The federal budget debate has been changing ever since the deficit started to fall so quickly. Now, however, it has become substantially-perhaps even totally-different from the ones typical of the 1980s and early 1990s. Consider the following:
The Surplus Instead Of The Deficit. The biggest change is that the question to answer is no longer, "How should the deficit be reduced?" But rather, "What should be done with the surplus?" While this may seem like just the mirror image of what has been discussed for years, the new debate is actually much tougher. And if it is difficult now, try to imagine how much harder it will be when the economy is not doing well, and Washington has to figure out whether the typical responses of the past-such as a tax cut or spending increase-will remain appropriate.
On-Budget Surplus Instead Of Total Surplus. The biggest change in last year's debate was from what, if anything, to do with the total budget surplus to what should be done with just the "on-budget" surplus, that is, the part of the surplus that is not attributable to Social Security. That puts fewer cookies in the budget cookie jar for tax or spending changes, so the immediate debate is far more limited. Because of that, congressional and White House proposals are often discussed in 10-year terms so that the total tax or spending changes seem much more impressive. Unfortunately, because of the extraordinary uncertainty of long-term federal budget forecasts, this means any proposals that are enacted may ultimately be implemented under vastly different fiscal circumstances than had been anticipated.
Reducing The Debt Instead Of The Deficit. One of the most surprising changes in the past two years has been the unexpected interest voters expressed in using the surplus to pay down the federal debt rather than cutting taxes or increasing spending. Reducing the debt has now become not only a policy choice, but in many cases the policy choice. The most recent example of how popular debt reduction has become occurred last Tuesday, when President Clinton called a press conference to announce that his fiscal 2001 budget would eliminate the federal debt two years earlier than previously planned. This is not something that could have even been discussed with a straight face in the 1980s and 1990s, let alone anything that an elected official would have thought to make a major part of his or her budget program.
Doing Nothing Instead Of Having To Do Something. When there was a deficit, Congress and the White House eventually had to have a deal-otherwise there was no progress. As a result, doing nothing was considered to be unacceptable. But with a surplus and support for reducing the debt, doing nothing becomes not only possible-for many it is preferable. In fact, congressional leaders are using this change in the budget debate to help members get home to campaign more often, reducing the legislative to-do list and shortening this year's session.
Not-So-Tight Caps Instead Of Rigid Spending Limits. The tough limits on appropriations have become a relic of the past rather than an integral part of the budget federal process. Last year Congress and the Clinton administration agreed to egregious gimmicks to get around the caps. This year the White House has already indicated that it plans to revise the caps upward. House Budget Committee Chairman John Kasich, R-Ohio, has said that the caps are "not relevant," and House Speaker Dennis Hastert, R-Ill., has indicated that it was unrealistic to think that discretionary spending would be kept at the rate of inflation over the next 10 years.
Interest Rates Instead Of Unemployment. The previous emphasis of economic policy-making in Washington was on reducing unemployment. That clearly has now been replaced with keeping interest rates as low as possible. The reasons are simple. Unemployment is already at levels few thought possible to maintain without creating massive inflation, the Federal Reserve Board and the bond market have both become far more important to the federal budget in recent years, and most significantly, the extraordinary growth in home ownership in the past decade means that interest rates have an immediate impact on many more millions of Americans than ever before. Unlike the situation when renting a home was a more prevalent way to live, a small increase in rates now means that many voters have higher monthly mortgage costs. Conversely, a drop in rates means literally hundreds of extra dollars a month in the pockets of those who refinance or move-and that even more people will be able to afford a home. This makes budget policies that are assumed to put downward pressure on interest rates more popular and potentially far more lucrative than a tax cut coming from Washington.
No Tax Cuts Instead Of Tax Cuts. The growing importance of interest rates in the federal budget debate is one of the big reasons that tax cuts no longer have the political appeal they had in the late 1970s and 1980s. Last year's total failure by congressional Republicans to convince voters they wanted the 10-year, $792 billion tax cut passed by Congress (or to hurt President Clinton for vetoing it) is the best example that what once had been budget nirvana is now something else.
Coming Soon: The Most Important Briefing You May Attend This Year
Want to find out more about what the fiscal 2001 federal budget debate will mean for you and your company, agency or association without your falling asleep during some really boring presentation?
Click here to request details about "Budget Disco," a half-day executive briefing on Feb. 16 in Washington, D.C., conducted by yours truly and sponsored jointly by the National Journal Group and Fleishman-Hillard. The latest in computer presentation techniques-including sound and visual effects that will bring back memories of your nights on the disco dance floor-make this the most fun and useful briefing you will attend all year. Special discounts are available for groups of four or more. Breakfast, a briefing book and materials are included.
Question Of The Week
Last Week's Question. Last week's question asked "Budget Battles" readers to guess the cover color of the Clinton administration's fiscal 2001 budget. The budget will not be released until next Monday, so the winner of an "I Won A Budget Battle" T-shirt will be announced next week.
This Week's Question. The color of the president's budget not only is a closely held secret in Washington, but the process by which it is selected is one of the great budget mysteries of all time. In some years the president himself has decided (Jimmy Carter supposedly insisted that it be his favorite color-green) while in some years the first lady has had a major impact on the decision (Nancy Reagan is said to have asked for blue.) In most years, however, it is the director of the Office of Management and Budget who decides. The question: If you were the director of OMB this year, what color would the budget be-and why? Send your response to scollender@njdc.com by 5 p.m. on Saturday, Feb. 5, 2000, and you could win your own "I Won A 2000 Budget Battle" T-shirt.
Special Note To 2000 Winners: Thanks for your patience...The all new "I Won A 2000 Budget Battles" T-shirts will be sent out in about two weeks.
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