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The Deficit's Message

January 11, 1993



TO people who track government spending, last week's higher federal-deficit estimates came as no surprise. A $50 billion to $60 billion jump in the deficit projected for fiscal 1997 - to well over $300 billion - is very much in line with current spending trends, according to many economists, including some who advise Clinton.

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The entitlements outlays that make up the single largest chunk of the federal budget are climbing relentlessly. The area of greatest increase is public spending for health care.

Medicare, the federal health-insurance program for the elderly and disabled, is expected to double over the next six years, reaching $216 billion. The program for the poor, Medicaid, will follow suit, reaching $156 billion by 1998.

So, while some of Clinton's emphasis on enhanced "public investment" to stimulate the economy may run afoul of deficit reduction, another of his central themes - health-care reform - is critical to any meaningful attack on the deficit.

The question is how to give the government a role within a reformed system of care that doesn't hike the federal medical bill even further. Some states, like Oregon and Hawaii, are experimenting with systems that more realistically set rules concerning what can go on the public tab. The Clinton advisers may have to take a hard second look at such approaches.

Minus far-reaching changes in entitlements programs, the deficit-reduction picture is dim. Defense spending will continue to decline as the armed forces are reconfigured to meet current needs. But the growing urgency of peacekeeping missions makes it clear that cuts of the magnitude necessary to significantly shrink $300 billion deficits won't come from defense alone.

Another option is increased revenues. The slowly recovering economy won't soon produce an income-tax bonanza for Uncle Sam, and the higher taxes on the rich promised by Clinton won't rake in enough to change the deficit outlook. Higher federal excise taxes? The gasoline tax is usually mentioned in this context, but the president-elect is opposed to a big hike in the gas tax, and only a big hike would have much effect on the deficit.

Inevitably, the deficit discussion has to return to entitlements. If Clinton is as worried about the economic drag produced by federal red ink as he claims to be, and if he really means to maintain at least the spirit of his promise to halve the deficit by the end of his first term, he has to enter this politically thorny path.

And health care, which he has vowed to reform in any case, is the place to start.