Clinton, Congress Have a Chance to Reach Goal in Balanced-Budget Game

Watching the annual scrimmage over balancing the federal budget, Martha Phillips sometimes feels as if she’s been transported into a comic strip. Peanuts to be exact: the classic scenario where Charlie Brown runs up to kick the football and Lucy, inevitably, pulls it away.

“I’m not willing to say which side is Charlie and which side is Lucy,” said Phillips, studiously maintaining her nonpartisan credentials as executive director of the Concord Coalition, an alliance of deficit hawks drawn from both parties. But either way, she sighs, the result is the same: One side or the other, or both, pulls back the ball, and the entire process ends up flat on its back for another year.

Phillips is a shrewd tour guide: No one should descend into the bottomless swamp of the federal budget debate unless first inoculated with a healthy dose of skepticism. But 1997 could be the year when optimism is warranted. At least it should be the year when the Republicans in Congress and the Democrat in the White House can reach agreement on balancing the budget by early in the next century.

Agreement isn’t assured, much less easy. But both the policy and political incentives for reaching a deal in 1997 are much stronger than they were in the winter of 1995, when the deadlock between President Clinton and congressional Republicans over the budget twice forced the government to shut down and ultimately ended in an dispiriting stalemate.

For all the hours Clinton and the Republicans spent last winter arguing over minute budget details, neither side was sure it wanted the talks to succeed. If anything, for both sides, failure was a more attractive--and certainly a safer--option.

Furious at Clinton for vetoing their own balanced-budget plans, Republicans recoiled from any deal that would allow the president to claim credit for eliminating the deficit on his terms--an accomplishment they feared would virtually cement his reelection.

Clinton was more ambivalent. Some around him, particularly his shadowy guru Dick Morris, shared the Republican belief that a deal would guarantee a second term. But other advisors felt that failing to reach agreement would allow Clinton to simultaneously court centrist voters by proposing his own balanced-budget plan, while solidifying his base by resisting the Republican proposals. Confident that he had seized the high ground in the confrontation--an advantage measured in his widening lead over Republican challenger Bob Dole in the polls--Clinton over time felt increasingly less urgency about closing a deal that might incite a rebellion from the left.

Beneath these contrasting political considerations was a powerful common motivation for stalemate. As they battled through the winter, both sides hoped to acquire the power to impose their own solution by winning unified control of Congress and the White House in the 1996 elections. Rather than walk away from the table with modest gains, both opted to roll for double or nothing with the electorate in November.

Those wagers, of course, came up snake-eyes. Now the continued partition of power in Washington should encourage an early deal on the budget.

Both sides face the prospect of divided power not only for the next two, but almost certainly, the next four years. Democrats are extremely unlikely to regain either chamber in 1998 because the party that holds the White House almost always loses ground in the midterm congressional election of a president’s second term. It is equally unlikely that Republicans will gain a veto-proof majority in either house in 1998. That means that for at least the next four years, neither side can expect to force a budget solution on the other.

Some party leaders on both sides may prefer polarized stalemate and another roll of the dice in 2000 to a compromise before then. But many rank-and-file legislators won’t want to wait that long. Most of the new Democrats elected in 1996 are centrists from swing districts eager to take home a balanced budget by 1998; together with the existing corps of centrist “blue dog” Democrats already agitating for an agreement, they probably bring to 60 the number of House Democrats eager for a bipartisan deal, says one ranking White House aide.

After last year’s government shutdowns blew up around them, Republicans are likely to have less appetite for a strictly partisan confrontation. Last winter’s battle demonstrated that Congress simply doesn’t have a weapon powerful enough to compel Clinton to sign a budget he doesn’t like: For Republicans, threatening to shut down the government again would be like a hostage-taker threatening to cut off his own fingers if he doesn’t get what he wants.

For the time being, the economy is cooperating. The steady reduction in the deficit from $290 billion in 1992 to $107 billion in 1996 makes the remaining climb to balance much less steep. A new National Governors’ Assn. survey shows that the states are now in unusually strong fiscal shape--which means they can better shoulder the added responsibilities that federal reductions would impose on them. But these advantages are a wasting asset: Without further action, the federal deficit is projected to start rising again this year. And the odds of an economic slowdown--if not a recession--are rising as the recovery chugs on toward its sixth full year.

If there’s the will to balance the budget by 2002, is there a way? By the end of last winter’s negotiations, the two sides “had converged significantly” in their broad outlines on how to reach zero, notes Phillips. Once cavernous, the differences between the two sides on how much to cut the rate of growth in Medicare, Medicaid, welfare and discretionary spending all shrank to manageable proportions.

Admittedly, that convergence obscured substantial policy differences on how precisely to achieve those reductions. But none of those appears insurmountable. Clinton, for instance, vehemently objects to a Republican proposal to convert Medicaid, the joint state-federal health care program for the poor, into a block grant that would eliminate the entitlement to aid. But that effort may be sinking on its own. Even GOP staffers acknowledge that governors already have their hands full managing the newly block-granted welfare program. And governors may be less insistent on gaining control of Medicaid because its costs, which had been growing explosively, have suddenly moderated, inching up only 3% last year.

To reach a deal, Republicans would have to abandon their efforts to zero out Clinton’s signature initiatives, like the national service program and the loan fund for community development banks. For his part, Clinton would inevitably have to swallow some form of capital gains tax cut to pass his proposed tax breaks for college tuition. “We understand if there is a deal, we have to give them some victories,” acknowledged one White House aide.

Medicare, as one Clinton advisor puts it, “remains the largest rock in the road.” But the problem becomes manageable if the two sides separate the long-term changes needed to prepare Medicare for the retirement of the baby boomers from the immediate steps needed to slow the program’s rising cost, and stabilize its trust fund.

Many other hurdles remain. To minimize their bite on politically sensitive entitlements and corporate subsidies, both sides continue to call for reductions in discretionary domestic spending--the basic workings of government--larger than can plausibly be achieved. Both have burned up some of the easiest spending cuts to pay for other goodies, like the small-business tax cuts included in last summer’s minimum-wage bill. And all-out war over the dubious principle of writing a balanced-budget amendment into the Constitution may divert the two sides from the more practical task of actually balancing the budget.

If it wasn’t painful to balance the budget, Congress and the White House would have done it already. But the rewards in restored public trust, and even the capacity to wipe clean the slate for eventual new initiatives, could be substantial. And the climate, both political and economic, will rarely again be so favorable. During the next several years, an economic downturn or a new spike in health care costs could defeat even a good-faith effort to reach balance. But if the two sides don’t make that effort this year, they probably won’t get another chance in this century.

The Washington Outlook column appears here every other Monday.

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Out of Balance

During the next several months, congressional Republicans and the White House will advance competing plans to bring the federal budget into balance, probably by 2002. The last time the federal government balanced its books Richard Nixon was in the White House, the Beatles were on Abbey Road and the “Miracle Mets” won in the World Series. Here’s a look at how the tide of red ink has swelled since that last moment of fiscal equilibrium in 1969:

In millions of dollars

‘96: $107.3 million

Source: Office of Management and Budget