programs as long-term investments, Clinton may find it easier to justify increasing the budget deficit to finance them.

“You are getting into treacherous waters when you call all of these things investments,” observed Allen Schick, a budget expert at the University of Maryland and the Brookings Institution. “Because then you can say that these investments have long-term benefits, and so can be financed over the long term.”

In fact, Republicans and other critics charge that Clinton’s investment agenda is a thinly disguised effort to increase the flow of funds between Washington and the nation’s traditional Democratic constituencies--a flow that was curtailed 12 years ago by Ronald Reagan.

“His definition of investment is highly suspect,” charged former Reagan Administration budget official Larry Kudlow, who is participating in a conservative campaign to defeat Clinton’s program. “So much of his stuff is geared toward government programs that have failed in the past.”

But Administration officials and economists who support the plan argue that investment spending ultimately is in the eye of the beholder.

They note that the United States, unlike other industrialized nations, does not have an official definition of what kind of government programs should be counted as public investment rather than current consumption spending. Clinton’s definition, they acknowledge, reflects the priorities highlighted during his presidential campaign, but it is as defensible as anything Clinton’s opponents might develop.

“You can have philosophical debates about what is an investment,” acknowledged White House budget director Leon Panetta. “On childhood immunization, I believe you can spend $1 and save $14 down the road. Unfortunately, it’s not ‘scorable.’ ”

Clinton’s Investment Agenda: A Stitch in Time?

President Clinton has asked Congress to approve roughly $100 billion in spending increases and $60 billion in tax breaks over four years to finance “investments” that he considers critical to America’s future. Listed below are his specific proposals, along with estimated cost through 1997. 1994-97 Total (in millions) Transportation: Federal-aid highway program: $5,271 Smart cars/smart highways: 345 Mass transit capital grants: 1,209 High-speed rail and Maglev: 646 Alcohol-related highway safety: 201 Airport improvement program: 107 Air traffic control modernization: 344 Public land highways and reservation roads: 295 Subtotal: 8,418

Environment: Drinking water: 1,328 Clean water: 2,700 Dam safety on Indian reservations: 59 Water resources development: 544 Watershed resource restoration: 139 Environmental restoration: 220 Forests for the Future: 170 Weather service modernization: 290 Environmental technology: 271 Green programs: 69 Natural resource protection: 1,531 Tree planting initiative: 246 National research initiative grants: 188 Forestry research initiative: 261 Subtotal: 8,016

Rural Development: Rural water and waste water loans & grants: 331 Business and community initiative: 1,155 Subtotal: 1,486

Energy: Alternative fuels vehicles: 108 Energy efficiency in federal buildings: 800 Weatherization grants: 275 Close-out costs for DOE reactors: 38 Energy conservation and renewable energy: 940 Natural gas research and development: 175 Advanced neutron source: 420 Fusion energy research: 210 Subtotal: 2,966

Community Development & Defense Conversion: Community development block grants: 282 Office of Economic Adjustment: 66 Economic Development Administration: 96 Community development banks: 354 Subtotal: 798

Technology & Business Reinvestment & Defense Conversion: NASA civil aviation: 550 NASA short-haul aircraft research: 50 Dual-use technology: 1,331 Federal Coordinating Council for

Science, Engineering and Technology: 1,206 High-performance computing: 784 National Inst. of Standards & Technology: 1,306 National labs: 146 Information highways: 275 National Science Foundation: 2,297 Government automation & efficiency: 2,649 Subtotal: 10,594

Housing: 100% vouchers: 716 Preservation of assisted housing: 858 Supportive housing program: 241 Urban Partnership Against Crime: 312 Severely distressed public housing: 206 HOPE youthbuild: 58 Subtotal: 2,391

Lifelong Learning: Women, Infants and Children food program: 2,634 Parenting and Family Support: 850 Head Start: 9,284 Child Care and Development Block Grant: 470 Education Reform and Initiatives: 6,152 National Service: 6,030 Dislocated Worker Assistance Act: 4,598 Job Corps 50-50 plan: 341 Job Corps maintenance backlog: 104 Summer youth employment & training: 2,037 One-stop career shopping: 700 Older Americans employment: 95 Youth apprenticeship: 1,218 Worker profiling: 9 Subtotal: 34,522

Rewarding Work: Unemployment compensation extension: 2,400 Crime Initiative: 2,298 Equal Employment Opportunity Commission: 63 Subtotal: 4,761

Health Care: Various public health initiatives: 8,182 AIDS--Ryan White Act: 949 Substance abuse prevention & treatment: 1,506 Food safety initiative & emergency food: 355 Food Stamps: 9,000 Low-income Home Energy Assistance Program: 1,947 Rural Health Initiative: 115 VA medical care: 2,475 Disability insurance processing: 720 Subtotal: 25,249

Private Sector Incentives: Targeted capital gains exclusion: 467 Earned income tax credit: 19,860 Mortgage revenue bonds: 581 High-speed rail bonds: 16 R&E; tax credit: 6,437 Low-income housing tax credit: 2,597 Small business investment tax credit: 12,264 Alternative minimum tax depreciation: 1,295 Small business credit availability: 501 Subtotal: 60,413 TOTAL: 159,614

Source: White House