What to believe about the budget? A primer explores each side's plan

The politics of plenty are in full swing in Washington this week. Congressional Republicans plan to send their tax-cut bill to President Clinton for an almost certain veto, as both sides champion competing priorities for using the first budget surplus in decades.

Indeed, the battle over the federal surplus - now estimated to total $2.9 trillion over 10 years - is likely to dominate Washington politics for years to come.

GOP leaders fully expect their plan to go down, yet the matter is not likely to rest. With no compromise in sight, Americans will hear about the dueling budgets during the 2000 election and beyond. This budget primer explains the assumptions - of both sides - that underpin the numbers and shows how the two plans really stack up.

A classic debate

The central difference between the plans of the GOP-led Congress and the Clinton administration is based on traditional party priorities: Republicans seek a $792 billion tax cut while Democrats favor expanding government spending by more than $600 billion over the next decade. (See graphs on this page.)

As for the remaining surplus, both sides have pledged not to touch any of it generated by Social Security payroll taxes, about $1.9 trillion. As for non-Social Security surpluses, the Republican plan would leave roughly $90 billion, triple the amount of the administration proposal.

The debt reduction envisioned by the plans is also similar, with the publicly held debt falling from $3.6 trillion today to $1.8 trillion under White House policies and to $1.6 trillion under Congress's plan.

The numbers game

Surprisingly, the nonpartisan Congressional Budget Office (CBO) and the pro-White House Office of Management and Budget (OMB) have issued similar analyses of how the plans would affect the country, despite wide gaps in their interpretations in the past.

Taken at face value, both plans look reasonable, but analysts say in reality each is built on highly uncertain long-range predictions about, first, the performance of the United States economy and second, overall federal government spending.

The plans' economic predictions for the coming decade are fairly conservative, with an anticipated average 2.5 percent annual rise in gross domestic product (adjusted for inflation). Indeed, some economists say that the forecasts are too conservative and that the federal surplus will be far bigger than expected.

Still, experts emphasize that any long-range economic prognosis is dubious.

"History has shown anything beyond 18 months is a guess," says Richard May, the former GOP staff director of the House Budget Committee.

Estimates of federal spending levels are even more questionable. Both plans assume that the tight budgetary caps imposed in 1997 will be enforced until 2002, and that thereafter spending will grow at less than the rate of inflation.

But pressures on both parties to spend more are enormous, as demonstrated by the 1998 and 1999 multibillion-dollar "emergency" spending bills.

"It's no different than a 10-year-old who is given $2 by his parents and is walking though the mall," says Mr. May.

Technically speaking, such greater-than-forecast discretionary spending circumvents the caps, but it still eats away at the surplus, already wiping out next year's projected $14 billion non-Social Security surplus, according to the CBO.

If that trend continues, such surpluses "would all but disappear," says CBO Director Dan Crippen.

Toward deficit, or debt reduction?

Higher spending or an economic downturn could easily drag the federal budget back into the red, with "huge political significance," says CBO senior budget analyst Susan Tanaka.

Republicans contend that by cutting taxes and keeping much of the surplus out of Washington, the temptation to spend - and revive budget deficits - would be less.

Democrats counter that if deficits did threaten to return, it would be easier for the government to respond by cutting spending than by raising taxes.

Yet the most effective way to protect the surplus and pay down the debt, many budget experts and economists say, would be for the Republicans and Democrats to scrap both plans and do nothing.

Without tax cuts or spending increases, the surplus would grow faster - and in turn go automatically toward reducing the national debt.

Such a course would make sense, both economically and politically, experts say.

"When the Fed [Federal Reserve Board] is worried about an overheating economy, the last thing you want to do is cut taxes or increase spending," says Stanley Collender, a budget analyst at Fleishman-Hillard Inc. "The best thing by far would be just paying down the debt."

Moreover, today's voters may care more about keeping interest rates low than about getting traditional "goodies" of lower taxes or higher government spending on pet projects. Polls, in fact, bear out that the leanings of the electorate - which includes growing numbers of investors and homeowners - are shifting in that direction.

"Today interest rates are the most politically sensitive statistic that exists," says Mr. Collender.

Given that a compromise between congressional Republicans and Mr. Clinton appears unlikely, with each side hoping to keep its position alive for the 2000 campaign, the "do-nothing" option may prevail - not by design but by default.

(c) Copyright 1999. The Christian Science Publishing Society