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Budget Pact's 1st Bottom Line: A Surge in Domestic Spending

By Eric Pianin
Washington Post Staff Writer
Wednesday, November 26 1997; Page A01

The Year of the Balanced Budget is about to give way to the Year of the Big Budget.

When President Clinton signs the last of the 1998 appropriations bills today, he will approve the largest amount of overall government spending ever – as well as the most substantial increase in domestic spending in eight years. The budget will not be in balance.

The signing, which formally finishes work on the 1998 budget, will also mark a reversal of the Republicans' effort since taking control of Congress in 1995 to shrink the size of the federal government. In some cases the Republicans even allowed substantial increases in programs they once vociferously opposed.

After weathering three years of cuts, spending on domestic programs other than the major entitlements such as Medicare and Medicaid will increase by $22.6 billion – about 10 percent or nearly four times the rate of inflation.

The total budget will hit a record $1.7 trillion.

And while Congress and the president have each been touting the five-year balanced budget agreement as the year's prime accomplishment, the reality is that in Year One the deficit will likely increase.

Although the budget is projected to be in balance by 2002, GOP leaders say they knew last summer that this initial spending boost was the price they would have to pay if they wanted a budget and tax cut agreement this year.

"It was the `signing fee' for winning the battle for tax cuts," said House Appropriations Committee Chairman Bob Livingston (R-La.). "Make no doubt about it, we would all prefer bigger cuts in domestic spending. There is, however, only so much we can do with Bill Clinton in the White House."

Clinton had demanded Republicans accept a long list of spending initiatives – including new health insurance benefits for indigent children and more money for national park land acquisition – in return for his support of GOP tax cuts and changes in Medicare. The Republicans had a short list of demands as well, including more spending for law enforcement and highways.

The net effect – after these programs were wrapped up in the year's 13 appropriations bills, then combined with continued increases in entitlement accounts – is a slight but significant upward movement in government spending as a percentage of the overall economy for the first time in three years.

That increase, combined with a rising clamor for more spending next year, has some budget analysts wondering if Washington's short-lived consensus for fiscal restraint has ended.

Martha Phillips of the anti-deficit Concord Coalition said the "spending binge" calls into question whether Congress can meet its long-term deficit reduction goals. "The spending was appalling when you look at the target [members of Congress] set for themselves five and 10 years down the road," she said.

Whatever the ultimate effect on the deficit, the new spending could have more immediate consequences for the Republican lawmakers who had made a career campaigning against it, but may now have to defend it.

"It's getting harder to tell the difference between Republicans and Democrats when it comes to domestic spending, especially pork-barrel spending," said Stephen Moore, a senior fiscal policy analyst with the Cato Institute, a libertarian Washington think tank.

In concert with the administration, Congress is showering an additional $3 billion on education programs – including Pell grants for college students, impact aid to communities with a large federal presence and Title I funds for disadvantaged students.

There are billions more for the National Institutes of Health, AIDS research and new preventive health care measures. Highway and transportation programs, the FBI, anti-drug efforts and the Immigration and Naturalization Service all receive increased funding.

In all, Congress approved nearly $252 billion in budget authority for domestic programs other than entitlements – a $22.6 billion increase over 1997 levels, according to the House Appropriations Committee. Spending for defense, by comparison, rose by $5.3 billion over last year's level, or at one-fifth the rate of domestic spending increases.

Programs once targeted by GOP revolutionaries for deep cuts or elimination – such as low-income home energy assistance, the Corporation for Public Broadcasting, Goals 2000 and the Legal Services Corp. – emerged from the appropriations process with more money. The Appalachian Regional Commission, long reviled by the GOP as a boondoggle, received a $10 million budget increase. Even the Internal Revenue Service, the object of high-profile congressional hearings into alleged abuses of taxpayers, got a 10 percent increase to upgrade its computer system.

In previous years, reform-minded Republicans eliminated 297 "wasteful" or redundant programs. This time, they knocked out only 10 minor programs, including the tiny Ounce of Prevention Council and the Office of Consumer Affairs.

Some Republican budget analysts note that while domestic spending is growing in absolute dollars, it will shrink gradually as a percentage of the overall economy. Under the budget plan signed into law this summer, discretionary domestic and defense spending, which rose to 6.25 percent of the gross domestic product this year, is projected to decline to 5.5 percent of GDP by 2002 – the target date for eliminating the deficit.

Yet some conservatives were alarmed by the scope and magnitude of the increased spending and question whether GOP leaders passed up an opportunity for fundamental change in government spending policy to control the pace of social program expansion. While Congress took steps to assure the financial stability of the Medicare program through the turn of the century, it put off more fundamental and politically explosive decisions on how to control overall entitlement spending, which accounts for about 60 percent of the total budget.

"My problem is we took the `Contract With America' attitude that we were going to change this place fundamentally . . . and we've drifted from that model of government," said Rep. Lindsey Graham (R-S.C.), a leader of House conservatives. The Cato Institute's Moore said, "As in the Reagan years, Republicans have quickly retreated from the agenda of making government in Washington smaller and smarter."

With House Speaker Newt Gingrich (R-Ga.), House Budget Committee Chairman John R. Kasich (R-Ohio) and other GOP leaders encouraging speculation over how Congress might carve up future budget "surpluses," pressure will mount next year to rewrite parts of the budget agreement to allow for more spending and tax cuts.

While most of the savings in the budget deal will come from Medicare and Medicaid, binding spending caps are supposed to gradually squeeze the growth of domestic and defense discretionary spending to less than the rate of inflation. Yet Rep. Bud Shuster (R-Pa.), chairman of the House Transportation and Infrastructure Committee, is leading a fight to reopen the agreement to allow for more highway spending.

Congress also will face many other costly issues, including its obligation to provide billions more dollars to the International Monetary Fund that were not provided for in the budget deal. And Senate Appropriations Committee Chairman Ted Stevens (R-Alaska) and other defense "hawks" have vowed a fight to reverse a decade-long decline in defense spending.

"The budget plan assumes that these discretionary spending caps will be adhered to, but that's a big assumption, simply because of the pent-up demand, a la Bud Shuster and others," said James Blum, deputy director of the Congressional Budget Office.

Blum and other budget analysts are wary of the sudden euphoric push for more spending, just as the deficit has finally dropped to manageable levels. A combination of declining defense expenditures and a government revenue windfall triggered by the soaring economy helped shrink the deficit from $290 billion when Clinton took office in 1993 to $22.6 billion in 1997. Largely because of the new spending, CBO projects the deficit to rise to $57 billion for 1998. If the booming economy continues to generate huge revenue windfalls, the deficit could end up considerably lower than that.

But a sudden downturn in the economy or unanticipated crisis – such as renewed hostilities in Iraq or a stock market crash – could alter the rosy deficit picture. The Persian Gulf War produced a $30 billion spending spike in the fiscal 1991 defense spending bill.

"It could well be dangerous to start worrying about how to handle a surplus when we haven't got it yet – and in fact it might not materialize," Blum said.

© Copyright 1997 The Washington Post Company

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