Remember "It's the economy, stupid!" - the Clinton team's unofficial slogan for winning election in 1992? Well, the economy is doing just fine, thank you, as Alan Greenspan noted July 22. But now the president and Congress should get James Carville to scribble some new placards for their desks reading: "It's the demographics, stupid!"
Demographics as in too many baby boomers retiring on the payroll taxes of too few next-generationers.
Congress and the White House have gotten so swept up in program funding and tax cutting that they seem oblivious to the demographic whirlwind threatening both tax levels and federal programs early in the next century.
Both sides flirted this week with fixes for Medicare. Everyone knows by now that it's on the brink of a ballooning budget deficit. Senate, House, and presidential negotiators passed around like a hot potato legislation to increase premiums for upper- and middle-income beneficiaries, raise the eligibility age from 65 to 67, and add a $5 co-payment for some home health care services.
Then old fears of demagoguing surfaced. The fixes were abandoned. And the Medicare crisis was left to be taken up separately and later. This leaves America looking once more like procrasti-nation.
We cheered (slightly) when President Clinton, Trent Lott, Newt Gingrich, and the congressional budget shapers unveiled their balanced-budget deal in May. That deal ended two years of bitter combat and put both parties on a path to budget balancing - even though it dodged the hard issues of Social Security and Medicare.
Alas, the very factor that made that modest deal possible - big, deficit-shrinking tax revenues from the booming economy - led to the Democrats wanting to enlarge federal programs and the Republicans wanting to grant bigger tax cuts.
For two years we have argued that the president and Congress should tackle the hard job of solving the pending demographic problems before cutting taxes and expanding or adding federal programs. That means bravely tackling Medicare shortfalls and drawing a blueprint for tackling later Social Security shortfalls.
Realistically, such restraint won't happen now. Clinton and the temporarily Newt-ered GOP have promised some kind of child tax credit. The GOP and Clinton (but not his party's liberals) have promised some version of a capital-gains tax reduction. So both tax cuts will happen. The likeliest versions of each may not be the best, in economic terms.
For the future of families and the nation, a child tax credit allowed only for money put into a tax-deferred savings account makes the best sense. It would emphasize savings. It would provide capital for new innovative enterprises. And it would build, through compounding, a respectable sum for withdrawal when tuition time arrives. Alas, this version is not winning the day.
Neither, so far, is capital-gains indexing, the logical way to encourage long-term speculative investing. But we can't forget budget-balancing. Adding indexing to an almost certain reduction in capital-gains tax rates would undermine budget balancing. So leave it for another day.
Baby boom demographics have helped create the benign economy Fed chairman Greenspan salutes. Boomers have stimulated demand. They are now saving and investing like mad. They, and the technology they grew up with, have contributed to high productivity and profits. Also to the global competitiveness that holds down inflation.
But when boomers hit retirement age, they may strain the private market as well as the public realm of Medicare and Social Security. They will start withdrawing savings instead of investing in 401Ks and IRAs. They will be selling large numbers of bigger houses to smaller numbers of next- generationers. They will buy fewer durable goods.
All of which argues that political Washington should not procrastinate any more on the big budget problems. Today's strong economy provides the means to solve them.