Closed for the Holidays?
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MARGARET WARNER: This morning, the Clinton administration and congressional Republicans exchanged new balanced budget offers. This afternoon, the two sides abruptly broke off their talks again. This raises the very real prospect of another government partial shutdown at midnight tonight. To help us make sense of this, we’re joined by Susan Dentzer, chief economics correspondent for “U.S. News & World Report.” Welcome, Susan. Let’s try to make sense of this. Today was supposed to be the beginning of a marathon weekend budget negotiating session with two new offers on the table. What happened?
SUSAN DENTZER, U.S. News & World Report: Well, what we had, Margaret, really was a combination of some flexibility introduced on both sides, but a whole lot of intransigence the net effect of which was not really to advance the ball very much at all. In fact, what happened was the White House came and said it was willing to make some changes, it was willing to take its seven-year tax cut, for example, and turn it into a five-year tax cut, if that was necessary, saving about $23 billion here, it was willing to make some changes, but it also was continuing to adhere to its insistence that the economic assumptions of the Congressional Budget Office were too conservative and that those still had to be negotiated in order to get a final deal. On the Republican side, again, we had some yielding. They were willing to come down on the sides of the Medicare cuts and the Medicaid cuts that they had proposed initially. They were also willing to talk about a tiny, tiny little change in the tax cut that would save only $5 billion out of $245 billion tax cut, not the kind of thing that was really going to advance the ball and get them much, much closer to an agreement, so as I say, a combination of flexibility but much intransigence on both sides.
MARGARET WARNER: But then why did they break off the talks?
MS. DENTZER: Mainly–it depends on whom you talk to. The Clinton administration maintains that the fundamental reason that the talks were broken off was that the Republicans were still demanding very large cuts in the rate of growth of Medicare and Medicaid, much larger that the administration would be willing to make, and we know that the administration is willing to come up on the numbers that they have originally discussed. That’s the administration’s side of the story. The Republican side of the story is that the administration is still talking about “smoke and mirrors” kinds of changes, that is to say changes in the economic assumptions which make a huge amount of difference when you’re trying to calculate the overall amount of budget savings that you need.
MARGARET WARNER: All right. So are we going to see this partial government shutdown, and how extensive is it going to be?
MS. DENTZER: I have a feeling that come Monday we will be humming some version of “Oh, little town of Washington, how still we see thee lie” in the sense that at least 280,000 or so government workers and affected agencies where the appropriations bills have not yet been passed, they will be reporting to work on Monday morning and then going promptly home, in all likelihood, unless we see something that we’re not expect tonight, which is the passage of another continuing resolution, so it mean, in effect, that if you were planning on going down to the Social Security Office on Monday morning, you’re probably going to find a “closed” sign hanging outside, and as well as some other government offices, the Justice Department, Labor Department, and so on.
MARGARET WARNER: The ones that the budget bills have not been passed–
MS. DENTZER: That’s–
MARGARET WARNER: Like the appropriations bills?
MS. DENTZER: That’s correct, and affecting a total of about 280,000 workers, which is much smaller than last time around, where roughly 800,000 federal workers were affected.
MARGARET WARNER: All right, now, three weeks ago as a way of ending the last partial shutdown, the White House agreed that they–that the CBO, the Congressional Budget Office, numbers would be used as the basis for these negotiations once the Congressional Budget Office revised them, and then the Congressional Budget Office did so. Why does the White House still refuse to come up with a balanced budget plan for seven years that uses the CBO numbers and then argue about the priorities within that?
MS. DENTZER: Well, for one thing, the White House maintains that the process is important, that the two sides should reach a deal first, then have the CBO score it according to its economic assumptions, and then tell everybody how it’s going to come out, rather than starting using the CBO presumptions as a starting point and then discussing how much money really needs to be saved. It’s really a process issue to a certain degree, but another more fundamental issue is that although the CBO assumptions are more conservative, it doesn’t necessarily mean that they’re right. For example, there’s a big difference of opinion on what corporate profits will be five years from now. Now, everybody who’s an economist knows that forecasting corporate profits next year is a tough enough problem. It becomes a critical problem when you’re trying to come up with a budget because corporate profits are taxed, and the level of corporate profits will, in turn, dictate your tax revenues. But the White House is maintaining that the CBO has got some numbers on corporate profits that are not appropriate. In a way, this is trying to forecast the unforecastable. It’s a difficult argument.
MARGARET WARNER: So are you saying that when they seemed to agree three weeks ago they were going to use CBO, that wasn’t really the case?
MS. DENTZER: They disagreed about exactly how they intended to use the CBO numbers. I have to make a broader point here, though, which is that we really need to step back from this and focus on what’s at issue here. Essentially, what the White House has put on the table even using CBO assumptions, which are more conservative, is a plan that would lead to not a balanced budget in 2002 but a deficit that is only about 1 percent of the Gross Domestic Product. That is over and against a deficit that was almost 5 percent of the Gross Domestic Product in 1992. We’re talking already about two sides who have agreed to enormous fiscal policy changes, and policy changes, frankly, that would have enormous economic benefits for the country. It’s hard to argue that a shutdown should be waged, when we’re already talking about something that is a very, very serious difference.
MARGARET WARNER: Thanks, Susan, very much.
MS. DENTZER: Thanks, Margaret.