FREE ESSAY ON US FEDERAL BUDGET

US FEDERAL BUDGET

As many Federal departments and agencies lurch into an era of running without funds, the
leaders of both parties of Congress are spending less and less time searching for a
compromise to balance the budget, and more and more time deciding how to use it to their
advantage on the campaign trail. Meanwhile money is easily borrowed to pay for government
overhead. In an attempt to change this, on June 29, Congress voted in favor of HConRes67
that called for a 7 year plan to balance the Federal Budget by the year 2002 (Hager
1899). This would be done by incorporating $894 billion in spending cuts by 2002, with a
projected 7 year tax cut of $245 billion. If this plan were implemented, in the year
2002, the U.S. Government would have the first balanced budget since 1969. There is doubt
by citizens that a balanced budget will become reality. A recent Gallop Poll from January
1996 showed the budget as the #1 concern among taxpayers, but 4/5 of those interviewed
said they doubt the GOP will do the job (Holding 14). Meanwhile, an ABC poll from
November reported that over 70% of those polled disapprove of the current performance by
Congress, and most blamed politicians for failure to take action (Cloud 3709). These
accusations of failure to follow through come with historical proof that Congress and
Clinton have failed to compromise and resolve the issue. After all, current budget plans
are dependent on somewhat unrealistic predictions of avoiding such catastrophes as
recession, national disasters, etc., and include minor loopholes. History has shown that
every budget agreement that has failed was too lax. One might remember the
Gramm-Rudman-Hollings bill that attempted to balance the budget, but left too many
exemptions, and was finally abandoned in 1990 (Weinberger 33). So after a pain-staking
trial for GOP Republicans to create, promote, and pass their budget, as promised on
campaign trail 94, Clinton rejected the very bill he demanded. This essentially brought
the federal budget back to square one. Clinton thought such a demand on Republicans to
produce a budget would produce inner-party quarrels and cause the GOP to implode.
Instead, they produced a fiscal budget that passed both houses of Congress, only to be
stalemated by a stubborn Democratic President Clinton. Meanwhile, Clinton bounced back
with a CBO scored plan with lighter, less risky cuts to politically sensitive areas like
entitlements. Clinton's plan also saved dollars for education and did not include a tax
increase, but most cuts would not take effect until he is out of office, in the year
2001. Although Clinton is sometimes criticized for producing a stalemate in budget talks,
the White House points out that the debt has gone down since Clinton took office, with
unemployment also falling. Republicans are quick to state that Clinton originally
increased taxes in 1993 and cut defense programs, but his overall plan was for an
increasing budget without deficit reduction. Startling Facts about the budget: As of
1996, the national debt was at an all time high of $5 trillion dollars, with interest
running at a whopping $250 billion per year (Rau M-1). This equals out to an individual
responsibility of more than $50,000 per taxpayer. Nearly 90% of that debt has accumulated
since 1970, and between 1980 and 1995, the debt grew by 500%. Currently, the debt grows
by more than $10,000 per second (Rau M-l), and at current rates, a baby born in 1992 will
pay 71% of his or her income in net taxes. At current rates, our government is about to
reach its breaking point. If that's not enough to scare a taxpayer, by 2002, 60% of
government spending will be for entitlements, and by 2012, these programs are projected
to take up all government revenue (Dentzer 32). Not only economic development, but also
family income is hurt by debt. With the cost of living going up, it becomes harder to
find a job. According to the Concord Coalition, real wages peaked in 1973 and have gone
down ever since. If the economy grew as fast as it did in 1950, without a debt, the
median family income would be $50,000, compared to the present median of $35,000 (Rau
M-1). As of current fiscal year's budget, the United States government spends $1.64
trillion yearly. $500 billion of that, or 1/3 of the total, is for discretionary spending
(Rau M-1). This discretionary spending is the target for most cuts, and seems to be the
easiest to make cuts in. Overall, the difference between the two parties budget plans is
only $400 billion. This could easily be trimmed by eliminating tax cuts and adjusting the
consumer price index to reality. Democrats say the GOP plan is too lopsided, and
Republicans criticize the Democrat plan for being unrealistic. A study by the Urban
Institute shows GOP cuts will be felt mainly by the bottom 1/5 of U.S. population. This
should be more equally spread out across income brackets (Hosansky 1449). The GOP plan:
By fulfilling campaign promises made by freshman Republican Congressmen to cut government
spending, the GOP managed to pass a $1.6 trillion budget resolution by a party-line vote,
in both houses of Congress (Hosansky 1450). This budget called for major cuts in
education, environmental programs, discretionary spending, and the largest of all:
entitlements. 70% of the money to balance the budget under the GOP plan would have come
from entitlements. This is because entitlement programs currently take up $301 billion a
year. Such cuts had already been partially implemented with the GOP cutting overall
spending by 9.1% in 1996 alone. First, in an attempt to stop the projected bankruptcy of
Medicare in 2002, Republicans cut $270 billion overall from the program, with hospital
reimbursement cuts being the deepest (Hager 1283). Although stabilizing the fund is only
expected to cost $130-$150 billion over 7 years, the GOP budget would reform the program
to run better, and cheaper, by allowing it to grow at 6% yearly, instead of the current
10%. While both parties agree on premium hikes for beneficiaries, this is a touchy
subject for the 38.1 Million elderly voters on Medicare in 1996 (Rubin 1221). Medicaid,
another volatile program, would be cut $182 billion under the GOP proposal. This would
entail placing a cap on the program's spending, and passing control of it to the
individual state governments. For an estimated 39 million low-income people on Medicaid
in 1996, the GOP plan cuts the program far more than Clinton's proposed $98 billion cut.
Social Security is another program being cut. The government has already reduced the
outlay for seniors 70 and younger who are on the program, but Republicans want more by
increasing the eligibility for Social Security from 62 to 65 for early retirement, and 65
to 70 for standard retirement (Henderson 60). Smaller cuts included $11 billion in
student loan reductions, $9.3 billion in labor cuts, $10 billion eliminated from public
housing programs, and several other numerous disaster relief programs cut (Rubin 1222).
The GOP also wants to eliminate programs initiated by Clinton like the National Service
initiative, summer jobs, Goals 2000, and Americorps. Also, by terminating unnecessary
farm programs, and cutting others by $12.3 billion, Republicans hope to cut the yearly $6
billion that the Federal Government spends on direct subsidies to farmers. Agricultural
policies were also reformed and embedded into budget-reconciliation bills (Hosansky
3730). Clinton's Budget: Clinton's budget only surfaced after he vetoed the budget passed
by Congress, and included shallower cuts, with little or no reform to entitlements. This
plan was supported by most Democrats and was used as an alternate to a gutsy GOP budget.
Clinton repeatedly trashed the Republican's efforts to make cuts on programs he feels
important like student loans, agricultural programs, and entitlements. He accused
Republicans of wanting to kill some all together. He has also threatened to veto a
Republican plan to reform Medicare called Medical Savings Accounts, unless his programs
are left intact (Hager 752). Under Federal law, the President is required to submit
budget requests in 2 forms: Budget Authority (BA), the amount of new federal commitments
for each fiscal year, and Outlays, the amount actually spent in the fiscal year (Rubin
1221). The plan that Clinton has presented is not only a budget resolution in the form of
a campaign document, but also proof of how far the Republicans have moved him to
compromise since the they took control of Congress. Most important, it does not readily
translate into regular accounting principles used for government programming. This year's
White House budget was a 2,196-page document that the GOP struck down immediately for not
cutting taxes enough and neglecting to downsize the government (Hagar 752). There is
little or no change at all in this budget, said Pete Domenici (Senate Budget Committee
Chairman), talking of Clinton's new budget. Among largest cuts within Clinton's plan was
the downsizing of 1/5 to 1/3 of all programs that he felt were not a priority to present
day government. In addition, he wanted to close loopholes presented to corporate taxation
that would save an estimated $28 billion. He vowed to keep programs like education, crime
prevention, and research or environmental grants, while increasing the Pell Grant from
$2,340 to $2,700. Attention was also placed on discretionary spending, with Clinton
cutting a smaller $297 billion compared to GOP's $394 billion cut. According to the
Office of Management and Budget, the President's plan cuts middle-income taxes by $107.5
billion in 7 years, small business by $7 billion, and cuts $3.4 billion from distressed
urban and rural area relief (Rubin 1222). This was to be paid for by a $54.3 billion hike
in corporate and wealthy-income taxes, and also in $2.3 billion of tighter EITC (Earned
Income Tax Credit) adjustments. Although Clinton's plan was expected to cut a whopping
$593 billion in 7 years to furthermore produce an $8 billion surplus in 2002, most cuts
are long term without a clear goal. Clinton is sometimes criticized by Republicans for
unwillingness to compromise. He has used vetoes and stubborn negotiations to protect
personal priorities like education, job training, and environmental programs, but
Republicans have also tried using domination to force him to comply. GOP Presidential
candidate Bob Dole said if Clinton was serious about the budget, we probably could have
had an agreement on New Years Day, 1996 (Hosansky 1449). The President is sitting on his
hands while the federal debt keeps going up and up and up into the stratosphere, said
Congressman Jesse Helms, Rep -North Carolina. But one must remember that President
Clinton does have somewhat of an overwhelming power in this debate that Republicans can
do nothing about. He is the single person that can veto laws sent to him, and also has
the power to call Congress back into session if he is unhappy with the current situation.
This was President Truman's ace in the hole back in 1948. A Neutral Proposal: As a
neutral proposal, a group calling themselves the Blue Dog's have won support for their
budget from both Republicans and Democrats. The group also known as the Concord Coalition
includes many conservative Democrats that want to see shallower budget cuts with less
reform to entitlements. They also believe a tax cut should be delayed until the budget is
balanced. The Coalition believes that by reforming entitlement policy, rethinking
government size, changing taxation methods, and consuming less, our budget can be
balanced (Rau M-1). Defending Deficits: In defense of deficits, some may argue that the
danger of the current situation is highly over rated. A budget deal has always had less
to do with economics than with politics and morality. Budget deficits don't crowd out
private investment, government spending does, and a large surplus may not be a sign of
strength for a country. Some say it is impossible for every country to run either a
surplus or a deficit. What matters is that a country can service its debts (Defense 68).
During most of the 19th century, the United States borrowed from the world (a
current-account deficit). By 1870, it was running a trade surplus, and by 1900 we had a
current-account surplus. But in the early 2Oth century, the U.S. became the world's
largest net creditor, and by 1970 it peaked by finally running into deficit in 1970.
Finally, 1980 brought a deficit so large, that the government was a net debtor again
(Bottom Line 14). Current Reductions: One of the ways we are currently reducing the
deficit includes the introduction of means testing. This means that people would get
entitlements based on need. The government already has reduced Social Security for modest
income senior's age 70 and younger, but budget cutters want to broaden that idea
(Henderson 60). There are 2 major problems with means testing. First, it is considered
inherently unfair. Some might argue that a person might blow all of their income before
the entitlement reductions come into place. Second, it might reduce the incentive to work
and encourage people to hide their income. For instance, beneficiaries of Social
Security, ages 62-64, lose $1.00 yearly in benefits for every $2.00 they earn in income
or wages above $8,160 per year (Henderson 60). Some say increasing eligibility
requirements would solve some problems, and propose raising the age of early retirement
from 62 to 65, and standard retirement from 65 to 70. Another touchy subject in budget
reduction is the argument that the poor are being left out of savings. According to the
Clinton Administration, the GOP budget would cause a family with income of $13,325 per
year to lose 11% of their income (Whitman 42). United States Treasury Department studies
say the bottom 1/5-income families would have net tax increase of an average $12 to $26
under the GOP plan. The top 1/5-income families would receive more than 60% of the tax
relief. A HHS analysis states that the GOP plan would also boost child poverty rates from
14.5% to 16.1%, and poor families with children would loose 6% of their income.
Conclusion: In the end, budget reduction is no easy task. ...fixing the National debt is
like catching a train leaving the station. The longer we wait, the harder and farther we
have to run, says the Concord Coalition (Rau M-1). Both parties want the issue, instead
of an agreement, said Representative Bill Orton. The center of attention for debate on
budget cutting is politics, and whomever takes responsibility for reform gets left wide
open to criticism. Although Congress and Clinton have spent the past year on debating the
budget and the size of the Federal Government, most plans fall back on gimmicks,
loopholes, and long-term plans. Even Democrats now agree to downsize the government, but
the two parties disagree on how and where. As we trust our elected officials to make
decisions in Washington on our behalf, we must show interest and aptitude on the end
results. To accomplish a balanced budget deal, many suggest that we must not only balance
spending, but reform entitlements, rethink government size, change tax methods, and
depend less on Washington. Attendees of a conference on budget cutting in Jackson Hole,
Wyoming suggested we deliver a budget that has a simple, quantifiable goal that includes
short-term goals, and eliminated gimmicks. Countries like Sweden and Canada have
successfully reformed fiscal policies. Sweden's government elected to abandon welfare,
pensions, health insurance, unemployment programs, family assistance, and child
allowances. Their deficit soon fell by 3.5% of GDP in one year alone (Urresta 51).
Sweden's plan was three times as intense as Congress' current plan, while cutting
spending in half the time. As for cuts, everyone must suffer. As entitlement debates
continue, the interests of older Americans are being protected at the expense of young
people, says Neil Howe and Bill Strauss (Rau M- 1). Older Americans have good reason to
protect programs that they have paid into for years, but those programs spend an overall
per capita amount of 11 times as much on elderly than that spent on children altogether
(Rau M-1). The youth are the future of America, and we should protect them too.
Currently, poverty in US is 3 times as likely to affect the very young than the very old.
By balancing the budget, interest rates come down, the economy picks up - we will
rebound, says Representative James Greenwood (Cloud 3709).