Clinton Successfully Broke Stalemate and Put Budget Process on Track

President Clinton’s blueprint for the budget has passed the House and Senate in the form of a budget resolution specifying spending and revenue totals for the next five years. Now, as Senate Minority Leader Bob Dole (R-Kan.) said, “We start shooting with real bullets.”

Legislation will have to be enacted specifying the particular tax and spending changes that will be made to meet the targets of the budget resolution. Some observers believe that what comes out of this process will look different from what the President called for in his February speech to the Congress. I doubt it. Specifics will change. But the new directions, priorities and means that he proposed will still be there.

The President deserves enormous credit for breaking the stalemate that had paralyzed the budget process for years. He accepted considerable political risk when he proposed increasing energy taxes for all and income taxes for some, cutting farm subsidies, closing military bases and reducing the net Social Security benefits for many retirees. It may not all stick as proposed. But for the first time in over a decade, the process of legislating a budget can go forward realistically.

Whatever one thinks of the specifics, and I like some but am dubious about others, there is no mistaking the main message of President Clinton’s initiatives. He is an activist President who believes that government can and should be a force for problem solving. Judging from votes and polls, his party has gotten behind him and so has the public. The pendulum is swinging back after eight years of “the government is the problem” under President Reagan and four years of hand wringing under President Bush.

Just as Reagan did 12 years ago, Clinton seems to have captured the public’s desire for change and new direction. But he has a nearly opposite vision of what the country needs, and it corresponds to the disillusionment that many feel toward the attitudes of his predecessors. If his immediate strength comes, in part, from correctly seizing the national mood, his ability to lead in the longer run will come from how well he succeeds in what he now sets out to do.

If the main thrust of Clinton’s program is right and long overdue, the details--which are still unclear and will evolve with time--will have a lot to do with how well he succeeds. As an economist, I would like to see more broadening of the tax base and less (though not zero) reliance on higher marginal tax rates, even if they are concentrated on higher income individuals, which is fair.

Too big a gap between the tax rates on capital gains and regular income could bring new life to the lawyers of the tax avoidance industry, which was effectively crippled by the Tax Reform Act of 1986. This would not only misallocate capital and effort, it would also lead to less revenue gain than is now anticipated from the higher tax rates.

I would also like to see economic analysis get an important voice in the design of new programs. Economists have some experience with how training programs work, with the effectiveness of tax incentives and disincentives in a number of contexts, with efforts to improve education, with enterprise zones for inner cities, and even with health care systems.

The President is proposing initiatives in these areas, and he should tap the expertise that his economics team can bring to their design. An examination of the items in Clinton’s investment budget--$39 billion of new spending by 1997--suggests that the program could be pared down and improved by a careful economic and technical review.

The reform of the nation’s health care system will be the most far reaching and pervasive social change Clinton will propose in his first year and probably in his first term. He has given it the high priority it deserves and has set a very early deadline of this May for a comprehensive plan from his advisers, headed by Hillary Rodham Clinton.

However, there are signs that that too little attention is being given to incentives and to the important role that markets can play, even in this industry where markets are at present so badly distorted. For example, the more than 20 separate cuts in Medicare and Medicaid contained in the economic program would further push up hospital costs for private payers. Nor are early pronouncements and soundings from the health care task force reassuring. Removing the present tax break on at least the portion of employer provided health insurance policies that exceeds a basic, median provision of benefits would provide some incentive for firms and employers to choose rationally among alternative health policies. Yet the task force seems to be against such a change because it is opposed by labor Unions.

Alongside these concerns as an economist, as a citizen, I want most of all to see Clinton really tackle guns and drugs and the disintegration of inner-city families, the hardest and most important problems on our social agenda. The problems are vast and seemingly intractable. But Clinton gives me the impression that he might actually try. Thus far, his embrace of the Brady Bill accomplished the first tiny step toward gun control, and at least ended the incredible kowtowing to the gun lobby of his two predecessors.

A year from now, we will have a much better basis either to applaud or criticize. Thus far, Clinton has been a fascinating mix of courage, vision, salesmanship and political pragmatism. In the wrong proportions, these could prove disappointing. But it is just possible we have elected a great President.