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May we cut in, Mr. Clinton?

America can do better than the budget blueprint unveiled by President Clinton in his State of the Union Address in February. Mr. Clinton pretended in his speech that he was cutting federal spending. Under his plan, annual federal spending actually would rise by $202 billion from 1993 to 1997. Annual defense spending would fall by $49 billion -- in ways that the president failed to specify. But annual domestic spending would rise by $264 billion, or about 8 percent a year. If this is the best that a moderate "New Democrat" could come up with, it is frightening to think what the old-school liberals would propose.

President Clinton pretended in his speech that he was bringing the deficit under the control. But even according to his own numbers, the deficit in FY1998 would be $240 billion, or 3.1 percent of the gross domestic product. This figure is slightly higher than it was when Ronald Reagan left office in 1989. And this projected deficit does not count the additional costs of Hillary Clinton's health plans. It assumes that all of Mr. Clinton's budget savings are credible, and also that Congress approves no additional spending between now and 1998.

To secure these minimal benefits on the deficit front, President Clinton broke his campaign promises not to tax the middle class. He is proposing $238 billion in new taxes over four years, the largest tax increase in American history. Compared with a baseline of current services, his plan proposes $4.70 in tax increases for every dollar in spending cuts over the next four years. What few spending cuts there are are deferred to the future -- in fact, Mr. Clinton has called for a $10 billion spending stimulus in 1993 -- while the taxes kick in immediately. Next year, taxes would rise $37 billion, and there would be no net spending cuts.

The Bush-Clinton Era

Although the theme of the Clinton budget proposal is "change," in reality it perpetuates George Bush's economic policy. Domestic expenditures rose by $200 billion a year under President Bush, even after accounting for inflation and excluding the costs of the savings and loan bailout. If federal "investment" were needed to get the economy going, then America would have prospered under President Bush. Federal spending on categories Mr. Clinton calls investment -- such as infrastructure, research and development, and Head Start -- rose by $100 billion a year, or more than 40 percent, under President Bush. Yet these investments did not cause the economy to grow.

If the economy needed an immediate stimulus, as President Clinton argues, then it should have received one under his predecessor. The federal deficit rose from $153 billion in FY1989, Ronald Reagan's last year in office, to an estimated $330 billion in FY1993. The past four years have delivered the most powerful stimulus -- by Mr. Clinton's Keynesian standards -- ever in peace time. If the stimulus had worked, George Bush would have been re-elected.

The Clinton budget also repeats the mistake of President Bush's budget agreement of 1990. That agreement raised taxes by $165 billion in order to reduce the deficit. Instead, it contributed to an explosive growth in outlays, the highest five- year deficit in history, and an anemic economic performance. The Bush performance confirmed again that raising taxes in a weak economy is a recipe for stagnation.

Right Goal, Wrong Policy

President Clinton is right to insist on a major deficit- reduction plan. In the absence of any change in current policies, the Congressional Budget Office forecasts a federal deficit of $400 billion in the year 2000, and over $500 billion in 2002. Federal deficits of this magnitude will place enormous pressure on interest rates and capital availability if U.S. private savings remain low. Capital flows from Japan, Germany, and other countries are drying up and no longer can be counted upon to finance U.S. deficits.

Furthermore, economic growth will not be sufficient to reduce the federal deficit without a major change in current fiscal policies. Even if we were to achieve the government's high-growth assumptions -- a 3.5 percent annual GDP growth rate and a 5.5 percent unemployment rate -- for the rest of this century, the deficit would still remain about $200 billion through FY1998. The reason: entitlements will grow at about double the rate of the 3.5-percent real growth path.

The problem is that the Clinton plan is grossly inadequate. The White House plan would levy an enormous tax increase while reducing the deficit by only 25 percent.

Five Principles for Spending Cuts

Mr. Clinton adroitly turned the tables on his critics. To those who say he has not come up with enough spending cuts, the president has said "Show me yours" and "Be specific." Well, Mr. President, here are our spending cuts. Our plan would balance the budget by FY1998 without a penny of new taxes and without requiring savage cuts to the most politically popular programs.

Our plan is based on five principles:

1) With the Cold War over, our military requirements are lower than Congress or the president are willing to acknowledge. Defense spending can be reduced without jeopardizing our vital national interests.

2) America must abandon the misleading concept of "mandatory" or "uncontrollable" outlays. The only types of spending that should be regarded as fixed obligations of the federal government are interest payments on the federal debt, expenditures for deposit insurance, and the real pension benefits of retired federal employees and current recipients of Social Security. All other expenditures are only uncontrollable to the extent that Congress chooses not to control them.

3) Several trends in federal spending must be recognized as unsustainable. Outlays for medical care have increased at roughly twice the rate of the gross domestic product. This increase cannot be sustained, and it is better to correct the condition early. Overall federal spending has increased from 16 percent of GDP in 1950 to 20 percent in 1970 to 23 percent in 1990, and a projected 28 percent by 2000.

4) A significant part of federal spending generates benefits for high-income people. Such benefits as Medicare, the school lunch program, and farm subsidies should be a special target for spending reduction.

5) Hundreds of domestic programs are no longer necessary, and many never were. The Small Business Administration, the Economic Development Administration, virtually the entire Department of Energy, and many other agencies should be abolished. Nearly $100 billion a year is spent on domestic programs that have been identified as candidates for termination by such independent agencies as the Congressional Budget Office, the General Accounting Office, the Grace Commission, and the House Budget Committee (under the chairmanship of Leon Panetta, now Clinton's OMB director). They survive not because they serve any national interest, but rather because of political or parochial considerations.

A Streamlined Defense

TABLE 1 summarizes the August 1992 Congressional Budget Office estimate of the FY1993 budget and the forecast of the budget through FY1998. It conveys the magnitude of the task ahead: total outlays in FY1998 must be reduced by $311 billion to balance the budget by the end of that year. It also makes clear where the budget cutting must take place: three programs -- defense, Social Security, and medical care -- account for almost two-thirds of total program outlays. A "politics as usual" approach clearly will not do the job. TABLE 2 shows our recommended savings to achieve a balanced budget.

The Cold War is over. We won. The Soviet Union has collapsed. We now face no substantial military threat to our vital national interests. So far, however, the Department of Defense has been busy fantasizing new missions rather than reducing forces to a level consistent with the new geo-political realities. Even the level of real defense spending proposed by President Clinton, although a step in the right direction, is much too high. He plans to devote about the same real funding to the military as during the peak of the Cold War in the early 1960s.

One of the primary reasons for a commitment to balance the budget is to overcome the bureaucratic and political resistance to reducing programs and budgets even when there is a substantial decline in the demand for them. Unlike private businesses, federal agencies almost never scrap a program or activity, no matter how ineffective or costly.

Several responsible groups of defense analysts have recently proposed U.S. defense programs that would reduce the real military budget to about one-half the FY1992 level by the end of this decade. These programs differ in some details, but share the following general characteristics, including:

- Eliminate land-based multiple-warhead missiles.

- Limit purchase of B-2 bombers to those now authorized.

- Reorient strategic defense initiative research and development to large-area defense against small attacks.

- Reduce active ground forces to six Army divisions and two Marine divisions.

- Reduce active tactical air forces to 12 Air Force wings, six carriers, and two (double) Marine air wings.

- Phase out all combat units in other countries.

- Reduce procurement rate of new weapons.

- Maintain an active R&D program.

- Increase relative reliance on Reserve and Guard forces.

- Reduce active-duty military personnel from 1.8 million to 1.1 million by 1998.

These changes would reduce total outlays for defense (including small outlays by other agencies) from about $290 billion to about $190 billion by FY1998. The only reason for not making this proposed reduction more rapidly is that conditions in the former Soviet Union are still too uncertain to be confident that a major potential threat would not come again from this source. The proposed budget and force structure is designed as an insurance policy for a nation without any major potential adversary, and should be modified later only if a major potential threat comes from any source.

The proposed force structure would be adequate to maintain a survivable strategic nuclear force, sufficient active forces to meet the types of minor, regional threats that might arise with short warning, and a sufficient mobilization base to respond to a major threat that could only develop over a period of years.

The proposed force would not be enough to maintain a global military presence and deploy a force the size of the one used in Operation Desert Storm, but there are strong reasons to question whether these capabilities are now worth the large cost. On completion of this proposed phase-down, a force as large as that in Desert Storm could be deployed only with substantial augmentation from Reserve and Guard forces. On balance, we regard this limitation as desirable; the willingness to call up Reserve and Guard forces is an important test of whether a flare-up of foreign unrest is a substantial threat to our vital national interests. Although these appear to be dramatic cutbacks, the proposed defense budget would be higher than that of any other nation, and much higher -- adjusted for inflation -- than in any peacetime year before the Cold War.

Long-Term Reforms for Social Security

With a budget of almost $300 billion, Social Security has just passed defense to become the largest single program in the federal budget. Over time, Social Security has been interpreted as a political contract between the working-age population and retired persons. We accept that implicit contract and do not propose to reduce the real pension benefits of those who are now retired. This contract eliminates the possibility of any substantial saving in Social Security outlays in the near term, but it should not cause us to defer dealing with the immense long-term problems of the system.

We reject President Clinton's proposal to raise the tax on Social Security benefits because this significantly raises the marginal tax rate on the elderly, and unfairly punishes them for working and saving. It also does nothing to put Social Security on a sustainable basis. By contrast, two reforms would do this without breaking the contract with current retirees.

First, the increase in the retirement age that is already scheduled should be accelerated. Beginning in FY1994 the retirement age and early retirement age should be permanently lifted by two months per year for the next 30 years. Thus, the age for full retirement benefits would be 66 in 2000, 67 in 2006, 68 in 2012, and so on. Incrementally raising the age for receiving full benefits would cushion the impact of the demographic time bomb that will explode in the next 20 years when the baby-boomers begin to retire. Without a change in retirement age, the ratio of workers to retirees is expected to fall to less than 2 to 1 by the year 2030. Such a dependency ratio would place considerable strain on the economy and a larger burden on today's children -- the next generation of workers. It is also fair for the retirement age to rise along with increases in life expectancy.

The second recommended change to Social Security is to index the growth in future benefits -- technically called the bend points and the earnings history -- to the consumer price index rather than to wages. The benefit formula determines the starting cash benefit level of each Social Security recipient. It is based upon the earnings history of each worker. As real wages rise over the life of the worker, so does the starting benefit level. For example, a worker retiring today starts with an initial benefit level of about $600 per month. If this formula were indexed to inflation, future retirees would still receive increasing real benefits over time, but at a slower rate than currently projected. Real benefits under the formula would double rather than triple over the next 70 years. That change gradually would transform Social Security benefits from a floor on relative benefits to a floor on real benefits, protecting the poor but increasing the incentive of others to save so as to enjoy a higher level of retirement income.

Together, these two reforms would yield only minor savings of $5 billion to $10 billion by the year 2000. But the resulting savings would be more than $400 billion by the year 2030. Both reforms are essential if we are to avoid the 50-percent increase in Social-Security tax rates that would otherwise be necessary to finance the system over the next 40 years. Implementing the reforms early would give current workers a long period to adjust to the changes.

Domestic expenditures have been growing by more than 7 percent per year above inflation since 1989. This growth contrasts with the practices of businesses and households that have been tightening their belts substantially in response to the stagnant economy. The federal government should not be immune from the downsizing that has taken place in the private sector.

A Sequester and a Freeze

Any credible plan to reduce the deficit should pull forward the hard choices. President Clinton's plan does not. It offers spending increases today while deferring to the future what few spending cuts he proposes. A commitment to longer-term fiscal restraint is not credible and will not have the desired effects on financial markets unless the major changes are initiated in the first year of a presidential term. The most realistic way to achieve long-term spending restraint is for President Clinton to adopt the following strategy:

1) The new president should call for a 4-percent across-the- board spending reduction, or sequester, effective in the second half of FY1993. The sequester should cover all programs in the domestic budget except Social Security. The benefit levels of other formula-payment programs would have to be reduced by 4 percent. For discretionary programs, the sequester would be carried out in much the same manner as the 1986 Gramm-Rudman sequester. This would permanently lower the baseline spending levels for every domestic program other than Social Security. The savings would multiply in every future year, thus setting a solid foundation for balancing the budget by FY1998. A principal virtue of the sequester option is that it would signal to the public, Congress, and financial markets that the new president is serious about reducing deficit spending during his administration's tenure.

The sequester would save $14 billion in FY1993 and more than $40 billion in FY1994. Rather than total spending growing by $111 billion, or 8 percent in FY1993, outlays would grow by $96 billion, or 6.6 percent -- which is still double the rate of inflation.

2) A ceiling on all domestic outlays (other than Social Security) should be established at the projected inflation rate of 3.4 percent per year from FY1994 through FY1998.

3) Congress should be given the discretion to allocate funds among programs under the cap. For the overall ceiling to be enforced, any excess spending in one year would require a reduction of equal magnitude the next year. This approach would have several benefits. First, since overall spending would be allowed to increase at the rate of inflation, the package may be politically viable. Second, the overall cap would force programs to compete with each other for funding. Congress would be forced to curtail the growth of medical care and other formula-payment programs because, if those programs were allowed to grow unimpeded, they would crowd out other domestic spending. During the Gramm-Rudman era of 1986-1989, when a similar cap on expenditures existed, funding for formula-payment programs increased at only 1 percent above inflation.

Many changes in current programs, of course, would be necessary to stay within the limits of the proposed freeze on real domestic outlays. Most important of all is medical care.

Cutting Tax Subsidies for Health Care

For many years, the government has stimulated the demand and restricted the supply of medical care. The consequence has been rapid growth of both medical care prices and expenditures. Total expenditures for medical care have increased from about 5 percent to 14 percent of GDP over the past 30 years. The Congressional Budget Office forecasts that real federal expenditures for Medicare and Medicaid will rise by a 7.8 percent a year through the end of the century. Today, federal outlays for Medicare and Medicaid amount to $225 billion, not including state outlays for Medicaid.

Both the president and Congress appear ready to accelerate the explosion of medical care inflation and expenditures by broadening health insurance to the roughly 35 million Americans who are now uninsured. This unavoidably will increase the demand for medical care, thereby augmenting current pressures for raising medical care prices. Sadly, neither President Clinton nor Congress has yet designed a credible plan to reduce the rapid increase in medical prices and expenditures.

The crux of the medical-care cost crisis is contained in one statistic: since 1960, the share of health-care costs paid directly by the patient has declined from about 50 percent to about 20 percent. Given the dominance of third-party payments, neither patients nor physicians have an adequate incentive to control the costs of medical care. Meanwhile, the demand for medical care will continue to increase in response to an increase in real incomes and the relative size of the elderly population.

The primary focus of policy makers should be on reducing the growth of demand attributable to tax-subsidized private and public health insurance.

These subsidies should be reduced primarily for higher- income people to ensure that they bear part of the burden of balancing the budget. Tax-subsidized medical plans should be restricted to Medisave or to plans with a high income-tested deductible. One or more of the following measures should be considered as a way of achieving those objectives.

1) Maintain the tax deduction only for Medisave plans. A Medisave plan, in effect, is a medical IRA. Every person would be allowed a tax deduction up to a certain limit per year for funds set aside in a medical IRA. Individuals would be allowed to draw on these funds to purchase medical insurance or pay for out-of- pocket medical expenses. After a set amount is accrued in this fund, say $20,000, the excess may be spent for any purpose, and any amount remaining at death would be included in the person's estate. A full deduction for that type of insurance also should be extended to purchasers of individual plans.

2) Either limit or eliminate the tax deduction. A limit could be set at some rate, such as $150 a month, that would be sufficient only for a high income-tested deductible. In either case, reduce the payroll tax by a corresponding amount; elimination of the tax deduction, for example, would permit a 2.2 percentage-point reduction in the payroll tax for all workers with no net effect on federal revenues.

3) Establish an income-tested deductible for the sum of payments under Part A and Part B of Medicare. This deductible could, for example, first be set at 1.5 percent of adjusted gross income (AGI) in the prior year and then increased 1.5 percentage points each year for four years. Thus, beginning in the fifth year, the deductible would be 7.5 percent of the prior year's AGI, the same rate that is now in the individual income-tax code. Payments above the deductible, in most cases, would be fixed payments to the patient per illness or accident. The plan probably should be enlarged to pay for one free visit to a physician a year to encourage periodic examinations and preventive care.

4) Establish a similar plan with a high income-tested deductible for all Americans, including those who would otherwise be uninsured. This comprehensive catastrophic health-insurance plan would replace the current tax deduction for private insurance and the outlays for both Medicare and Medicaid. The plan should be augmented to pay for several free visits to physicians each year by pregnant women and infants.

All of these measures would reduce the growth of the demand of medical care, the relative inflation of the price of medical services, and total private and public expenditures for medical care. The measures are listed in the order of increasing budget savings. They would reduce the growth of outlays for medical care by at least one percentage point a year, so a $50 billion annual savings by 1998 could reasonably be expected. Even with such savings, outlays for medical care would increase at a higher rate than for any other major federal program.

Welfare Savings

The federal government, along with the states and cities, spends roughly $200 billion per year on anti-poverty programs -- almost three times the amount necessary to lift every poor family above the poverty level. Yet the poverty rate in the United States remains extremely high. As welfare expert Charles Murray of the American Enterprise Institute emphasizes, "The tragedy of the welfare state is not how much it costs, but how little it has bought." The system does not work well for either the poor or the taxpayer. The evidence suggests that welfare programs, as they currently are constructed, actually contribute to poverty more than they combat it.

One positive sign is that financially strapped state governments are beginning to experiment with cost-reduction reforms in welfare. The most ambitious of those experiments, designed to get people off welfare and into jobs, have been adopted in Wisconsin under Governor Tommy Thompson. Unfortunately, cost cutting is often discouraged by the current federal reimbursement scheme, because any welfare or Medicaid expense reduction means smaller checks from the federal government.

One method of spurring innovation in welfare and government health-care insurance is to force all states to pay at least half the cost of the Food Stamps, AFDC, and Medicaid programs. Under current law, the poorest states pay half the cost of these programs, whereas the richest states pay as little as 30 percent of the cost of these programs. This cost-sharing measure should be combined with a substantial reduction in the federal mandates to allow state governments increased flexibility to structure the supply of welfare services. This state participation would save the federal government $4 billion annually by FY1998.

The most important welfare reform is to consolidate AFDC, Food Stamps, public housing assistance, the earned income tax credit (EITC), and other welfare programs into a single public- aid program requiring job training. This single cash-payment program would require all able-bodied recipients, except for those with children below the age of six, to participate in a training program or to perform a public-service job if they are unable to find a private sector job. The program would have three benefits over the current system: it would reduce welfare cheating by weeding out those who are collecting welfare but working in the private sector already; it would instill in young Americans the idea that welfare is not a substitute for work; and it would eliminate many overlapping federal and state welfare bureaucracies.

Such a broad welfare overhaul may sound highly controversial and even cold-hearted. Yet many states, including Massachusetts and Michigan, have moved toward eliminating welfare for able- bodied adults, and these reforms have commanded broad public support. Moreover, President Clinton has spoken favorably of ending welfare assistance for those on the rolls for more than two years by arguing that "welfare should be a hand up, not a hand out." Senator Daniel Patrick Moynihan, one of the nation's experts on welfare, has advocated full-scale program consolidations. These reforms would save roughly $16 billion a year by FY1998.

Reforming Unemployment Insurance

The unemployment insurance system also is badly flawed. Studies have shown that roughly one-third of all unemployment in the United States is a result of the federal government's perverse unemployment insurance system. It subsidizes layoffs and rewards those who become unemployed, encouraging them to stay unemployed. Yet in the past two years, Congress has made the unemployment insurance system even more rewarding by extending benefits from 26 weeks to 52 weeks or more. Almost all unemployment insurance claimants are able-bodied employable adults. Benefits could be delayed for one month upon job loss and reduced by 5 percent per week for 20 weeks. The Congressional Budget Office estimates that the savings from such reforms in unemployment insurance would be about $5 billion annually.

Even many advocates of public housing now concede that the huge public-housing projects built in the 1960s and 1970s were an expensive mistake. Public-housing projects became unlivable centers of crime, drugs, teen pregnancy, juvenile delinquency, and a vicious cycle of poverty. Yet under George Bush, from 1989 to 1992, new public-housing starts accelerated. In almost all areas of the country today, the low-income housing problem is one of a lack of affordability, not a lack of availability. And the short supply of low-income housing in some cities is a result of counterproductive government housing policies, such as rent control, building-code regulations, and exclusionary zoning. No new public-housing units should be built. Instead, a housing voucher program should be available to very poor households. Experience indicates that vouchers are as much as 50 percent less costly than traditional public housing, translating into nearly $4 billion of savings each year.

Domestic Priorities

Since 1980 only a handful of programs of the thousands in the budget have been closed down, despite a growing bipartisan consensus that tens of billions of dollars in savings could be generated by such measures. We recommend these additional spending cuts:

- End additional U.S. financial support for the International Monetary Fund (IMF) and the World Bank. The mission of the IMF and the World Bank is to promote development of less- developed countries. After tens of billions of dollars of U.S. investment in those multilateral organizations, there is no evidence that they have had any success in promoting growth in the countries they supposedly are assisting with their lending programs. Annual savings: $1 billion.

- Reduce U.S. foreign aid to Israel and Egypt. Israel and Egypt each receive more than $2 billion in U.S. taxpayer military and economic support each year. Considering the huge military budgets of these two nations and the elimination of the Soviet threat in the Middle East, the case for massive U.S. assistance has been substantially reduced. Annual savings: $2 billion.

- Cancel the supercollider and the space station. Increasingly, the scientific community is questioning the potential benefits to science and research of the supercollider and the space station. The scientific value of the space station's manned missions to the moon and Mars are not expected to come close to matching its $10 billion-plus, five-year price tag, according to the CBO, the National Research Institute, and the Office of Technology Assessment. Annual savings: $3 billion.

- End Bureau of Reclamation water projects. The Bureau of Reclamation was formed in 1902 to promote the economic development of the arid West. After 90 years that mission has been accomplished -- often at the expense of the environment. Annual savings: $2 billion.

- Phase out all agriculture crop subsidies over five years. In the 1980s, farm subsidies were the fastest growth area in the entire budget, ballooning from $4 billion in 1980 to $30 billion in 1986. This year they will total $19 billion. These funds subsidize production of a whole range of commodities: cotton, wheat, wool, and corn. The Department of Agriculture concedes that two-thirds of the payments are made to the richest 15 percent of U.S. farmers. Annual savings: $9 billion.

- End all Rural Electrification Administration (REA) lending and subsidies. The REA, the federal government's greatest anachronism, was created in 1935 to bring electricity and telephone service to rural America. Its mission has been accomplished. More than 98 percent of all rural homes now have access to electrical and phone service. Yet the agency continues to lend over $2 billion at subsidized rates to rural electric co- ops each year. This is one of the few cuts proposed by the House Budget Committee that President Clinton has picked up. Annual savings: $1 billion.

- Eliminate the Small Business Administration. The best way for the federal government to help U.S. small businesses is to cut wasteful spending and the excessive taxes that pay for it. The SBA loan programs assist less than 0.5 percent of all small businesses. Annual savings: $1 billion.

- Terminate subsidies for urban mass transit. Since 1965 the federal government has spent nearly $50 billion on urban mass transit, yet ridership has declined since then. The 1990 census revealed that in virtually every city that built an expensive new rail project in the 1980s with federal support, mass transit had a declining share of the commuter market. Annual savings: $2 billion.

- End funding for the National Endowment for the Humanities (NEH), the National Endowment for the Arts (NEA), and the Corporation for Public Broadcasting (CPB). Art and culture play an important role in society, but that is not an argument for federal financing of such activities. Most programs of the type funded by the NEH, the NEA, and the CPB should and could be financed entirely with private money. The clientele for each of those programs tends to be the affluent, a group that can afford to pay for the art and culture they demand. Annual savings $1 billion.

- Repeal the Davis-Bacon Act. The 1931 Davis-Bacon Act requires construction contractors to pay their workers at least the "prevailing wage" on all federal construction contracts. In practice, the prevailing wage has become the union wage. It inflates the cost of the tens of billions of dollars of federal construction contracts by an estimated 30 percent. The Davis- Bacon Act also often leads to discrimination against those minority-owned contracting companies with lower-paid workers. Annual savings: $2 billion.

- Cut all agency overhead by 2 percent. The federal workforce grew by 140,000 workers between 1984 and 1992. The federal budget grew by 30 percent in real terms from 1989 to 1992. A 2-percent across-the-board reduction in overhead costs should be easily achievable without sacrificing government services. Even President Clinton has called for a 100,000-person reduction in the federal bureaucracy. Annual savings: $6 billion.

- Eliminate the U.S. Department of Energy. The U.S. Department of Energy was created by Jimmy Carter in 1977 during the height of the oil crisis. Since then, the DoE price controls and subsidies have cost U.S. taxpayers, consumers, and industry tens of billions of dollars. The length and severity of the oil crisis of the 1970s were directly attributable to the regulatory apparatus of DoE -- namely, oil price controls. The lesson of the 1970s and 1980s is that energy markets serve consumers and industry best when the free market is permitted to operate. Annual savings: $6.5 billion.

- Cut regulatory agency budgets by 25 percent. Federal regulations grew at a rapid pace in the period 1989-1993, reversing the anti-regulation policies of Ronald Reagan. At the same time, the budgets of all regulatory agencies grew at twice the inflation rate. That period proved that more money and more regulators lead to more stifling regulation. Cutting regulatory budgets would unshackle business from frivolous regulatory burdens that have contributed directly to the current very sluggish economic growth. Annual savings: $1.5 billion.

For the Sake of Our Children

Are the program reforms as outlined here politically achievable? That depends on how committed Congress, President Clinton, interest groups such as the business community, and, most important, the public are about tackling our $300-billion annual addiction to red ink. If Congress has a serious commitment to deficit reduction, we have laid out a serious, pro-growth proposal for accomplishing this goal. Compared with the president's budget plan, it accomplishes roughly three times as much deficit reduction. Making the tough choices will not be much fun for our federal politicians, but if they are not willing to do so, they are part of the problem and should be replaced. Yes, it can be done. No, it won't be easy. But for the sake of our children and grandchildren, it's time to get started.

 The Federal Budget Outlook: FY1993-FY1998

(Billions of $) 1993 1994 1995 1996 1997 1998

 Defense $297 $284 $284 $287 $290 $293
 Social Security 302 318 336 354 374 394
 Medical 226 251 280 314 349 389
 Other 482 487 491 507 520 565
 Total Spending 1307 1340 1391 1462 1533 1641

 Deposit Insurance 49 17 5 -7 -16 -20
 Offsetting Receipts -67 -69 -72 -74 -76 -79
 Net Interest 204 223 244 263 284 303
 Total Outlays 1493 1511 1567 1644 1745 1845

Contributions 1162 1242 1323 1390 1455 1534

Deficits $331 $268 $244 $254 $290 $311

(Source: Congressional Budget Office, The Economy and Budget
 Outlook, August 1992)


 Proposed Budget Savings: FY1993-FY1993

(Billions of $) 1993 1994 1995 1996 1997 1998

 Defense $0 $16 $41 $61 $81 $101
 Social Security 0 0 1 2 3 4
 Medical 0 1 7 18 30 50
 Other Domestic 14 35 41 58 72 118
 Net Interest 0 2 8 16 30 49

 Total 14 54 98 155 216 322
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Title Annotation:budget balancing without tax increases
Author:Niskanen, William A.; Moore, Stephen
Publication:Policy Review
Date:Mar 22, 1993
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