The lawmakers did not provide any details, however, and it is always easier to posture for deficit reduction than it is to actually cut programs that have large constituencies and powerful lobbies. A couple of weeks ago Clinton challenged politicians and policy wonks to top his spending cuts-but only if they listed specific programs and the size of each cut.
In fact, federal spending can be cut much further. Clinton’s program would reduce the deficit by $473 billion over five years, mostly by raising taxes. Herewith a plan to save an additional $267 billion-by cutting spending, not by raising more taxes. NEWSWEEK’s proposal seeks to protect the poor, promote efficiency and cut fairly. The plan would not be painless, at least to certain interest groups, but given the public mood, it is not politically impossible. Despite its devotion to the special interests. Congress could be made to go along-if Clinton were willing to lead.
Are further cuts really necessary? Clinton claims that his plan would bring down the annual deficit to a mere $207 billion by 1997. But Carter, Reagan and Bush all before him promised to eliminate the deficit within five years-and all failed miserably (chart, page 27). True, Clinton vowed to do away with the “Smoke and mirrors” and “rosy scenarios” and to use only the most conservative forecasts. Yet Clinton’s program makes no allowance for recession or the unexpected, like an environmental crisis or an industry bailout. “With a little normal bad luck,” says Rudolph Penner, former director of the Congressional Budget Office, “one can easily imagine $400 or $500 billion deficits.” If the president wants to avoid being swept from office in a tide of red ink, he might consider the following seven steps:
1 Cut Back New Spending
The facts tend to get obscured by Clinton’s brave talk about cutting the deficit, but the president would actually add as much as he would cut from nondefense spending-about $150 billion. Some of the spending, for education and job training ($32.3 billion over five years), could benefit the economy over the long run. Initiatives for children, such as full funding of Head Start and the Women, Infants and Children feeding program, also bring long-term benefits (though probably not as great as their proponents suggest). But Clinton would add $30 billion to spending programs that were already slated to receive double-digit annual increases, like highway construction and high-tech research. Clinton argues that the extra spending is needed to stimulate the economy and provide jobs. But the economy is already expanding at the rate of 4 percent a year. And most economists doubt that an extra $30 billion a year would have much, if any, effect on a $6 trillion economy.
Clinton could save $49.9 billion over five years, or $10 billion a year, by eliminating such low-priority items as $9.5 billion in extra highway construction (on top of a 13 percent increase already authorized by Congress) and an additional $495 million for public lands and Indian-reservation roads. Urban-mass-transit grants go to only a handful of cities; Clinton could save the extra $2.7 billion he plans to spend on them. Rural sewers ($507 million), rural community development ($1.7 billion), and high-speed-rail and magnetic-levitation research ($1 billion) all sound perfectly worthy-but they can wait. So, too, can aviation research at NASA ($787 million) and increased spending on a program called the Urban Partnership Against Crime ($445 billion).
2 Pare Entitlements
No budget cutter can be serious and sidestep the “entitlement” programs-social security, Medicare and Medicaid, veterans benefits-that make up half the federal budget. Clinton would trim hospital, laboratory and doctors’ fees. The savings here sound large-more than $10 billion a year. But health-care costs will still rise by $27 billion a year. Clinton’s “cuts” leave medical costs growing at twice the rate of everything else in the government. Slashing this growth rate by $5 billion more a year can be easily achieved. Charging the wrinkled rich-retirees with more than $100,000 in income-for their full Medicare doctors’ insurance premium would gain $1 billion a year, and increasing Medicare doctors’ premium from 27 to 30 percent would bring in $1.5 billion a year. Other more arcane changes, such as cutting federal support for hospital-training programs by twice the amount that Clinton proposes, save another $1.5 billion annually. Ultimately, these are just down payments on more systematic efforts to reduce all health-care cost growth. But the president’s efforts to reform the health-care system will take years, and at first they will only add to federal spending. Bigger savings are needed now.
Beyond health care, federal retirees were spared by Clinton. But their retirement benefits are lavish. A set of changes aimed at making federal programs more like the best private pension programs, designed by the Congressional Budget Office, would save American taxpayers $14 billion over the next five years. Beyond that, social-security benefits, the biggest ticket in the budget, were left untouched by Clinton. The president had considered a one-percentage-point reduction in the cost-of-living adjustment (COLA) until congressional liberals rebelled. Sooner or later, lawmakers will have to remove the off-limits sign from social security, many of whose beneficiaries are perfectly well off. Why not cut the COLA by a point-but exempt the poor who get less than $600 a month? Savings: $16 billion.
3 Slash the System
To pare down the bureaucracy, Clinton proposes a 25 percent reduction in the White House staff, a 3 percent cut in all executive administrative and travel costs, a 100,000 cut in federal civilian employment. He adds a pay freeze for 1994, and then would pay one percentage point less than the current full cost-of-living adjustment provided annually to all workers. He could easily go further-and save $5 billion-by eliminating 50,000 more jobs from the 2.1 million-employee federal bureaucracy. The number of full-time American farmers has shrunk dramatically over the last several decades to 500,000. Yet the Department of Agriculture still has more than 120,000 employees. Does the United States need one federal bureaucrat for every five farmers? The economy might improve if the Department of Commerce lost a third of its 36,000 employees, and the nation would be no sicker or poorer if Clinton cut twice as many as the 5,000 jobs he wants to trim from the 130,000-employee Health and Human Services bureaucracy.
The most bloated bureaucracy may be the one on Capitol Hill. Clinton challenged Congress to cut its employment by 25 percent during the campaign-but dropped the demand when he got to Washington. Since 1945 congressional staffs have grown five times faster than the national population. The staff of the Diet of Japan, with half the U.S. population, is one tenth as large as the staff of the U.S. Congress. Government gridlock is caused partly by the proliferation of congressional subcommittees, personal fiefdoms where staffs vie with each other over turf. In the House, every other Democrat is “Mr. Chairman.” Cut congressional staff and expenses by just 30 percent-and save $3 billion.
4 Push the Pentagon
During the cold war, when Pentagon planners talked grandiosely of an arsenal big enough to fight two and a half wars, the United States was deemed to need 2 million men and women under arms. George Bush planned to trim force levels to 1.6 million soldiers, sailors and airmen by the late 1990s. Clinton’s plan would push that down to 1.4 million by 1997. But if the Pentagon went a little further-to 1.2 million men-there would still be enough soldiers, sailors and airmen to fight two gulf wars at once. Clinton would also halve spending on Reagan’s flight of fancy, the Strategic Defense Initiative, better known as Star Wars. But he says nothing about cutting another cold-war white elephant, the Seawolf attack submarine ($2 billion apiece). Supporting the Seawolf, source of thousands of jobs in Connecticut, was the price Clinton paid to enter the Democratic primary last March. The Seawolf is an expensive jobs program when its only enemy-Russian submarines-are now literally rusting in harbor. Clinton’s cuts will save $111.8 billion over five years. If the Pentagon is to cut back wisely-a very big “if,” given past history (page 28)-the taxpayers could save an additional $40 billion.
5 Hunt Down Fraud
Bill Clinton talked a lot about waste and fraud during the election campaign. Now he should do something about a scam that shouldn’t be legal. It’s run by the nation’s governors. Half of Medicaid is paid for by the states, half by the federal government. In the late 1980s the states, with New Hampshire in the lead, discovered they could arrange for Medicaid hospitals and doctors to submit inflated bills, get the Feds to pay half the phony invoices and then get most of their own state money kicked back through “fees” or “taxes” paid by doctors and hospitals. Auditors estimated that 36 states siphoned off $10.6 billion this way from the federal government last year alone. The Bush administration supposedly cracked down-but private experts claim $2 billion or $3 billion a year is still being drained. Other targets abound: the government could save $2 billion by shutting down fast-buck vocational schools that live off defaulted student loans. Cracking down on duplicate payments of means-tested benefits like family support and food stamps could save $2 billion or $3 billion annually.
6 The Pork Chop
Bill Clinton campaigned strongly against pork-barrel spending. But in the president’s economic plan, he creates more pork than he cuts. According to a NEWSWEEK tally, Clinton is asking for $12 billion in projects that can be defined as pork, while trimming back only $7.6 billion. Clinton nips a little at projects that ought to be killed outright-the space station ($9.7 billion) and the Super Collider ($2.2 billion). The president was ready to nix the space station until Texas politicos (Houston is the home of the Space Flight Center) persuaded him to merely slow down construction. The Economic Development Administration once was an antipoverty agency but now is mostly a honey pot for the powerful. Eliminating the agency would save $1.1 billion, including a $232 million Clinton add-on. Then there are the little piglets: $750 million in annual spending on more than 700 tiny research operations, such as a federally backed cranberry-research institute in Massachusetts, which aids growers connected with Ocean Spray, one of the most profitable big food companies in the United States.
7 Take Big Bites
Clinton sometimes nibbles when he should bite. The Small Business Administration has been the subject of ridicule-and the locus of corruption-for years. But small businessmen, who like to extol the free market, get hooked on taxpayer subsidies. When Reagan’s budget director, David Stockman, tried to kill the SBA, Congress balked under lobbying pressure. Today the SBA employs a staff of 4,700 to lend to less than half of 1 percent of the nation’s 16 million businesses. Clinton would cut $426 million from the SBA budget; a better idea would be to eliminate it.
Other programs that should be on the cutting board: the Farmers’ Home Administration loan program, which encourages farmers to borrow money they can’t repay ($5 billion); wool and mohair price supports that were intended to help uniform makers in World War I ($760 million versus a Clinton trim of $278 million); the Rural Electrification Administration, whose job is long since done ($3 billion). Why should the taxpayers subsidize smoking with tobacco supports ($665 million)?
If the president and Congress succeeded in making these cuts, they would get a generous bonus. By reducing federal spending, government reduces federal borrowing. (The savings on interest alone created by NEWSWEEK’s plan would be $26 billion.) If they fail, however, there will be a price: if Clinton can’t control the federal deficit, he will have less money to spend on government services. Already 14 percent of the federal budget goes straight to servicing the $3.1 trillion national debt. Without further cuts in spending, the taxpayers’ dollars will increasingly be diverted-from the grand schemes of their elected representatives to paying off the banks.
On taking office, the last three presidents–Jimmy Carter, Ronald Reagan and George Bush–all adopted programs that promised budget surpluses at the end of their first terms. Their forecasts, versus the deficits that occurred:
1981 BUDGET PROJECTION ACTUAL Jimmy Carter Spending $575.4 bil. $678.2 bil. Revenues $583.9 bil. $599.3 bil. Balance +8.5 bil. -78.9 bil. 1985 BUDGET PROJECTION ACTUAL Ronald Reagan Spending $844.0 bil. $946.4 bil. Revenues $849.9 bil. $734.1 bil. Balance +5.9 bil. -213.3 bil. 1993 BUDGET PROJECTION ACTUAL* George Bush Spending $1,284.1 bil. $1,475.0 bil. Revenues $1,286.6 bil. $1,143.2 bil. Balance +2.5 bil. -331.8 bil. SOURCE: OMB, CBO *CBO ESTIMATES
