You Call This Fiscal Restraint?
IT is one thing to hope fervently that the recent federal budget agreement will reduce the deficit and spur our sluggish economy. It is quite another to expect this to happen. Within a year or two, when it becomes apparent that federal deficits have continued to spiral upward, it will also be apparent that this agreement is only yet another example of Washington's appalling inability to manage the nation's fiscal affairs.Skip to next paragraph
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To begin with, this agreement includes a tax increase of $164 billion, the biggest in American history, and at a time when the economy is already wavering on the brink of a recession.
It is axiomatic that tax increases do not spur economic growth. Quite the contrary. And such an increase at this time can only accelerate the current slump, increasing the likelihood of reduced federal revenues and a worsening of the very deficit problem which the tax increases were enacted to ease.
If that weren't bad enough, the agreement abandons the concept of Gramm-Rudman-Hollings which has, albeit with only partial success, limited increases in federal spending based on deficit projections. That Gramm-Rudman achieved only moderate success is due to one major factor. Using deficit ``projections'' at the beginning of each fiscal year has permitted Washington to use completely unrealistic economic assumptions to avert the consequences of enforced spending restraints.
By the time it was obvious that deficit reduction targets were not being met, there was nothing to do but shrug and change the rules. Enacted in 1985, then amended in 1987 when it became obvious that its well-intentioned self-discipline wasn't working, Gramm-Rudman has now been thrown out the window.
Under the new rules, deficits no longer matter. Spending caps - and caps based on spending needs as perceived in Washington - will be the guide.
Look at it this way. The agreement just enacted sets discretionary spending caps for fiscal '91 which are 12 percent above last year's spending levels, and it sets caps for entitlement programs at an even higher level. Some caps! Translated into understandable terms, the direction of this new fiscal policy is to place restraints on spending only when spending exceeds the amounts that Congress wanted to spend in the first place.
Federal spending increases should be held at about 4 percent each year, or roughly just above the rate of inflation, if there's to be any ultimate hope of balancing the budget without an even greater tax burden on the productive sector. Increases projected in the final budget package aren't even close to that.
Finally, we are stuck with a federal budget accord which once again uses unrealistic economic assumptions, thus inflating revenue estimates and underestimating rates of spending.
For example, if you believe that inflation will decline from 4.6 percent to 2.8 percent over the next five years and that interest rates will dip down to around 5 percent between now and then, you would have qualified for a seat at the table with the folks who designed the federal budget now in place.
This package will not reduce the deficit. Deficits will continue to mushroom unchecked, and to label the agreement a ``deficit reduction'' package is to perpetrate yet another hoax on the American public.
The most important obligation for decisionmakers in Washington is to retain public confidence in their ability to govern responsibly and to report honestly on their decisions. Sadly, that confidence can only be further eroded when the consequences of the recent budget agreement are realized.
The truth is that it represents another flagrant example of false hopes, the result of which should cause sleepless nights for every young American who will bear the ultimate burden of interest payments on the growing national debt.
Want to know who is to blame? Quite simply, apart from a confused electorate which has difficulty in singling out who's at fault, it's those in Congress who can't resist the temptation to tax and spend and a president, preoccupied with Saddam Hussein, who missed a golden opportunity to set them straight.