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1993 Was The Year Of Living Frugally. 1994 Is For Getting Reelected


Washington Outlook

1993 WAS THE YEAR OF LIVING FRUGALLY. 1994 IS FOR GETTING REELECTED

On Capitol Hill, 1993 was "The Year of Living Frugally." There were tax hikes, one-upsmanship on budget cuts, and windy rhetoric about the demon deficit. But 1994 looks a lot different. Instead of blockbuster deficit-reduction plans, there'll be tax dodges and spending shenanigans.

Of course, 1994 is an election year. As a result, President Clinton's ambitious legislative agenda--including health-care reform, welfare overhaul, and approval of the 117-nation General Agreement on Tariffs & Trade (GATT)--faces money trouble. The Hill's pay-as-you-go rules dictate that these expensive initiatives must be financed with new taxes or budget cuts in other programs.

But don't look for Congress to go that route. Democrats, worried about their fall races, are balking at tax boosts save for a few targeted levies--such as cigarette taxes--to finance health care. And budget cuts in existing programs to fund new initiatives might rile voters.

NO BULLET-BITING. So it's no wonder that Congress plans to stretch out health reform and delay passage of a welfare bill until next year. GATT, however, faces a January, 1995, approval deadline. In theory, the Administration has to find up to $40 billion to offset the loss of income from tariff cuts mandated by the pact. But instead of biting the bullet, lawmakers are resorting to a ruse--suspending the restrictive budgeting rules adopted in 1990.

The Administration made a stab at finding an honest financing scheme. Treasury Secretary Lloyd M. Bentsen and White House Budget Director Leon E. Panetta spent weeks trying to sell a variety of tax hikes, such as a levy on tax-deferred investments, and spending cuts to pay for GATT, only to be rebuffed. "The cupboard is bare," laments Bentsen. Now, the Clintonites are quietly signaling that funds earmarked in the five-year plan for welfare reform could be diverted to GATT. But if all the funds saved for welfare reform through 2000--$9.3 billion--go for GATT, it still won't be enough. Besides, Senate budget rules require a funding formula for 10 years out.

Senate leaders think they have a solution: Use a less restrictive House requirement that financing be provided for only the first five years--which brings the tab to a mere $14 billion. Senate Trade Subcommittee Chairman Max Baucus (D-Mont.) would like to go one better: Scrap the budget rule altogether for GATT. "Pay-as-you-go is like underwear," he explains. "You look foolish and uncomfortable if you insist on wearing the tightest pair you can find."

The logic for suspending the rules rests on the theory that trade liberalization will stimulate U.S. exports and bring in added income taxes that will offset the tariff cuts. But the Administration is hesitant to say that publicly: Republican supply siders will pounce on the "dynamic" revenue-estimate notion to push for a capital-gains tax cut. Then, too, the bond market may panic--fearing a flood of federal "investments" designed to pay for themselves through faster economic growth. "You can't conduct public policy on the premise that an expenditure today that has a good effect ought to be debt financed by our children," says Brookings Institution economist Barry Bosworth.

So far, the Administration agrees that waiving budget rules for GATT would send the wrong signal about its resolve to curb the deficit. But Clinton may be forced to do just that to ensure GATT is approved to take effect next year. Unless the President and Congress can muster the will to pay for their priorities, much of the fiscal discipline and credibility they displayed in 1993 will be washed away in election-year gamesmanship.EDITED BY OWEN ULLMANN By Paul Magnusson


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