Famine -- and Feast

By John Greenwald

If the U.S. government were a family, the budget Bill Clinton unveiled last week would leave little room for anyone to have fun. There would be no pay raise for either Mom or Dad, no vacation, no new car, and less money (after inflation) even for such necessities as food, shelter and clothing. And if the family were like the U.S. Government, that strapped little foursome would legally have no choice but to cut back. The President must meet legally mandated spending limits, so he proposed slashing appropriations for seven of 14 Cabinet departments, shrinking some 300 programs and eliminating more than 100 others. Everyone from poor families who receive home-heating assistance to communities hard hit by layoffs would feel the pinch. Indeed, as Clinton declared in a statement that contained both a boast and more than a touch of rue, the document represents "the toughest budget in spending cuts that Congress has yet seen."

If Clinton were still a student at Georgetown University in Econ 101, his budget might rate a B-minus. The document reflects more honest economic assumptions than any of the Reagan or Bush budgets, whose rosy scenarios quickly wilted under congressional scrutiny. The Clinton budget also shows the agony of an instinctive do-something Democrat caught in the straitjacket of 12 years of federal overspending. At the same time, the budget remains a halfway measure that fails to reflect the cost of health-care reform fully or to address the most intractable problem of federal spending -- middle-class entitlements.

Clinton's four-volume, 1,973-page, $1.5 trillion budget for fiscal 1995, which begins in October, leaves entitlements virtually untouched. While the budget would freeze defense spending and cap funding for discretionary programs, it would allow entitlements such as Medicare and Social Security, which account for fully 50% of all federal spending, to keep right on growing. Medicare would continue to expand at more than three times the rate of inflation. So that family on the Clinton budget is in a strange situation -- it may be skimping on heating oil, but it is handing ever huger sums to the old folks next door.

Clinton's first budget does represent the boldest attempt in more than a decade to get a grip on federal spending and bring down the budget deficit. Under the Administration's optimistic numbers, 1995 outlays would rise a modest 2.3% above those of 1994. Under Reagan and Bush, by contrast, federal spending jumped an average of 6.3% a year. Moreover, the budget would cut government spending to 21.6% of the country's gross domestic product, the lowest level since 1979. And the deficit would shrink to just 2.1% of GDP by 1999, down from 4% when Clinton took office.

Altogether the budget was a remarkably restrained document for a President who truly believes in the power of government to do good -- the first such President since Lyndon Johnson. It showed clearly how Clinton, under the pressure of spending caps first enacted in 1990 and reinforced last year, has adopted the traditionally Republican issues of austerity and deficit reduction. "When it comes to eliminating unnecessary programs," declared Senate minority leader Robert Dole, "Clinton may enjoy more support from Republicans than from members of his own party."

The Clinton plan elicited predictable partisan sniping. Dole complained that next year "federal spending will still increase by $34.3 billion, and taxes will go up by a whopping $93 billion." Republicans argued that Clinton's cost savings would simply finance other programs instead of being used to cut the deficit further. But the deficit will come down, so that response prompted an exasperated outcry from Budget Director Leon Panetta. "Does it really hurt that much to admit we are impacting on the deficit?" he demanded during a congressional hearing.

Clinton's budget also displeased the opposition because, in one respect at least, it truly reflects a sharp departure from 12 years of Republican rule. Ronald Reagan chopped federal spending for public housing and other domestic programs and poured more than $1 trillion into Pentagon coffers. Now Clinton is rearranging the government's priorities. With no headroom to raise discretionary spending, which pays for everything from missiles to milk subsidies, he has little choice but to shift funds away from some projects to pay for increases in those he most favors. Among other things, that means cutting defense projects. The President thus wants to cancel or stretch out orders for weapons such as the B-2 bomber and the F-18 fighter and use the savings for crime fighting, childhood immunizations and highways.

However realistic Clinton's budget estimates may be, his calculations are more questionable when it comes to the big-ticket item of health care. According to the nonpartisan Congressional Budget Office, the massive health- care program proposed by Clinton would increase the deficit $74 billion over the six-year period that ends in the year 2000. The White House, by contrast, estimates that the program will cut the deficit $58 billion over the same period. The discrepancy hinges on a CBO opinion that federal costs for subsidizing medical insurance premiums of small and medium-size companies will far outstrip Administration projections.

The CBO also asserted that the employer mandates called for in the President's health plan, which by 2004 will amount to $750 billion, should be considered government receipts. Before you could say Newt Gingrich, Republicans leaped up to claim that the CBO agreed with them that the mandates were a tax. CBO director Robert Reischauer expressly refused to use that word, however, and did supply some applause lines for Clintonites as well. He estimated that cost-containment provisions of the President's plan would reduce the total medical bill of Americans $413 billion over five years, starting in 2000, and could begin to cut the deficit in 2004.

A new challenge to Clinton on health care could come from ideas put forward by Yale economist James Tobin, a Nobel laureate, that have begun to attract congressional attention. Instead of requiring employers to pay health- insurance premiums for their employees, as Clinton would have it, Tobin wants individuals to pay for their own insurance. To help them, he would create a federal program called Fedmed, a sort of Medicare for those under 65 that would offer universal insurance covering all costs. Individuals who could not pay the full premiums would receive federal vouchers. Among the benefits: people could choose their own doctors and change or lose jobs without forfeiting their medical coverage. Tobin's ideas have intrigued Congressman Pete Stark of California, who chairs the health panel of the House Ways and Means Committee. Stark likes Fedmed largely because it jibes with a bill he submitted last year to extend Medicare coverage to all Americans. New York's Daniel Patrick Moynihan, who chairs the Senate Finance Committee, also has shown keen interest. Says a congressional source: "It's perfectly timed and comes from a very respected source at a time when no one quite knows what to do."

As the politicians wrangle over health-care choices, the public seems to be growing restless. Many people now appear far more interested in holding down medical costs than in achieving universal coverage. In a TIME/CNN poll conducted by Yankelovich Partners last week, respondents were asked which they believed was the bigger problem: high health-care costs or the fact that medical coverage is not available to everyone. A resounding 67% picked high costs, while 27% chose the absence of coverage, a result that roughly mirrors the percentages of those covered and not covered by private health insurance. Only 46% of those surveyed said they would be willing to pay higher taxes to help finance health insurance for everyone; that was down sharply from a similar poll in November 1991, when 70% said they would pay more taxes to ensure coverage for all Americans. The public still seems confused by the health-care debate, with 57% saying they understand current proposals only somewhat; and despite all his efforts, Clinton is losing support for his plan -- just 43% now generally approve of it, down from 50% in mid-January.

As part of its campaign for health reform, the Administration included in the budget some projections for the "net taxes" -- the difference between all federal, state and local taxes people pay and the benefits they receive -- for future generations. According to the calculations, those born after 1992 may have to cough up 82% of their lifetime earnings in net taxes. However, the Administration claims, the net rate would become 93.7% but for the package of tax hikes and spending cuts that Congress narrowly passed last year. The main cause of these runaway -- and highly theoretical -- rates is the uncontrolled cost of health care. Pass the Clinton plan, the Administration says, and net taxes of future generations would fall to 66% of income.

Instead of banking on intricate health-care reform to save the economic future of our grandchildren, some lawmakers are calling for frontal assaults on the entire deficit problem. Their arsenal includes yet another go at a balanced-budget amendment, now co-sponsored by Democratic Senator Paul Simon of Illinois, and a drive led by Democratic Senator Bob Kerrey of Nebraska to cut some $90 billion in federal spending over the next five years. Both face the adamant opposition of Robert Byrd of West Virginia, chairman of the Senate Appropriations Committee, who just last week turned back an attempt to attach the $90 billion in spending cuts to a bill providing emergency aid to victims of the Southern California earthquake.

Byrd will be just as vigilant when the Senate takes up the balanced-budget amendment next week after Congress returns from its Presidents' Day holiday recess. While Simon believes he has the 67 votes necessary to pass the amendment, no vote has been scheduled, and no one underestimates the effect of Byrd's resistance.

Another approach to deficit reduction is to go after entitlements. Clinton made good last week on a promise to Kerrey when he chose 20 politicians and 10 distinguished citizens to sit on a long-awaited commission to study entitlement reform. But even as he convened the group, Clinton showed little enthusiasm for its success. When asked whether he might consider slashing Social Security for high-income earners, for example, Clinton replied, "No one's real interested in cutting Social Security."

The real battles are yet to come for the Administration as it fights to get the budget through Congress. No one doubts there will be many pitched battles as legislators both cling tenaciously to the costly programs they like and posture about fiscal prudence; and there will surely be many a presidential concession along the road. But when a budget is passed next fall, the essentials of Clinton's blueprint -- a cap on discretionary spending, a freeze on defense, and a continued explosion of entitlement payments -- seem certain to endure.

CHART: NOT AVAILABLE

CREDIT: TIME Chart by Joe Lertola

CAPTION: WHERE WE'RE HEADED

Projections from the Clinton Budget

CHART: NOT AVAILABLE

CREDIT: From a telephone poll of 500 adult Americans taken for TIME/CNN on Feb. 10 by Yankelovich Partners Inc. Sampling error is plus or minus 4.5%. "Not sures" omitted.

CAPTION: Do you favor or oppose Clinton's health-care reform plan?

How well would you say you understand current proposals to change the health- care system?

Which do you think is health care's bigger problem?

With reporting by Michael Duffy, Julie Johnson, Dick Thompson and Adam Zagorin/Washington