Balance the Budget? Not if Medicare Bloats
THE law says President Clinton must submit a budget to Congress by Monday. So one will be dutifully dispatched from the White House - but only about 20 pages long. This mini-version of the fiscal 1997 budget will contain approximately one-hundredth the number of pages in the usual budget document.
The fight between Congress and the president over the budget for fiscal 1996, the year that began last October, has delayed the Office of Management and Budget's work. With the government shut down, budget officers in nine departments were locked out of their jobs during a crucial time.
The new budget will contain the administration's economic assumptions, such as the growth rate for the economy. That factor is critical to estimates of revenues and outlays. Also, the document will include a brief outline of Clinton's major budgetary themes. Plans call for a more detailed budget to reach Congress by March 18, assuming budget talks are completed by then.
Economist Richard Rippe says the ''principal failure'' in the negotiations between Clinton and the Republican-controlled Congress is the lack of a deal trimming entitlement programs. Without any action, Medicare spending for seniors will grow 9.3 percent a year and Medicaid outlays for the poor will grow 10 percent annually between 1995 and 2002, according to the Congressional Budget Office. That needs to be restrained, says Mr. Rippe of Prudential Securities, New York.
His ''rough'' calculations show that the president's last proposal would leave Medicare growing at 7.8 percent per year, while Medicaid would grow at 8 percent - still far above inflation.
Hit politically by White House charges of drastic cuts in these spending programs, the Republicans' last proposal backed off a little from their original program. The latest plan lets Medicare outlays grow 7.2 percent per year and Medicaid 7.1 percent.
Both sides' plans are inadequate to move the budget into long-term ''structural balance,'' Rippe notes. Federal revenue is projected to advance at 4.8 percent per year through 2002 with no tax cuts, or 4.5 percent with the original Republican-proposed tax cuts. So spending on these two medical programs will continue to grow considerably faster than revenues.
''Under either side's offer, the Medicare trust fund will face renewed threats of bankruptcy,'' Rippe says.
Both the White House and Congress know that medical costs must be tackled sometime. House Ways and Means chairman Bill Archer (R) of Texas this week challenged Clinton not to veto any federal debt-ceiling increase that includes a ''down payment'' of Medicaid, Medicare, and welfare cuts. But he also indicated that the ''odds are greater'' that a bipartisan Medicare reform plan will be considered as separate legislation. Ways and Means Health subcommittee chairman Bill Thomas (R) of California and leaders of the conservative ''Blue Dog'' Democrats were trying this week to finalize a Medicare reform plan that might include $168 billion in savings over seven years. Without any cuts, Medicare spending would grow from $178 billion in 1995 to $332 billion in 2002. Medicaid outlays would increase in the same time span from $89 billion to $173 billion, without trims.
If no deal is reached before the election next November, nothing drastic will happen immediately, Rippe says. The federal budget deficit is down from $340.5 billion in fiscal 1992 to $163.8 billion in fiscal 1995. Rippe guesses the deficit will remain in the $150 billion to $180 billion range for the next year or two, with some cuts in discretionary spending going through.
Cynthia Latta, an economist with DRI/McGraw-Hill, a consulting firm in Lexington, Mass., suspects the deficit might grow ''slightly bigger'' this year. ''But it is all up in the air,'' she says, noting that the budget negotiations are still going on. In the first quarter of this budget year, the deficit was $56 billion, down from $74 billion for the same period in 1994. But some spending may have been delayed by the government shutdown, she notes.
Federal government purchases will likely shrink about $12 billion nominally, or $20 billion after taking account of inflation, Ms. Latte figures. The resulting ''fiscal drag'' will not pull the economy into recession But it could hold real economic growth this year to a modest 2.2 percent, instead of 2.5 percent, she says.
Rippe forecasts only 2 percent real growth. He says the Federal Reserve made the ''right move'' in lowering interest rates this week, ''buying some assurance against an even weaker economy.''