Leave

By Richard Hornik

Sequestration is the last resort of national politicians unwilling to cut government spending in much the same way that patriotism is called the last refuge of scoundrels. The obscure word, which looks like a refugee from a crossword puzzle, means seizure, and that is what happened last week. President Bush directed all federal agencies to meet the budget-deficit- reduction targets specified by the Gramm-Rudman-Hollings law by imposing $16.1 billion in across-the-board spending cuts. Worthy domestic-spending programs such as subsidized housing were cut the same 5.3% as pork-barrel projects like the Agricultural Extension Service. Under sequestration, the Defense Department faces a 4.3% chop, with important items like military readiness facing the same reduction as questionable projects like the Stealth bomber.

For fiscal 1990, the law required Congress to produce a budget with a deficit of less than $110 billion. Despite the Administration's optimistic forecasts of continued strong economic growth and lower interest rates plus some fiscal legerdemain, congressional efforts fell $6.1 billion short.

The battle for fiscal discipline quickly degenerated into a familiar attempt to shift the blame for failure -- not only between parties and branches of Government but also onto the Gramm-Rudman procedure itself.

Trouble started in the spring, when congressional leaders and the Bush Administration began putting together a deal. The President's goal was to keep his read-my-lips campaign promise of "no new taxes." Congressional leaders wanted to appear to meet deficit-reduction targets without cutting any politically popular spending programs. Budget director Richard Darman came up with a solution that was simple -- too simple. A cut in the capital-gains tax would at least temporarily raise money to cover the revenue shortfall. Many Democrats at first supported the plan that looked like all gain, no pain.

Around Labor Day, however, the consensus that Darman had put together began to fall apart. "Everything was going along swimmingly," explains an Administration official, "until the drug plan came out of nowhere, and then capital gains became partisan instead of the easy way out." The battle against drugs meant new spending, and Democrats began attacking a capital- gains cut as a Republican tax goody for the rich and famous.

House Speaker Thomas Foley privately proposed dropping the hundreds of extraneous spending programs -- and the capital-gains cut -- from the budget- busting bill. But Darman turned down the offer, thinking he could get the kind of trimmed-down budget he preferred as well as the capital-gains cut. When it became clear the Administration would be charged with favoring capital gains over budget cutting, Darman relented. But by then it was too late to stop sequestration from taking effect.

In fact, when it comes to economic policy, the Administration appears to care little about deficit reduction. The White House seems to care only about keeping Bush's no-new-taxes pledge. Administration officials like to point to Darman's optimistic economic assumptions and deficit predictions as well as the relatively good business climate. Bush has not uttered a word about the budget deficit in weeks.

Since it has produced a meat-cleaver approach to budget cutting, the Gramm- Rudman mechanism has itself become a target. Senator Ernest Hollings, one of the authors of the legislation, announced last week that he was ready for a "divorce" from the act. During Senate hearings on reforming the budget process, Budget Committee chairman Jim Sasser of Tennessee said, "Gramm- Rudman is teetering on the verge of becoming more a part of the problem than a part of the solution." Sasser says the law has the Government keeping two sets of books: one devised to meet Gramm-Rudman, "which is a useful fiction to give the illusion of progress," and another that shows the real deficit. The real deficit for fiscal 1990 will not be $110 billion but more like $230 billion. Fancy bookkeeping like a $65 billion loan from the Social Security trust fund to the Treasury keeps the total down.

At least one original sponsor still defends his offspring. Says Texas Republican Senator Phil Gramm: "It's bashing time for Gramm-Rudman, but our biggest critics are those who weren't for it to begin with. Without the law, our federal deficit would have been larger than it is."

A mechanistic approach like Gramm-Rudman is not the real solution to the budget deficit. Says Speaker Foley: "No amount of tinkering with the legislative process can substitute for a commitment to get spending under control. Some people look to procedural changes to get us out of our current mess. Will is what's required." There are no shortcuts on the road back to fiscal responsibility and economic health.

With reporting by Michael Duffy and Nancy Traver/Washington