In Clinton’s Proposed Budget, the Bite Does Not Live Up to the Bark

Now that the dust is settling in the battle over President Clinton’s short-term stimulus package, we can finally return to the more important issues involving his longer-term economic program.

One approach to understanding the actual trajectories of Clinton’s proposed economic package is to examine his detailed budget proposals. The proposals embody some of the real commitments he proposes to undertake in order to revive the economy.

The proposed budget of the U.S. government for fiscal 1994 was released last month. Since readers presumably will resist the seductive temptation to study the document’s 1,478 pages under a microscope, I have looked through the volume with some care in the hopes of decoding its message and implications.

So, here is one economist’s reading of this massive document, to which I shall refer here as The Budget, with its zillions of numbers in very small print.

The first observation serves as a reminder. Some of the rabid pressure on the Administration to reduce the federal budget deficit refers to the actual size of the federal deficit, which is projected at $309.7 billion in fiscal 1993. But deficits are always higher when the economy is sour, since tax revenue goes down and many government expenditures go up during a recession. And the economy is still in many respects inching its way out of a recession.

As a result, as The Budget notes, fully one-fifth of the 1993 deficit can be attributed to the lingering effects of the recession--about $67 billion worth of deficit that can be expected to disappear as the economy gradually moves toward much stronger performance. So, when we discuss plans for trimming the deficit, we should remember that one of the most effective ways of cutting the deficit can come through stimulating the economy. And such stimulative dividends will never be reaped if we squeeze the economy too vigorously through the fiscal-austerity wringer.

The Budget also dramatizes the Administration’s insistence on trying to bring health care costs under control. Assuming recent rates of increase in health costs, federal outlays for health (including such program catagories as Medicaid and federal employee health benefits) and Medicare are expected to grow nearly 60% between 1993 and 1997. This amounts to a net increase in expenditures of about $137 billion--almost twice as much as the increased in revenue projected from the Administration’s proposed increase in tax rates. Those who continually scream about Clinton’s increases in tax rates would do well to devote some of their ardor to the campaign to reform our health care system. If the government can succeed in capping the growth of health care costs, the pressure for further tax increases could be substantially reduced.

There could be yet another way of alleviating pressure on taxes and useful social expenditures. One of the largest drains on the budget is military spending, about $275 billion in 1993.

Many “national security” experts, including many former military leaders, have concluded that Pentagon spending could be reduced by as much as $125 billion per year in the 1990s without fundamentally eroding our military preparedness.

But the Clinton Administration has approached the defense budget with extreme caution. Military outlays as far out as fiscal 1997 are projected at $271 billion, meaning that the White House is essentially proposing no reductions in defense spending in current dollars. This will amount to a slight decline in military outlays corrected for inflation, but far sharper cuts could presumably be proposed.

Once again, those who wail monotonously about reducing the deficit might well turn a critical eye to defense spending, whose corpulence could easily withstand a much more stringent diet.

This skittishness hurts where the President must feel it most acutely. During the campaign and in announcing his economic program, Clinton spoke boldly about new investments in infrastructure, education, training and technology in order to revitalize our languid economy. Such investments are sorely needed. And many advisers in the Clinton Administration recognize how steep a hill we must climb before we are truly ready, as the President vows, for the 21st Century.

But timidity on the defense budget, the potential escalation of health care costs and the White House’s insistence on placing such important priority on deficit reduction have severely cramped the Administration’s style. The spending increases it has been able to squeeze out of The Budget for new investments fall far short of what’s required to strengthen our economic foundations.

Take the problem of our crumbling infrastructure--bridges, roads, sewers, environment and communication systems. Many have estimated that we need to increase public infrastructure investment by as much as $50 billion to $100 billion a year over the next five years to reverse the decay of our economic foundations.

Because of the squeeze on the budget, however, the Administration proposes an increase for physical infrastructure investment of only $4 billion in 1994 and $10 billion in 1995, reaching a peak of $21 billion in 1998. These investments make sense. A much larger commitment is apparently necessary. But because the Administration has allowed itself to be fiscally straitjacketed, the new investments it proposes for infrastructure will probably not do the job.

Or take the need for investment in people. Since he began running for President, Clinton has been sounding the trumpets for much stronger commitment to investment in people--through education, training and programs such as Head Start.

Here again, however, the bite does not live up to the bark. Total new investments in worker training are projected to total only $500 million in 1994, eventually rising to barely more than $4 billion in 1998. Compared to the $270 billion to $280 billion per year The Budget continues to project for defense spending over these years, this commitment to worker training pales wanly.

Some of our most acute social needs, finally, barely receive a tip of the budgetary hat. Many recognize the lack of child care in the United States as a grave short-coming, especially with the growing number of married women who work and of female-headed households with children.

In 1992, the federal government authorized $825 million for child care assistance--far short of the $4 billion to $5 billion in expenditures we probably need. In the 1994 budget, the White House proposes a total authorization for child care of just $892 million, with only an additional $40 million projected for new investments in child care.

Even by 1998, the Administration projects net increased investment in child care of only $250 million. Where is the President who promised in his campaign to “create a child care network as complete as the public school network?”

So what do we learn from The Budget?

Stronger support for economic stimulus by itself would help reduce the deficit substantially. Controlling health care costs should be one of our highest priorities for budgetary as well as for health reasons. We potentially could free up more than $100 billion a year in The Budget if we took reductions in military spending seriously. And all the talk about “putting people first” appears more like a budgetary afterthought than one of the highest priorities of the new Administration.

Clinton’s program makes some positive moves in the right directions, but the hard numbers in The Budget suggest that it still has a long way to go.