Entitlements Haunt Congress' Budget Cutting

TIMES STAFF WRITER

President Clinton's $500-billion deficit reduction plan is the keystone of his program for reviving the nation's struggling economy and the object of a titanic struggle now approaching a climax in Congress.

But a few simple statistics go a long way toward explaining why the whole thing may not work despite the best intentions of its authors.

Within two years, annual spending will top $1 trillion on interest on the national debt and entitlement programs such as Social Security. By 1995, such "mandatory" spending will account for more than half of the federal budget.

Unless Congress adjusts the formulas that govern the benefit programs, one out of every three dollars spent by the government in that year will be in the form of checks sent out automatically, without review, to America's growing ranks of senior citizens.

By 1997, the entire Pentagon budget will be smaller than interest payments on the national debt. By 1998, total discretionary spending--defense, foreign aid and all of the domestic programs covered by the spending caps in the Clinton deficit plan--will account for just 32% of federal outlays.

Welcome to the scary world of federal entitlements, the budgetary black hole that has devoured every previous effort to tame the federal budget deficit and threatens to do the same to Clinton's program. And if the current debate sounds familiar, it should.

Three years ago, a reluctant George Bush and leaders in Congress gritted their teeth and approved a politically risky plan to raise taxes and reduce the deficit by $500 billion over five years.

The result? Tax rates went up right on schedule, but the deficit didn't go down. In part, that's because the recession reduced tax revenues below expectations. But significantly, the bipartisan plan didn't touch entitlements, a category of federal spending that includes such huge and growing programs as Medicare, Medicaid, Social Security, farm support programs, veterans benefits and welfare programs.

As the recession worsened and the S&L; crisis deepened, mandatory spending on health care, unemployment compensation and thrift deposit insurance soared. At the time the 1990 deal was signed into law, the Congressional Budget Office assured the nation that the deficit would fall to $29 billion by 1995. The latest forecast for 1995: $286 billion.

When it was all over, Bush was evicted from the White House and congressional credibility fell to new lows.

Now, with Clinton and Congress getting ready to do it all over again--even shooting for the same target of $500 billion over five years--skeptics are wondering whether the results will be any different this time.

"The 1990 agreement was an utter disaster, and this Clinton plan has so many parallels to 1990 that it's eerie," said Steve Bell, a former Republican Senate staff expert on budget issues.

If the 1993 deal suffers the fate of its predecessor, the reason, once again, will be the runaway growth of entitlements.

"When the 1990 agreement was enacted, it was going to come close to solving the problem, it was going to get the deficit off the front page," said CBO Director Robert Reischauer. "That obviously didn't happen. . . . With 20-20 hindsight, we should have had some measure to force policy-makers to re-examine entitlement spending."

But some observers see a faint ray of hope this time: To appease conservative House Democrats, Clinton has agreed to include in his budget a provision requiring Congress for the first time to take a vote each year on how to deal with soaring entitlement spending.

The provision has the potential to turn into political dynamite. As a result, it has plenty of enemies and may disappear before the budget finally emerges from Congress. But at least a few of its congressional supporters hold out hope that if it does survive, Congress will finally be forced to publicly confront entitlement spending. Cuts might then be enacted, and the Clinton plan might just beat the odds.

That scenario is still a long shot, however. The entitlement measure, sponsored by Rep. Charles W. Stenholm (D-Tex.), wouldn't force Congress to approve specific cuts. If spending on entitlements exceeds preset annual targets, Congress and the President would have to agree either to cut spending, raise taxes to cover the excesses or admit publicly that they are going to let the spending rise unchecked--thus worsening the deficit.

"I think the Stenholm proposal is a pretty constructive alternative because it is flexible," Reischauer said. "It doesn't force Congress to come up with a set answer, it forces a debate."

It may be hard to believe, but such a public debate is considered revolutionary in Washington today. In fact, half of all federal spending currently is not subject to any votes in Congress. Entitlements, protected by inflation-adjustment mechanisms built into the system 20 years ago and left virtually untouched since, rise inexorably each year.

If current trends aren't reversed, by the end of this century the federal government could become little more than a giant check-clearing facility, drawing in taxes and passing most of the money back out to entitlement beneficiaries.

All other functions of the federal Establishment--national defense, job training, public works projects, education funding, space exploration, to name a few--will be overwhelmed by the insatiable demands of entitlement spending.

None of the deficit reduction agreements passed by Congress in the last decade--not Gramm-Rudman-Hollings, not the 1990 Budget Enforcement Act--have made more than a halfhearted effort to rein in those explosive costs. Without an entitlement review mechanism, the Clinton budget won't do much better, experts say.

"I tell my constituents that Gramm-Rudman I failed, Gramm-Rudman II failed, the 1990 budget agreement failed and this Clinton budget will fail unless we summon the courage to deal with entitlements," Stenholm said.

There is a fundamental reason Washington has never done much to cut entitlements: It's hard, maybe the hardest thing lawmakers are ever asked to do. The benefit programs are simply too entrenched in the nation's economic system to be rooted out. That's because, contrary to the widespread impression that most entitlement programs benefit the poor, virtually all of the growth has come in programs aimed at the politically powerful middle class, especially its older members.

In 1992, for instance, "non-means-tested" entitlements--benefits such as Social Security, Medicare, farm price supports and federal pensions that are not restricted to the poor--accounted for $564.7 billion in entitlement spending. "Means-tested" benefits such as Medicaid, Aid to Families with Dependent Children and other anti-poverty programs accounted for just $146.5 billion.

It's hard for politicians to make cuts in a program like Social Security, especially because Americans pay a designated tax to support the program and expect a reasonable benefit in return. Indeed, the Bush Administration's last-gasp attempt to impose a real cap on entitlement spending in 1992 failed after the White House refused to endorse the cuts in senior citizens programs needed to carry out its proposal.

As each successive Administration and Congress have skirted the issue, American voters, deeply conflicted about entitlements since so many of them benefit from them, have become increasingly disillusioned about Washington's budget politics and legerdemain.

In the past, Democrats exploited public skepticism about the deficit to inflict political damage to both Ronald Reagan and Bush. But turnabout is fair play, and this year Republicans have been winning the rhetorical budget battle, demanding that Clinton accept tougher limits on entitlements.

"Every time Congress tries to do something about the deficit, it thinks only of raising taxes, not cutting spending," said Sen. Connie Mack (R-Fla.). "That's simply wrong. If Congress is serious about reducing the deficit, it has to cut spending, and the first step is capping entitlements."

Conservative Democrats say they are pressing the Stenholm entitlement measure to save Clinton--and the Democratic Party--from political disaster. Without curbs on entitlements, they warn, the deficit will continue to grow, and two or three years from now Clinton will be pilloried by the press and public for raising taxes without reducing the deficit.

It was just that sort of slow-motion train wreck that was set in motion by the 1990 budget agreement and that culminated in Clinton's victory over Bush two years later.

"The only thing new about the 1993 package is entitlement restraint, and without it we run the risk of another deal that doesn't meet its targets," said Rep. Timothy J. Penny (D-Minn.), a leading supporter of the Stenholm measure. Indeed, the CBO predicts that the deficit will dip only briefly in the mid-1990s as a result of the Clinton plan, then will surge again at the turn of the century as health care and Social Security costs overwhelm the budget.

To be sure, future deficits would be even larger without Clinton's package. When it released its budget in April, the Administration predicted that its policies would reduce the annual deficit to $214 billion by 1997, down from an estimated $319 billion shortfall if current policies and programs remain unchanged.

But even the White House estimates that the deficit will rise again to $250.4 billion by 1998, and the CBO warns that it could hit $653 billion by 2003 unless serious restraints are placed on entitlements.

The Administration, which is lukewarm about the Stenholm provision, disputes the argument that its plan will fail without an entitlement restraint mechanism. Administration officials insist that the overall budget plan includes features that will generate genuine deficit reduction.

They also complain that it is unfair to lump the Clinton plan in with past efforts. Over five years, for instance, the Clinton plan calls for reductions in discretionary spending--essentially everything in the budget except entitlements--of 12% on an inflation-adjusted basis. Most notably, defense spending will be slashed by a total of $188 billion over four years.

Administration officials also stress that soaring health care costs, which account for most of the growth in entitlements in recent years, will be dealt with in the Administration's pending health care reform package.

Despite the White House's insistence that its health care program will curb costs, some budget experts predict that Clinton's proposal to extend health care coverage to the uninsured could cost as much as $100 billion a year initially and will evolve into a vast new entitlement.

Entitlement benefits are automatically given to anyone who meets the eligibility requirements, making it difficult to forecast exactly how much money must be spent on the programs.

When the economy declines more rapidly than anticipated, for example, more people are thrown onto the rolls for such programs as food stamps, welfare, Medicaid and unemployment insurance. When federal courts issue orders mandating higher reimbursements to hospitals for Medicare or Medicaid services, the government has to comply. When administrative orders alter health care payments to states, federal costs rise again.

All of those things happened after the 1990 budget agreement--and overwhelmed everything else the deal offered in the way of fiscal restraint. Supporters of the Clinton program, when pressed, can only argue that the unexpected won't happen again.

"Virtually everything that could go wrong with the 1990 budget agreement did go wrong, both on a technical and an economic front," Reischauer said. "It doesn't have to be that way."

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