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Backgrounder #931 on Federal Budget

March 5, 1993

The Clinton Challenge Answered

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(Archived document, may contain errors)

931 Much 5,1993 INTRODUCTION president Bill Clinton has issued a challenge to critics of his eumomic plan. He is ask ing those who belie* that the package is weighted too heavily toward new taxes and too lightly towad reducing spendin g to put forwad their own list of spending cut options.

Put up, Clinton says in effect, or shut up.

Upon closer examination, however, the Clinton challenge rings hollow. Many of the 150 specific cuts Qinton claims are in his own budget really are vague r ehnces to g government, accounhg gimmicks, and tax increases masquerading as Strcamlmm spending cuts. Clinton himself failed to make the tough choices he now challenges others to make. And curiously, his plan omits dozens of sound spending cut lecommendat i ons previously promoted by his own advim, OiIce of Management and Budget (Om) Di rector lam Panetta and Deputy Director Alice Rivlin, and others which have been on the shelf for years. Indeed, many of these ideas have been developed by congresSs own resca xch arxns, only to be ignored by lawmakers.

Heritage Foundation scholars haw accepted Clintons challenge and developed a list of 15 1 possible ways of cutting federal spending. The total value of the spending cuts pm sented here is me $609 billion over five years-fiscal 1994 through 19

98. This list is composed entirely of nondefense spending, but excludes Social Security spending.

Wff-the-Shelf Cuts. The Heritage list is drawn largely fnnn off-the-shelf spend ing cuts already developed by the Congression al Budget office 30) and the General Accounting Mice (GAO which are measch arms of Congress, and by the Office of Management and Budget (OMB In some cases, the list also draws fiom proposals pre viously put farward by Heritage scholars, as well as proposa l s by OMB Director Panetta in a deficit reduction plan he developed while Chairman of the House Budget Commit tee Orhers axe taken from Bill Clintons new economic package, A Vision of Change for America. The some of each lecmmendation is identified where p o ssible DO-NOTHING CONGRESS The Heritage list includes many sound ideas for cutting federal spending that have been proposed for over a decade and have yet to receive a proper public hearing from Congress. For example, in February 1981, the Congressional B u dget Office-then under the leadership of Alice M. Rivlin, currently Deputy OMB Director-published the first of its annual reports on spending cuts and revenue-raising options for reducing the defi cit.' Many of the spending cut options suggested by CBO th e n are still valid today be cause Congress has ignored them Indeed, while still Chairman of the House Budget Committee, OMB Director Leon Panetta also put forward many of the same recommendations in a deficit reduction plan he proposed last year? The spend i ng cuts nxommended by Rivlin and Panetta before they joined the Clinton team include Reduce funding on highways Eliminate Essential Air Service subsldies Cut Urban MassTransit subsidies Elimlnate Rural Development loans Eliminate farm deficiency payments R educe funding for Amtrak x Repeal the 1931 Davis=Bacon Act Eliminate maritime industry subsidies Eliminate the Market Promotion Program Eliminate the Appalachian Regional Commission Use block grant funding for AFDC and Medicare adrninistratlve costs; and E nd the Airport Grants=in=Aid program Curiously, only a few of these programs are scheduled for reductions in the Clinton plan. For example, the 200 million per year Market Promotion Program and the $100 million Appalachian Regional Commission are not actu a lly cut, but only frozen at fiscal 1993 levels. Others, incredibly, are scheduled for significant increases in funding. For in stance, Amtrak, which will receive some $500 million in subsidies this year, will get 159 million more in the Clinton plan. And U rban MassTransit subsidies, which now total some $1.5 billion annually, will be boosted by another $2 billion over the next five years by the Clinton plan 1 2 Congressional Budget Office, Reducing the Federal Budget: Strategies and Examples, Fiscal Years 1982 1986 February 1981.

Leon E. Panetta, Balanced Budget Amendment Options, Committee on the Budget, U.S. House of Representatives May 26,1992 2 Congress also has paid little attention to the recommendations of GAO, the governments own auditing agency. Th e GAO was established by the Budget and Ac counting Act of 1921 to perform accurate audits and evaluations of federal programs. Yet when GAO in 1979 recommended the repeal of the Davis-Bacon wage-setting law, on the grounds that the law raises the cost of federal construction projects and makes it more difficult for blacks and other minorities to get jobs in the construction industry, Congress refused to take action. Some Members of Congress savagely attacked GAO for even dar ing to raise the issue.

Perhaps Congresss most significant case of turning a blind eye was its reaction to the November 1989 release of GAOs fourth annual report on the Federal Managers Finan cial Integrity Act of 19

82. This act was intended to control waste in Federal Financial Management Systems. GAO found over 150 billion in program waste, fraud, and finan cial mismanagement. Commenting on this staggering sum, GAO Compmller General Charles A. Bowsher declared on N o vember 29,1989, before the Senate Governmental Affairs Committee: The problems that exist are not limited to a few agencies or a few programs; rather all of the major agencies have serious problems.ss3 tens of billions of taxpayer dollars continue to be w a sted throughout the federal bureau cracy Congress has yet to make any substantive moves to comct these problems. As a result Among the other GAO recornrnendations so far ignored by Congress Elimination of honey, wool, and mohair subsidies Repeal of the Se r vice Contract wage-setting law Correcting massive loan defaults in the Farmers Home Administration Privatizing the Government Printing Office FmHA and Despite its reputation for draconian cuts, even the Reagan Administration could not convince Congress to eliminate wasteful programs. According to a Congressional Re search Service report, 94 programs were recommended for termination during the Reagan Administration. Of these (many of which appeared repeatedly in the eight Reagan budgets), Congress eliminate d only twelve. And all but one of these, Urban De velopment Action Grants (UDAGs) were terminated in Reagans first term. Another ter minated pgram, the Comprehensive Education and Training Act (CETA subsequently was replaced by the far more expensive Job T raining Partnership Act (JTPA 3 Judith Havemann, OMBs High Risk List DetailsVulnerable Programs, The Washington Post, December 6,1989.

See also: the General Accounting Office, Finuncial Integrity Act: Inadequate Controls Result in Inflective Federal Progru ms and Billion in Losses (GAO/AFMD-90-10 November 29,1989 3 TWO TIERS OF CUTS high-option cuts Low-Option Cuts his level of spending cuts poses the lower level of political pain of the two options. The total value of the cuts in this list is $355 billion. Adding interest sav ings of $54 billion brings the total savings to $409 billion over five years The Heritage listis divided into two tiers of spending cuts: low-option cuts and Hlgh-Option Cuts. This level of spending cuts would be mm politically difficu l t, for two reasons. First, the cuts include reductions in Medicare benefits, as the result of an in crease in coinsurance contributions and deductibles. Second, a few of the cuts do challenge the current budget rules and congressional prohibitions prevent ing the prof its from government asset sales being used for deficit reduction or for tax relief. Heri tage experts believe these rules are fiscally irresponsible and should be eliminated.

These options taken alone would save nearly $175 billion over five y ears. When these cuts are added to the first-tier savings, the total of the entire list rises to $609 billion over fiveyears The Heritage spending cut list focuses solely on nondefense programs. There are two principal reasons for excluding defense cuts f r om this list. First, non-defense spending, in particular domestic spending, is projected to grow at nearly twice the rate of inflation over the next five years. It is this high growth rate that is the root cause of the governments current deficit spending problem. Unless this trend is changed, it will be impossible to gain effective control over total federal spending. Yet, the Clinton plan ac tually proposes to pump an additional $171 billion into domestic spending during the next five years.

Second, defe nse spending has not been a cause of the current deficit problem. The de fense budget has fallen in inflation-adjusted terms over the past four years, a trend which has had a moderating effect on the deficit. The defense budget will continue to fall over t he next five years, due to Bush Administration policies, and may fall even further under Clintons proposal to trim an additional $1 12 billion beyond the Bush levels..Heritage scholars believe, however, that Americas security is the first obligation of th e federal government. Thus defense cuts should be considered in the context of world events, and the threat to Americas interests, and not in the context of meeting deficit reduction goals 4 4 Steve Robinson, Clintons Phoney Spending Cuts, Republican Study Committee, U.S. House of Representatives March 3,1993 4 CONCLUSION Bill Clinton has issued a phoney challenge to critics of his economic plan. Despite his claim that he made tough choices on cutting federal spending, his plan conspicuously omits dozens of sound proposals developed by congressional xesearch staff and Clintons own advisors In the spirit of answering Clintons challenge Heritage scholars have compiled the list of 15 1 spending cuts found in the Appendix. These cuts an drawn largely from the so urces Clinton ignmd The cuts provide a solid foundation for a much more com prehensive investigation of ways to reduce the cost of government.

Scott A. Hodge Grover M. Hermann Fellow in Federal Budgetary Affairs 5 The spending cuts that follow were derived fiom the following sources Scott A; Hodge, ed A Prosperity Plan for America: How to Strengthen Family Finances Revive the Economy and Balance the Budget (Washington, D.C The Heritage Founda tion 1992 Office of Management and Budget, A Vision of Change fo r America (Washington, D.C U.S. Government Printing Office, February 17,1993 Congressional Budget Office, Reducing the Deficit: Spending and Revenue Options, A Report to the Senate and House Committees on the Budget (Washington, D.C U.S Government Printing Office, February 1993 U.S. General Accounting Office, Budget Deficit: Appendixes on Outlook, Implications and Choices GAO/OCG-90-5A Washington, D.C U.S. Government Printing Of fice, September 1990 Leon E. Panetta, Balanced Budget Amendment Options, Commit t ee on the Budget, U.S House of Representatives, May 26,1992 Scott A. Hodge, Real Deficit Reduction Demands Real Spending Cuts, Heritage Foun dation Backgrounder No. 913, August 28,1992 7 9 E Y v c v c v c v c v v) ii 0 00 Y v 8 c c3 v 9 s Y v 9 l 99 8 F g g 9 v 3 99 3 88 -N v)v) in P 51 c 8 u, in in in v 9 B P p 4 u 2 E P o E L ti 9 3 9 s c v 9 P c v v) 3 9 c h v s n E E e 0 I3 0 E w s z e v W cr 9 c c v 9 c e v 9 e c v 9 c v 3 (3 e3 e 3 e cr 0 c v 9 c c e v c v c v e v a 8. B E a I 10 11 0 9 c v 2 c cy v 9 s h v 3 c 5 c v 9 i333 (3 cy v v) v 2 9 v) WON cy v v) e C c P 12 ze x h v v 9 gg v v 9 9 8 E v v 9 3 39 cy v) v 9 P A cy v e 13 3 c v v v) 238 c c c v) v 14 v v wi G 15 gl 0 L 8 v) v 16 v) c 883 c c v) v) v 0 u v) i3 a e cy v) v v) S!i c 0 e v c v) v u 0 0 0 9 la v c 8 v) lig c c c v) v) v v v c v v) u v 8 v s u P 17 v 8 c aD C 0 F H s I z W e a UJ I A 18 19 8 e cy v v 3 c c v c v 3 c c v) 9 E 3 cy v 9 E 0 v 3 c c cy v c v c v 8 6 cy v in c v in 3 cy v 8 v v 8 6 v) v) c cy- v) v 3 cy v 0 9 E c v) c v 3 cy v) 8 3 0 d v) c v) c v) c v i cy v) u, u 53 0. 53 0 21 OOON 22

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