SPENDING BILL PASSED

October 21, 1998

Margaret Warner is joined by Rudolph Penner and Robert Reischauer to discuss the details of the 1999 budget.

MARGARET WARNER: Today, members of the U.S. Senate spent their final legislative day of the year adopting the $520 billion spending bill that cleared the House last night. The catch-all builds folds in eight, usually separate, spending measures, with appropriations for 10 cabinet departments and many other federal agencies for the rest of the fiscal year. The Senate vote was a solid 65 to 29, but some senators voiced displeasure with the 40-pound, 4000-page document, saying they didn't know what was in the $1/2 trillion bill. SEN. JOHN ASHCROFT, (R) Missouri: Today, it feels like I was asked to be nothing more than a rubber stamp for a deal made by a handful of individuals who assumed that they had the power to speak for all of us. MARGARET WARNER: The outlines of the budget deal were agreed on last Thursday by President Clinton and Republican leaders, after days of closed-door talks. Among the new programs were money to hire 100,000 new teachers and $18 billion in extra funding for the International Monetary Fund. But it took the negotiators several more days to nail down all the final details. SPOKESMAN: The Senator from Iowa. MARGARET WARNER: Still, Iowa Democrat Tom Harkin, a member of the Appropriations Committee, blamed the Republican leadership for rushing the bill without giving members time to read it. SEN. TOM HARKIN, (D) Iowa: Republican leadership in the Senate and in the House has shown the grossest disrespect to the taxpayers' dollars. This is really a cavalier treatment of taxpayers' dollars when you think about it, the way this bill was put together, no one knows how much is in there, billions of dollars being spent, and yet, a lot of it never debated or shown the light of day in either the House or the Senate. MARGARET WARNER: One of the most contentious items is $20 billion worth of emergency spending, as it's called, earmarked for military readiness, peacekeeping in Bosnia, and aid to farmers. This $20 billion in emergency spending was taken out of the $70 billion budget surplus inherited from last year, instead of being offset with spending cuts. Republican Senator John McCain, among others, was critical. SEN. JOHN McCAIN, (R) Arizona: Designating spending as an emergency doesn't make it free. It still has to be paid for, and the Congress blessed with the first budget surplus since 1969 has been unable to resist a temptation into that $70 billion surplus and spend it on pork. The President declares we must save Social Security first. Members of Congress declare we must say Social Security first, yet, we spend billions from the surplus on everything but Social Security. We don't save Social Security. We don't pay down the debt. We don't return taxpayers a little of their hard-earned money, but we can spend a little more on pork. MARGARET WARNER: The President signed the bill late this afternoon. House and Senate members, meanwhile, are on their way home to campaign for the mid-term elections. MARGARET WARNER: Two long-time budget watchers join us now. Both have served as head of the Congressional Budget Office. Rudolph Penner was appointed CBO chief by Senate Republicans in the mid 1980's. He's now a senior fellow at the Urban Institute. And Robert Reischauer was named to the post by Democrats and held it from 1989 to 1995. He's now a senior fellow at the Brookings Institution. And, Mr. Reischauer, this is the first time in a long time that Congress has had a surplus to factor into its budget negotiations. How did that change things? ROBERT REISCHAUER, Brookings Institution: Well, at first, it didn't change things, because we were projecting a small deficit for the current fiscal year. And then, as the year progressed, surpluses emerged, and the surpluses began to grow. And this was very destabilizing simply because the deficit and the battle against the deficit had been very much like the Cold War. It had brought together parties with different ideologies, different priorities to battle against a common enemy, and they developed processes, rules for conducting behavior. Suddenly, the common enemy disappears and all of the differences that they have re-emerged and they're at each other's throats. MARGARET WARNER: Do you see it that way, it was really much more difficult to manage because of the surplus? RUDOLPH PENNER, Urban Institute: Well, it was a surprise. We didn't know that surpluses went - caused that kind of problem. But if you look at the big picture, in many ways the nature of the disputes, the tensions, the delays, the amount of pork barrel stuff in the bill and so forth were very similar to past behavior. But I think the one element that's really important that Bob didn't mention is that President Clinton essentially took the surplus away from them when he said let's save it to solve the Social Security problem. And the Republicans, I don't think, ever figured out how to deal with that. MARGARET WARNER: Yet, they did spend, what, $20 billion of it, 28 of 70 billion. How did that happen? RUDOLPH PENNER: Well, they did, indeed. First of all, it's not the first time that we've had this kind of emergency spending, although this is much bigger than usual. I do think that the surplus made them a little more careless as to how much they might spend. MARGARET WARNER: Carelessness? ROBERT REISCHAUER: And it wasn't just the Congress. This was the President. He had both fists in the pot as well. Many of these emergency designations were ones that he proposed. He upped the ante with respect to agricultural emergency spending, doubled basically what the Republicans were willing to do. So, you know, to the extent that there's blame to go around, it should be shared quite equally by both parties. MARGARET WARNER: So is it fair to say that they did bust the budget, the balanced budget agreement that they made last year? ROBERT REISCHAUER: They stretched it a good deal, and I wouldn't make a tremendous amount out of this because while $20 billion more has been appropriated in the sense to be spent, that will probably end up being about only $10 billion in outlays that affect the deficit next year and a little more in the following year. That's to be expected when you have - go from a situation of a projected $5 billion deficit to a $70 billion surplus and when you've been in an environment of large oppressive deficits for 20 odd years. RUDOLPH PENNER: I think it's a little more important than Bob said, because the limits on spending this year were really fairly lenient, compared to what the agreement says we have to do in future years, and, indeed, there are outright cuts in normal spending, 2002 in the agreement. And what it shows is that these spending limits just aren't practical politically. And if the Congress keeps violating them and keeps increasing the real value of spending, instead of cutting it, as the agreement says, you can easily make up scenarios where half the projected surplus vanishes in the longer run. MARGARET WARNER: But now some would say if you've got a surplus, why not spend it? RUDOLPH PENNER: Well, I think there are a couple of reasons for not spending it. One, it is at this time very valuable to pay down the national debt so that we can reduce the amount that we have to pay in interest every year. By doing so, we'll prepare ourselves a little better for the real budget problems that are going to hit us after 2010, when the baby boomers start to retire. So we've had the debt almost the value of our GDP. It would be good to get it down to maybe a quarter or so before that happens. ROBERT REISCHAUER: And if we were to pocket all these surpluses, use the projected surpluses to pay down the national debt, by about 2010 our debt relative to the size of our economy, would be down to a level lower than any that we've experienced since before the Great Depression. And that would put us in really strong position to deal with the retirement of the baby boom generation. MARGARET WARNER: A small point. Technically or we don't really have a surplus, do we? Isn't that really from taking money from Social Security? I don't want to open a can of worms here, but just - RUDOLPH PENNER: You have done so. ROBERT REISCHAUER: The facts are that the Social Security trust funds are running about a $99 billion surplus in the budget year just passed, just closed. And the balance of the budget, all the other things, the Justice Department, the Agriculture Department, Medicare, Medicaid, all amount to about a $30 billion deficit. So the American public really isn't sending in enough non-Social Security taxes to pay for the non-Social Security goods and services in transfers that they're getting from our government. MARGARET WARNER: The President said today that he wants to come back and talk about reinventing Social Security and they've talked about this before in 1999. Does the bit that they nicked the surplus this time have a practical effect on the ability of the President and Congress to tackle Social Security next year? RUDOLPH PENNER: Well, if we're lucky, and the projections come out as we now think they will, I think there will be enough left over to ease the cost of various types of Social Security reforms that you might think of. In particular, it's often proposed would people save individually to finance their own retirement? Well, if you force them to do that, that's an extra burden on them. So if you can cut taxes to offset that pain, that's one way of making that option much more feasible than it would be otherwise. MARGARET WARNER: Tax cuts is another thing that didn't happen, even though the Republicans had started the year saying they really wanted to give a big tax cut. Why didn't that happen? ROBERT REISCHAUER: It didn't happen because there's big differences between Republicans and Democrats on the form that tax cuts should take, that Democrats want to provide more tax relief to lower income people. Republicans are more interested in providing tax relief that might stimulate economic growth, and usually that means providing tax relief for those with higher incomes. RUDOLPH PENNER: But the Republicans are also terribly divided on the issue. The Senate couldn't agree with the House. A lot of the Senators thought it was a good idea to save the surplus. MARGARET WARNER: So would you say that the President's assertion at the beginning of the year that it should be saved really put a chill? RUDOLPH PENNER: Oh, most certainly. It was very clever politically, and I think it was also clever substantively. ROBERT REISCHAUER: It was good policy and good politics, and the question is whether it will be so in the future, because there's a lot of claims out there for that surplus. The President has -- and the Republicans say they want to boost defense spending. The President has education and environment initiatives; the Republicans have tax cuts. We want to strengthen Social Security. We're going to have to fix up some of the problems that are going to emerge with the Medicare reforms that were adopted in 1997. There's an unending list of claimants for that surplus. MARGARET WARNER: So does this process this year give you more or less hope, optimism for the balancing act that will have to continue, and what budget talks really are? I mean, do you think, in other words, that there - the two sides or the five sides, or however many sides there are, do you agree with Mr. Reischauer that, if anything, having a surplus makes this competing priorities just compete more? RUDOLPH PENNER: Well, it's a terrible process to watch, first of all, and one of the things we haven't talked about is that I think it rather carelessly set aside the spending limits by using this emergency spending as a loophole. And one has to worry about that, I think. But it's - it is business as usual, unfortunately. The appropriations season usually ends in this kind of - in this kind of confusion. In the longer run the key issue, I think, involves Social Security and Medicare, in other words, how do we deal with the retirement of the baby boom generation, and right now I can't be real optimistic that we'll see much action on that this coming year, but that should be the really first priority of the Congress. MARGARET WARNER: All right. ROBERT REISCHAUER: The question is whether in a democracy that is up for re-election every two years policy makers can focus on the long run, because in the short run there's nothing wrong with Medicare, there's nothing wrong with Social Security. It's really ten, fifteen, twenty years out that the problem emerges. By doing something moderate now we can ease the problem in the future, but I, like Rudy, have a great deal of skepticism whether we'll be able to rise to that challenge. MARGARET WARNER: Spoken like two budget chiefs. Thank you both very much.