Budget Bonus - More Money, Less Politics

Fred Ross forecasts a federal deficit this year of $70 billion to $80 billion. That's far below the $126 billion estimated in President Clinton's budget.

So what?

Well, the Washington Research Group consultant has been within about $10 billion of the mark in his deficit forecasts in the past few years. The administration and the Congressional Budget Office have been way high, usually by about $50 billion.

If Mr. Ross is close again, Mr. Clinton and congressional Republicans may find it easier to strike a budget deal in summer or fall. After looking at just-released budget numbers for February, Ross figures his prediction is still on track.

Budget negotiations took a significant step early last week when House Speaker Newt Gingrich floated the idea of focusing on balancing the budget first and tackling tax cuts later.

Right-wing Republicans saw the plan as disastrous for their much-desired tax cuts, such as for capital gains. But the idea resonated at the White House.

"It is true, the president is willing to forgo his tax-cut proposal if the Republicans do the same," chief of staff Erskine Bowles reportedly told key Democrats in Congress.

The president himself, however, has not said he would back off from his own proposed tax cuts. And the Republicans do not want to move ahead with the Gingrich plan unless they are certain of support from Clinton.

"I'm happy to be with Newt," says Bob McIntyre, director of Citizens for Tax Justice, a liberal think tank. "Both tax-cut plans ought to be dropped." Mr. McIntyre worries that tax cuts would mean further cuts in the social programs that he values.

One possible solution for budget negotiators: a package that leaves room for tax cuts later.

Robert Reischauer of the Brookings Institution, a Washington think tank, says they could leave extensions of various excise taxes (such as those on air fares) out of their calculations. Then, when added back later, these would provide about $30 billion over five years.

He also notes a $70 billion "fiscal dividend" of lower interest rates and faster economic growth from a balanced budget.

These two items would allow $100 billion over five years for additional spending and tax-cuts.

If Ross is right, there would be even more money for tax cuts or extra spending, while keeping the budget balanced.

Republicans had earlier hoped for Clinton's approval to lower inflation adjustments for Social Security payments and income taxes. This would have made larger tax cuts fiscally and politically more feasible.

That idea now appears dead. Republicans don't want to be charged with cutting pensions to fund tax breaks for the rich.

Experts say the Clinton budget clouds the question of balancing the budget by 2002 by postponing unspecified cuts until after the turn of the century.

"It's full of one gimmick after another," says Barry Bosworth, a Brookings economist. "Clinton is playing games."

He calls the budget debate "silly" because neither the Democrats nor Republicans have "a real proposal" to keep Medicare and Medicaid spending in line with revenues. These programs, particularly Medicare, are the "driving force behind the budget problems," he says.

Medicare expenditures are still growing about 10 percent a year. The federal government has started dipping into a trust fund to pay Medicare bills.

Ross calls that practice fatally flawed. He says the trust fund will be run down by 2000 or 2001 and then Medicare will "blow up in the face" of the politicians. He argues for letting the system go bankrupt, forcing Washington to make reforms.

These reforms, says Mr. Bosworth, will require "rationing" of medical care, which because of advancing technology is becoming more expensive. Tinkering won't do, he argues.

The success of the latest Gingrich proposal is now a question of math. Stanley Collender, a Washington budget expert at consultants Burson-Marsteller, notes that with a nine-seat majority in the House of Representatives, the Republican leadership can afford to lose support from 35 to 40 conservative Republicans for a budget-balancing bill - as long as 30 Democrats support them.

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