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    Direct Access: The Post's Clay Chandler on Your Money

    Wednesday, Feb. 4, 1998

    President Clinton's new budget proposes the first balanced budget in 30 years. Washington Post tax policy and economics reporter Clay Chandler discussed the details with washingtonpost.com readers live online.

    Before coming to the Post in 1993, Chandler covered the Japanese economy in the Tokyo bureau of the Wall Street Journal. Chandler wrote about the history of the deficit in Sunday's Post.

    A transcript of today's discussion follows.

    Herndon, Va.: Purely from the point of view of the nation's economic health, is it more advantageous to use a budget surplus to pay down the national debt or to invest in new programs, thus injecting more capital into general circulation?

    Clay Chandler: Well, most mainstream economists would probably argue that the best way to use the projected surpluses over the next decade would be to begin paying down some of the national debt and increasing the government's ability to take on some of the big fiscal challenges in will face early in the next century when the baby boom generation reaches retirement. Their view is generally that reducing the debt will help lower the nation's interest costs, which are now running at about 14 cents for every dollar that the federal government spends. The idea is that lowering those interests costs will set in motion a virtuous circle in which the government's spending needs decline, therefore its need to borrow each year drops and thus it is sucking fewer dollars out of private capital markets that might be used by private firms to invest. The thinking is that if firms have easier access to cheaper capital, they can upgrade their factories and equipment and boost the capacity of the economy to grow.

    The Clinton administration by and large supports that argument. But since his 1992 campaign, the president has argued that the government can also spur the economy's capacity to grow by "investing" tax dollars directly. Clinton favors investments in technology research, in job training and in education, among other things. But the degree to which those types of expenditures really boost growth is open to debate. One of the president's more candid economic advisers once told me that the more precise definition of "investments" in the Clinton administration was "new spending that we and our favorite constituents really like."


    Mobile, Ala.: How is "surplus" defined? It seems that, if Congress and the Prez simply increase spending, there will be no surplus. I would like to see the press measure the surplus as any year's revenue over and above the amount projected in last years budget agreement. Then, if they want to spend it, at least the public would have a fixed point from which to gauge it.

    Clay Chandler: In simple terms, the surplus is the difference between the amount the government spends each year and the amount it collects in tax revenue and other fees. The definition gets a little complicated, though, because the convention among budget experts and politicians here in Washington is to include money held by the Social Security trust fund as part of the federal budget. Under that method of keeping the books, the government posted a tiny deficit of $22 billion in 1997, a small fraction of the nation's total economic output and a much lower figure than anyone had expected just a year ago. But part of the reason the ledger looks so rosy now is that we are collecting about $100 billion more each year in payroll taxes for Social Security than we pay out in Social Security benefits for seniors. If we didn't count that extra, we'd be much further from balance and President Clinton wouldn't have been able to draw that big fat zero on the projected deficit chart he used in announcing the budget Monday.


    Detroit, Mich.: President Clinton proposed a series of new tax cuts and spending increases, but also insisted that any additional revenues should save Social Security first. Are the proposed tax cuts and spending increases in case Congress rejects his request to save SS first? Or am I missing something?

    Clay Chandler: Well, you've identified a seeming contradiction in the president's message that lots of members of Congress have been complaining about in the last couple of days. I'm not sure I can resolve it entirely for you, but let me give it a shot. In his State of the Union speech, the president called for "saving Social Security first." It was a nice, crisp sound bite, but what it means in real terms is much less clear. In essence, the president's advisers say, Clinton means that any new spending program or tax cut that he proposes, he'll finance with an offsetting spending cut or tax increase. Moreover, he'll insist that the Congress do the same. If both sides stick to that arrangement, the Treasury will rake in steadily larger surpluses over the next ten years. Clinton aides say that he will simply use those extra revenues to pay down the debt until he and Congress can reach an agreement about how to restructure the Social Security program to ensure it's long term solvency.

    It's worth noting, though, that the president's budget doesn't include a formal mechanism for channeling the surpluses directly to the Social Security trust fund. A lot of folks had assumed, incorrectly, that that's what Clinton was proposing.


    Washingtonpost.com: Do you expect another congressional vote on the Balanced Budget Amendment in 1998? Have the latest budget numbers and forecasts made the amendment a less potent political issue?

    Clay Chandler: A perceptive query. The Balanced Budget Amendment is a hardy perennial on Capitol Hill. Politically, it's a no-brainer. Members can vote for balance in the abstract without having to vote specifically for the nasty spending cuts or tax increases likely to get them in trouble with constituents and special interest groups. It wouldn't surprise me if the GOP leadership tried to make another run at it again soon. Now that we seem about to step into "surplus world," though, the idea has certainly lost some sex appeal. I haven't heard much talk about it lately.


    Winston-Salem, N.C.: What happens if the president's budget is accepted with relatively small changes and the $65 billion he is counting on from the tobacco settlement does not materialize? Will the programs earmarked to be funded by the settlement be cut from the budget or will the budget again be running a deficit?

    Clay Chandler: It's not entirely clear what would happen in the event the tobacco money doesn't materialize. White House budget director Franklin Raines has said several times in the past three days that if there is less money available from the tobacco deal than the administration projects, the president will either have to come up with additional sources of financing -- i.e., more spending cuts or more tax increases -- or he will simply have to scale back his list of initiatives. There's a bit of political posturing here, however. The White House has carefully market-tested its long list of new programs, and it knows that voters love most of the items on the list. New money for day care, to reduce classroom size for elementary schools, new funding for cancer research, tax credits to promote fuel efficient buildings and autos, helping older workers who lose employer-provided health insurance to buy into Medicare.... Who can complain about all that? In a way, the administration is hoping that dangling all these carrots before the noses of members of Congress will encourage them to get on board and support the tobacco deal so their constituents can benefit from all these goodies.


    Columbia, Md.: Mr. Chandler, every day I hear that President Clinton is the first to propose a balanced budget in 30 years. I am aware that the last time the unified budget was balanced was FY 1969. However, I seem to recall that President Carter proposed a Balanced Budget for FY 1981, but the 1980 recession ruined the prospects. Was this in fact the case?

    Thanks.

    Clay Chandler: I don't recall that Carter proposed getting all the way to balance. You might be right, tho -- I'd have to check. But there is big difference between proposing and delivering. And as you correctly point out, the recession made it virtually impossible for him to do that. It also made it impossible for Carter to return to the White House for a second term. And Ronald Reagan budget policies -- a sweeping tax cut in 1981 that was never fully matched by equivalent cuts in spending -- send the deficit soaring through the 80s and pushed the prospect of reaching balance far into the future.


    Washingtonpost.com: Who deserves the credit for balancing the budget? How significant was President Clinton's narrowly passed 1993 tax and spending plan? Did President Bush's decision to violate his 1988 no-new-taxes pledge ultimately contribute?

    Clay Chandler: A complicated question. The short answer is that most of the credit probably goes to the American public for their contribution in their various roles as workers, managers, investors and entrepreneurs. You don't hear that much from political types in Washington, tho. Alas, "Clinton-Gore 1996: Because the economy does what it does" doesn't make for a very rousing campaign bumper sticker.
    The politicians do deserve a good deal of credit, though, for not repeating budgetary blunders of the nation's past. President Bush helped quite a bit by backing away from his no new taxes pledge as part of the 1990 deficit reduction deal. Clinton added to that in 1993 with a $500 billion five year deficit reduction program that was also controversial. One feature of the 1993 deal is that marginal tax rates were raised substantially for Americans in the highest earning 1.2 percent of the income scale. Those affluent folks have contributed a good deal of the revenue that has been pouring into the Treasury over the last few years. Their tax rates are higher, and the economy is growing in a way that is pushing their incomes up at a much faster rate than taxpayers lower down on the income scale.
    A few other people also deserve credit: Gorbachev, for ending the Cold War, and allowing America to spend less on defense; international oil companies, for devising all sorts of clever ways to pump crude oil out of remote locations and break the Arab nation's ability to form a price raising oil cartel, and not least of all, Federal Reserve chairman Alan Greenspan for his so far successful crusade against high inflation.


    Washingtonpost.com: We're almost out of time for today's discussion. We'll end with a question about the middle class.

    Philadelphia, Pa.: What does this budget do differently from previous presidential budgets for middle class people earning $35,000 to $135,000 per year (not necessarily families, maybe singles adults as well)?

    Clay Chandler: I'll give you the favorite answer of economists the world over: It depends. President Clinton is quite enamored with the idea of "targeted tax cuts" as well as spending programs directed at very narrowly focused problems and interest groups. So income alone isn't necessarily the best means of sorting out winners and losers in his budget. For example, if you have kids and a lot of child care and education expenses, you might come out winner under the Clinton plan. If you are a middle income single taxpayer, though, you probably won't find too much there. The same was true, I should add, of the balanced budget legislation agreed on by Clinton and congressional Republicans last year.

    The other day I sat down with my Washington Post colleague Al Crenshaw, the Post's resident expert on the finer points of the tax code, and tried to figure out how the 1997 tax changes would change the behavior of The Totally Tax Driven Family. As I remember, what we came up with was that the way to claim maximum benefit from the budget agreement was to adopt 12 kids, make sure they go to community colleges, and buy a first home worth less than half a million dollars on a toxic waste site in the District of Columbia. And if you could figure a way to raise sheep in the back yard, you'd REALLY be in business....


    Washingtonpost.com: Thank you for your time, Clay.

    Clay Chandler: Thank you much.

    © Copyright 1998 The Washington Post Company

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