Call for Balanced Budget Sounding Sweeter to Clinton, Sourer to GOP

The best way to watch the sputtering drive for the balanced-budget amendment is through the rearview mirror, as a remnant of the past.

It’s following an all-too familiar script. Republicans insist on writing the principle of a balanced budget into the Constitution and most Democrats resist, and the result is likely to be familiar too: a narrow defeat for the amendment.

But on the underlying issue of actually balancing the budget by 2002, the ideological compass may be starting to spin. Several influential conservatives--including columnists James Glassman and Paul Gigot--have recently argued that a balanced budget isn’t the nirvana Republican dogma asserts. Meanwhile, President Clinton increasingly is treating the balanced budget not as a burden but an opportunity.

Behind these divergent reactions is a common realization. For many conservatives, the point of a balanced budget isn’t a symmetrical accounting sheet; it’s the reduction of the federal government’s size and reach. But Clinton is demonstrating that the sphere of government activism can be protected and even enlarged while moving the budget toward balance.

By agreeing to balance the budget, Clinton has blunted the GOP’s most effective weapon: a broad ideological debate about the role of government. Republicans are finding it more difficult to attack new spending programs presented in the context of a shrinking deficit.

Beyond these political advantages, a balanced budget offers Democrats a fiscal bonus as well. If the books are balanced, interest payments on the debt will demand a steadily smaller share of federal spending over time--leaving more, not less, money for programs.

Though few liberals have grasped it yet, in these two respects--one political, the other fiscal--the balanced budget could become the linchpin of a new era of restrained but sustainable federal activism. Getting to balance does require some painful cuts. But, as Office of Management and Budget Director Franklin D. Raines now constantly points out, the gains already recorded in reducing the deficit have made those cuts significantly less painful than they once appeared.

The traditional conservative premise--long accepted by liberals--is that a requirement for balance would deny Washington the money to launch meaningful initiatives. But, in fact, once the budget reaches balance, the economy’s growth would provide more money to spend every year, even without raising taxes.

Clinton proposes that federal spending stabilize at a level equal to about 19% of the economy. Assuming moderate economic growth, federal revenues would initially rise by about $100 billion annually after 2002, when the budget is supposed to balance. That’s not an inconsiderable number, and it would only increase over time.

So far so good for Clinton and like-minded Democrats. But here’s the cloud: If the current trends aren’t reversed, an ever-increasing share of that new revenue will simply slide out the other window as checks for Social Security, Medicare and other entitlements. At worst, that would force the budget back into the red; at best, it leaves little money for social investments.

Two charts buried deep within the administration’s budget map the problem. In 1966, spending on infrastructure, research and development, education and training, and other programs intended to spur long-term economic growth accounted for 14.5% of the federal budget. By 1992, when Clinton took office, such spending had shriveled to only about 8% of the budget.

Now look at another line. In 1966, direct government payments to individuals--almost all of them entitlements like Social Security and Medicare--consumed a little more than one-fourth of the budget. By 1992, payments to individuals ate up just over half of the budget.

As a candidate in 1992, Clinton portrayed increased public investment as the key to raising living standards for squeezed middle-class workers. But he has been unable to reverse the trend toward increased entitlement spending.

Under Clinton, domestic public investment has continued to shrink, both as a share of the federal budget and as compared to the size of the economy. His own plan forecasts that by 2002, domestic public investment will drop to just 7.5% of the budget and only 1.4% of the economy--the lowest figures in at least 40 years.

Meanwhile, the OMB projects that by 2002 payments to individuals will approach two-thirds of the budget. As the baby boom retires, the share of the budget sent out as entitlement checks will rise further; if Medicare costs increase faster than Clinton projects, as many suspect, the tilt will be even more pronounced.

Like an impending hanging, the prospect of a balanced budget should concentrate the mind. To find more funds for domestic programs, Clinton might eventually push for further reductions in defense, but in constant dollars, he already projects a 35% cut from 1991 through 2002. Other Democrats may argue against reaching balance at all. But sustained deficits would deny Washington the formidable savings from reduced interest costs--and allow Republicans to reopen a winning ideological argument about government’s size. That prospect is likely to similarly shelve any liberal proposals to raise taxes.

This austere new era is cornering Clinton and other Democrats into difficult choices. To nourish traditional party priorities like education and urban development, they may have no option but to accept new limits--like a modest reduction in cost-of-living adjustments on the programs threatening to transform the federal budget into a vast ATM.

Ronald Brownstein’s column appears in this space every Monday.