The Deficit In Leadership

It's been a bad time for good debate. Thomas B. Reed, speaker of the House a century ago, once remarked of two woeful colleagues that "they never open their mouths without subtracting from the sum of human knowledge." The same can be said of the budget debate. The longer it lasts, the more confused the public becomes. We are bombarded by baffling numbers, slogans and programs. There may not be a conspiracy between President Clinton and the Congress to confound the public, but the effect is the same.

This ought not be. What Americans need to know about budget surpluses--and what ought to be done with them--is straightforward. Let's review (again) the essentials.

First: No one knows whether the surpluses will materialize. The Congressional Budget Office puts them at $2.9 trillion over 10 years. The White House projects them at $5.9 trillion over 15 years. But the projections could easily unravel. The economy could disappoint. Health costs might exceed forecasts. Tax collections, which have risen unexpectedly, could just as easily drop unexpectedly. Moreover, the projections assume--probably unrealistically and undesirably--a constant fall in defense and domestic discretionary spending as a share of national income.

Second: If big surpluses continue, their best use is to reduce the publicly held federal debt, now $3.7 trillion. This ought to please both liberals and conservatives. In 1998, interest payments on the debt totaled $243 billion, slightly more than Medicare spending ($211 billion). Eliminating the debt and interest costs would shrink government. That ought to cheer conservatives. But lower interest payments would also make it easier to afford the retirement costs of the baby-boom generation, which in 15 or 20 years threaten to overwhelm any budget surpluses. That ought to please liberals.

Finally: Budget surpluses may someday justify lower taxes or new spending programs. Tax cuts might cushion a recession or promote tax simplification. Government may have to respond to new national needs. But that time is not now. Having managed only one surplus between 1961 and 1997, the White House and Congress ought to let today's surpluses run to gauge their strength.

President Clinton created much of the present confusion. No one is more influential than the president in setting the national agenda. Early this year, Clinton might have laid out a clear framework for reducing the federal debt. Instead, he proposed a baffling program.

Though preaching debt reduction, the proposal had much more. First, Clinton made budget projections for 15 years--a period so unrealistic that no president had done it before. This allowed Clinton to claim huge future surpluses that could be spent on new programs: universal savings accounts; common-stock investments for Social Security; a drug benefit for Medicare; increases in defense and domestic programs. The president also double-counted much of the surplus so as to make extra "contributions" to the Social Security and Medicare trust funds.

Republicans might have challenged the president to focus honestly on debt reduction. Instead, they compounded the confusion by embracing big tax cuts. "Americans are paying the highest taxes as a percentage of the nation's economy since World War II," said Ways and Means Committee chairman Bill Archer. "We should give it back to them before it gets spent by the bureaucrats." So House and Senate Republicans endorsed different tax cuts each totaling about $800 billion over 10 years.

The resulting debate gushes misinformation. Contrary to Archer, "bureaucrats" don't decide spending; Congress and the president do. Another myth is that the Republican plan sacrifices debt reduction, while Clinton's doesn't. The Republican program would achieve debt reduction of $2.2 trillion by 2009, says the CBO. By contrast, Clinton's debt reduction would be only $2 trillion. Democrats complain that CBO estimates of spending under the Republican plan are artificially low. But even adding $500 billion of spending (over 10 years) to the Republican plan--which subtracts from debt reduction--would leave the two plans fairly close.

And all these competing claims suffer from the self-serving assumption that the underlying surpluses actually occur. How iffy are they? Let's take one item: tax collections. One reason that the budget has suddenly sprinted into surplus is that personal income-tax revenues have unexpectedly increased by about two percentage points of national income since 1994. This may sound small, but it isn't. It roughly equals about $170 billion a year.

No one really knows why this happened. The most thorough analysis comes from CBO economists in an agency report and a professional paper. Their figures indicate that perhaps 60 to 70 percent of the rise came from taxpayers with $200,000 of income or more. This implies a couple of conclusions. First, it qualifies Archer's claim that most Americans are paying historically high taxes; mainly, it's the rich whose taxes raise the overall burden. Second, it suggests that the tax windfall might vanish. It could be a creature of the economic and stock booms that have produced large gains from stock profits, bonuses and stock options.

The eagerness to dispose of the paper surpluses says more about the political culture than sound budget policy. This misleading debate could have been avoided. Had Clinton proposed a simple program for debt reduction, he could have rallied public opinion and large blocs of centrists from both parties. The president's compulsive cleverness, aimed at disguising his irrepressible partisanship, squandered this opportunity, in part because the Republicans lack statesmanship and are so easily goaded into shrill partisanship.

These Democrats and Republicans represent a generation of hyperactive politicians unschooled in self-restraint. They are media addicts, living to score points on their opponents. Their fiscal proposals would lead the country in different--but equally undesirable--directions. Though the budget has swung into surplus, the deficit in national leadership grows wider.