Tuesday, July 29 1997; Page A14

As a country, we seem about to enter a week of self-congratulatory rhetoric in which the president and congressional Republicans will celebrate the balanced-budget agreement they appear to have reached and that Congress may finally pass as it leaves town for its summer vacation.

The president will say, not without cause, that he was successful in taking some of the rougher edges off the initial Republican proposal. He will argue that the final product balances the budget without doing violence to the values of the Democratic Party, finishes the job of deficit eradication that he began in drawing up his first budget in 1993, provides a steady platform from which to head into the future and proves that, when there's a willingness to compromise, the political system can work.

The Republicans, for their part, will say that while they've had some tough times lately, and while they lost some battles to the president, they basically won the war. Glossing over the history of the 1980s, they will claim it is they who have always wanted a balanced budget. With greater cause, they will say it is they who have been the party of tax cuts and smaller government. If those are now both parties' goals, they win, even if the president, in coming their way on the issues, has partly shouldered them off center stage.

But in our view those are the wrong standards by which to judge this deal. They are mostly short-term and political, as is the deal itself. It will be no surprise to readers of this page that we apply a different lens.

(1) The balanced budget, assuming one is achieved, will owe as much to the continuing strength of the economy as to any policy changes Congress will vote this week. You could argue – we would – that the strong economy derives in part from some of the policy changes for which the president successfully fought in 1993. The fact is that this budget would actually undo some of the most important of those changes. In terms of fiscal discipline, it is less the advance its sponsors claim than a retreat from high ground that the president himself once occupied over Republican objections.

(2) The distinctive element in the deal remains the tax cut, for which the rest is mostly cover and a gloss. The long-term effect of the tax cut will be to add, regressively, to a deficit that the deal will at best only temporarily erase. The president played a double role in this, first agreeing to the cut, then working to make it a little more palatable around the edges. But the basic structure is still wrong. The children's credit, which will be the costliest provision in the early years, is mostly a political sop for which neither party has been able to think up a convincing economic justification. In the later years this will be overtaken by large, late-blooming tax cuts mainly for the highest-income households in the country. They will begin to drain the Treasury in earnest about the time the baby boomers retire. There is no economic or social justification for most of them either.

(3) Meanwhile, even though these are the most propitious of economic times and possibly political times as well in that the next president election is three years off, the plan, by mutual agreement, does next to nothing about the real fiscal problem – the one that will come with the boomers' retirement – that everyone acknowledges but wants to defer. Let the next folks do it. The tax cuts would compound this problem. The Senate proposed some first steps to cut longer-term Medicare costs, like asking higher-income beneficiaries to pay a slightly higher share of program costs. They dropped it from the final bill. This is a bill that, in the name of solving the nation's fiscal problem, systematically avoids and in some respects worsens that problem. The wrapping is great; the gift is dross.

The bill has some good features. Medicare will be a tidier program as a result of its passage. The number of children in the country lacking health insurance could be reduced (though that could end up an empty initiative, also). But most of the things that are good about the bill are good only in that the alternatives were worse. The legislation reverses some of the worst features of last year's welfare bill and of the original budget bill that the Republicans put forward this year. But the welfare bill should never have been signed, and likewise the first draft of this year's budget bill is a pretty poor standard on the strength of which to measure victories.

We assume that Congress will pass this package; the president and the Republican leadership are both invested in it. By now a lot of other people have larger or small investments in it as well. But this is a lost opportunity that, on balance and in the long run, will likely do a fairly large amount of harm – the tax cuts – for relatively little good.