By Phil Gramm
Friday, May 9 1997; Page A25

After two years of partisan confrontation on the budget, the president and Congress have reached a bipartisan deal that appears to be all things to all people. The president gets more social spending, Republicans get a tax cut, and the American people get a balanced budget. If it all seems too good to be true, that's because it is.

Because the budgeting arms of both the administration and Congress assumed – before the budget debate even started – that the strong economy we now enjoy would produce sustained growth beyond the year 2002, the amount of deficit reduction required to achieve a balanced budget immediately declined from $642 billion over the next five years to $330 billion. Then it got even better. At the very moment of impasse in the budget negotiations, the Congressional Budget Office discovered that even its previous estimates of an improving economy understated the revenue windfall expected in the next five years and predicted that windfall alone would lower the deficit another $225 billion. Negotiators then rolled up their sleeves and assumed $15 billion of additional savings from lower consumer prices and $77 billion in additional savings from the even stronger economic growth that would be generated by balancing the budget.

The net result is that before a single change in public policy became part of the budget compromise, deficits of $317 billion – 96 percent of the total deficit – had simply been assumed away. Only $14 billion, or 4 percent of deficit reduction in the budget compromise, comes from actually changing policy.

The most distinctive feature of the budget compromise is the size of domestic discretionary spending increases. While it is fashionable for Republicans to claim that this budget deal achieves the goals of the Contract With America, in reality it spends $216 billion more on domestic discretionary programs than the contract contained. The compromise increases domestic discretionary spending by $193 billion above the 1997 budget resolution and by $79 billion above President Clinton's actual budget request for 1997. In fact, if you look at the president's 1998 budget as scored by the Congressional Budget Office, the budget deal actually gives the president $5 billion more in discretionary spending than his own budget would have provided.

The most permanent feature of the bipartisan budget compromise is an increase in domestic spending on social programs, which the president has rightly compared to the explosion of social spending that occurred in the 1960s.

In addition to these increases in discretionary spending, the budget compromise contains new entitlement benefits in Medicare, Medicaid, food stamps and SSI, and it overturns part of the one major reform of the 104th Congress: It reestablishes welfare benefits for legal aliens.

The budget compromise proudly trumpets $115 billion of savings in Medicare, but by committing to accept the president's plan to simply cut reimbursement for doctors and hospitals, Congress buys into a policy that has been implemented over and over again in the past 30 years without achieving substantial savings. Like other forms of price controls, reducing reimbursement for physicians and hospitals has historically been circumvented as the recipients have invented ways to work around the limitations. In addition, the compromise requires that the fastest growing part of Medicare, home health care, be taken out of the Medicare trust fund and financed from general revenues.

Perhaps the most perverse aspect of the compromise is that this budget will trample an emerging bipartisan commitment to real Medicare reform. This budget agreement virtually guarantees that five years from now Medicare will be in much worse shape than it is today. Moreover, virtually every penny of the $115 billion claimed from Medicare savings will be spent on increases in social programs and new entitlement benefits.

That brings us to my party's favorite part of the deal, the much-discussed $85 billion tax cut. The cut is largely funded by odds-and-ends measures, the largest of which is at least $25 billion of revenues assumed to be derived from auctioning off broadcast and non-broadcast spectrum – the right to use public airways for everything from broadcasting the 6 o'clock news to setting up a cellular phone system.

Last year Congress assumed a limited spectrum auction of $2.9 billion as an offset to new spending. When actually auctioned, the spectrum brought in just $13.6 million, or roughly $1 for every $200 that Congress had assumed would be raised. Given our experience of last year, it is highly unlikely that anything like $25 billion will be raised from spectrum auction unless television stations are forced to buy spectrum to broadcast their new digital signals, something the Federal Communications Commission, the White House and Congress have opposed.

The budget agreement claims a net reduction in taxes of $85 billion. Some $5 billion of that tax cut will be lost to the public because the assumed reductions in the consumer price index will raise income taxes by $5 billion. Of the remaining $80 billion, the Clinton administration's education tax credit will absorb roughly $35 billion, leaving Republicans some $45 billion in net tax cuts to fund their tax-cut priorities.

Unfortunately, the full Republican tax package costs $188 billion. Republicans on the House and Senate tax-writing committees now will be forced to try to stretch a net tax cut of $45 billion to cover a $500-per-child tax credit that costs $105 billion, capital gains relief that costs $32 billion, estate and death tax relief that cost $18 billion and individual retirement account expansion that costs $32 billion.

Even if $50 billion of offsetting tax increases can be found, it is a certainty that the individual tax credit will be dramatically curtailed, probably by ensuring that many middle- and upper-middle-income working families don't get any child tax credit. Capital gains and estate tax relief will be similarly truncated. In the end, despite all the talk of achieving a major tax cut, it is hard to see a substantial impact in a $7 trillion economy being created by a $45 billion tax cut.

Obviously, in a budget deal such as this, the logical question is: "Is it better than nothing?" And, as is usually the case, beauty is in the eye of the beholder. But in the final analysis, two factors ultimately make this budget agreement worse than no agreement. The first is the false perception it creates that the deficit problem has been fixed. This notion already has given rise to the largest increase in social spending since the '60s in this budget agreement and is likely to further open the floodgates as Congress convinces itself and the American public that the deficit is behind us. Second, by claiming to have solved the Medicare problem for 10 years, we will take the pressure off the president and Congress to reform Medicare even though the trust fund is careening toward bankruptcy, and Medicare will produce a $1.6 trillion drain on the federal Treasury over the next 10 years.

Historically, America has looked to its two great political parties to contest over principles and new ideas so that the highest principles and best ideas could become the governing consensus for the country. But divided government often produces massive pressure for bipartisanship, and the current budget deal is an example of how bipartisanship sometimes can manifest itself not in compromise policy but in a decision to join together to mislead the public. The opposite of gridlock is not necessarily efficiency, it is sometimes deception.

The writer is a Republican senator from Texas.