Deficit Delusions

Clinton can't take credit for temporary good budget news.

Robert G. Robinson Jr. from the January 1995 issue

(Page 2 of 2)

From there, OMB estimates that the deficit will climb to $285 billion in the year 2004. (The CBO says $397 billion). OMB then projects a deficit of $456 billion in the year 2010, $1.5 trillion in 2020, and $4.1 trillion in 2030.

As a share of gross domestic product, OMB projects that the deficit will remain in the 2.5 percent range through the year 2004 but then begin to climb out of sight, reaching 2.9 percent by 2010 and 5.9 percent by 2020. It then will double to 10.4 percent of GDP in 2030.

Those projections are why the administration is closely watching the Bipartisan Commission on Entitlements. Its report, due out December 15, is expected to call for a number of tough measures to stem the rising tide of entitlement spending. (See "Retirement Wrangle," November 1994.)

The pre-election hullabaloo inside the Beltway over the leaked secret memo by Rivlin merely reinforces the problems surrounding Clinton's claim that his administration was responsible for the two years of lower deficits. Although the White House spin was that the 11-page memo was a mere "catalog" of proposals that have been floated by Republicans and various think tanks, any reasonably intelligent observer would understand it was a set of talking points for the immediate future. "Decisions must be made soon about the policies to be articulated in the FY 1996 budget, the State of the Union, and our response to the Kerry-Danforth Commission report," Rivlin wrote in the October 3 memorandum.

Levy, in his paper for the Shadow Open Market Committee, complained that policy makers have "left untouched" the structural flaws that "are the sources of the fastest growing spending programs." He found that from 1990 to 1994, spending on entitlements and other mandatory programs rose at an 8.8 percent annual rate--even faster than in the 1980s, in part because of an increase in welfare recipients during the recession and the slow-starting recovery.

Tax revenue growth accelerated dramatically in 1994, increasing nearly 10 percent, he added, reflecting both the 1993 budget deal hikes as well as stronger economic growth. He also hints that taxpayers could be forced to pick up the cost of the administration's decision last year to alter the Treasury Department's debt management strategy and shorten the duration of government debt. In effect, the administration purchased more short-term securities because interest rates had dropped. With interest rates now rising, that could "prove costly to taxpayers," Levy wrote.

"The administration has raised its projections of net interest outlays, and uncertainty about future costs have [sic] heightened, particularly as the Federal Reserve pursues a disinflationary monetary policy," wrote Levy. If Clinton is around to preside over the possible deficit ballooning to come, his crowing may have to give way to eating crow.

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