Republican Counter-Revolution Will Be a Net Loss and a Lost Net

A revolution or a counter-revolution? Solving the welfare mess or making it worse? Helping the middle class and the working man or soaking them to help the rich? Saving Medicare and Medicaid or destroying them? Balancing the budget or playing games? It is not easy to tell with all of the conflicting rhetoric.

First, the budgets put through by the Republican majorities in House and Senate with hardly a Democratic vote are more a counter-revolution than a revolution. They eliminate much of the old, initiated in the New Deal of Franklin D. Roosevelt and preserved and expanded under Republican and Democratic presidents for more than half a century, with little new to replace it.

The federal government has over all this time constructed a safety net to protect those who would otherwise fall to the absolute bottom. Thus, we have had federally mandated “entitlements” to feed and shelter children and their mothers who are without support and the ability or opportunity to earn a living. The congressional budgets and the welfare bills to accompany them would largely do away with those mandates and leave it to the states--with reduced funds--to decide how to take care of their poor. This invites a “race to the bottom,” in which many states will try to give their unfortunate less and less in the hope of driving them elsewhere.

The way to solve the welfare mess is, of course, to see to it that there are jobs for those on welfare or heading for welfare and to make them able and willing to take them. This means improved education and training, and child care. It means expanded apprentice programs in high schools and police to protect those attending. And it means further expanding programs such as the earned income tax credit, initiated under President Ford, hailed by President Reagan as the best anti-poverty program ever devised, and increased substantially under President Clinton.

The EITC offers tax credits and cash payments to those on jobs paying so little that it does not otherwise pay those on welfare to take them. The budgets coming out of Congress now would, at best, neglect most of these needs and would more often, as with the EITC, move to cut or eliminate the programs that would help.

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That EITC, with a higher minimum wage, would help the working poor and lower middle class. Tax relief for low- and moderate-income workers might well also be in order, despite all the hoopla about “balancing the budget.” But that would best be restricted to those low- and moderate-income workers and to those with the often crushing expenses of post-secondary education. It is notorious that, while those with college educations have been earning more and more, those without them have been earning less and less. Tax credits and low-cost loans would help the non-rich to travel the higher-education road to a better life. The President proposed significant tax deductions for post-secondary education expenses, the Senate budget has a much smaller tax credit against interest on student loans, and the House offers virtually no tax relief at all for education. And the Republican plans would eliminate completely, or cut severely, the most promising initiative of more economical, direct government loans to students, apparently at the behest of banks that do not want competition for their own lucrative government-guaranteed, high-priced loans.

The tax cuts passed by both branches of Congress, more generous in the House than the Senate, would offer major benefits to the upper half of the income distribution, with the really big benefits to the very rich, while leaving the lower half worse off. Those with incomes under $30,000, more than half of the population, would generally have less left after taxes, in considerable part because of reductions in or loss of the earned income tax credit. The very wealthy would gain enormously from reduction in rates of taxation of realized capital gains.

As for Medicare and Medicaid, the talk about merely reducing rates of growth is nonsense. Everything is increasing, including prices and the population and the number of aged. The major congressional cuts in rates of growth of spending for health programs means that millions of Americans, and not merely the poor, will be paying more for much less. And little or none of this has anything to do with “saving” the system. Most of the change would contribute nothing to Medicare Part A, for hospital expenses, the fund for which is running down. And if that were the real concern, it would be simple to divert other taxes to rebuild that fund.

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Unfortunately, much of the discussion is mired in the paranoia over cutting the deficit and “balancing the budget,” to which Democrats and Republicans have both fallen victim. In fact, the measured deficit is already way down; it has come in for the 1995 fiscal year just ended at $164 billion as against the $290 billion of 1992, and 2.3% of GDP as against 4.9% of GDP then. And because of the still improving economy and the slowing of inflation, the deficit is likely to go down further without any Draconian measures. The relevant ratio of debt held by the public to GDP, just over 50%, is now declining. In a meaningful sense, we are thus already in “surplus.”

What is worse, though, the deficit is hopelessly mismeasured. Unlike state and local governments and private business everywhere, the federal budget does not separate out investment or capital outlays. We are thus faced with the anomaly that proposed deficit “reductions” include selling off, for a song, rights to our airwaves and our minerals and natural resources. Other cuts would hold back or reduce the public investment in our roads, bridges, airports, education, training, health and basic research.

The Republican Congress and President Clinton are about to get into a major fight. There are threats from Congress to shut down the government and bring about default on our debt if the President does not accept most of what comes out of the House and Senate conferences. But the stakes are high. Most Americans should hope that the President stands firm in his announced intention to block a counter-revolution that, far from making matters better--and there is plenty of room for improvement--would move us back toward an era that those with a sense of history or long memories would rather forget.