The bruising budget battle has, in a curious way, vindicated Ronald Reagan. Everyone who said or thought that Reagan was the only serious obstacle to resolving the decade-long budget stalemate now knows better. The deficits have endured because they reflect a solid and stable political consensus: Americans desire more government than they are willing to support with taxes.
As our elected officials flounder about, they reflect our simplistic inconsistencies. Popular government has bent to the popular will. Yet, there is an air of unreality to the hot rhetoric of the budget debate. The "pain" needed to cut the budget deficits is vastly exaggerated. More troubling, budget paralysis sacrifices the nation's future needs to its present demands for immediate gratification.
The consistent difficulty in selling deficit reduction has been the inability to show instant economic benefits. This is still true. The initial budget plan of the president and congressional leadership involved spending cuts and tax increases equal to 0.7 percent of gross national product in 1991. In a $5.4 trillion economy, that sort of change might not make much difference. Even the direction of any possible impact is unclear. Lower spending and higher taxes might slightly worsen the economy's current slowdown. Or they might modestly reduce interest rates and provide a tiny stimulus.
The long-run dangers are more clear. Large deficits threaten to harm future living standards by crowding out private investment. In the 1980s, the big deficits didn't depress investment because a massive inflow of imports allowed the country to enjoy high government spending, high investment and high personal consumption. As our trade deficit drops, this safety valve is closing. Budget deficits also encourage wasteful government by allowing Congress the pleasure of spending without the pain of taxing.
It's a myth that curbing the budget deficits involves huge sacrifices. The original plan of the White House and congressional leadership was hardly draconian, and any new package probably won't be harsher. A look at the first plan is instructive.
Social security, the largest federal program (fiscal 1990 spending: $246 billion), was virtually untouched. Medicare and farm subsidies were said to be hit hard. How hard? Well, the Medicare figure was $60 billion over five years, but that amounted to only about 8 percent of the estimated five-year spending of about $740 billion. Half the Medicare savings came in higher premiums and deductibles for recipients; on average, the increases totaled only $5.68 a month in 1991 and $13.55 in 1995. The other $30 billion in savings came from curbs on doctors' and hospitals' fees.
The story is the same for farm subsidies. The savings were put at $13 billion, which is 25 percent of projected five-year spending. But the basic farm programs endured, and not all the "savings" were ensured. The history of open-ended farm subsidies is that they have a consistent and nasty habit of defying spending estimates.
Consider the plan's other main elements:
The biggest spending cuts occurred in defense -- and most would have happened anyway as a result of the changes in the Soviet Union. This is the "peace dividend." Over five years, defense spending would have been apparently cut $182 billion. (It's necessary to say "apparently," because cuts for 1994 and 1995 weren't specified in detail.)
Not one discretionary domestic program was eliminated -- not Amtrak, not the Small Business Administration, not art subsidies. Not one. Everything is apparently essential. (Discretionary programs differ from entitlements -- such as Social Security, Medicare and farm payments -- in that Congress must specifically provide funds for these programs. For entitlements, Congress sets qualifications. Eligible recipients then get automatic government payments.)
The scattershot tax increases (on gasoline, beer, wine and luxury items, plus limits on deductions) reduced Americans' after-tax income by only about 1 percent.
Unwisely, the tax increase hit the poor and lower-middle class too hard. (The taxes reduced the after-tax income of the poorest fifth of families by 1.2 percent and the richest fifth by 0.7 percent.) There were other flaws: inadequate spending cuts; silly tax breaks for small businesses; a bad decision to put Social Security outside Gramm-Rudman-Hollings spending limits. On balance, the plan was worth having; but the balance was mighty close.
The deeper problem is figuring out what we want from government. The "budget crisis" offered an opportunity to do just that. It provided a chance to eliminate unessential spending and to improve the fairness of the tax system. The opportunity has been missed because the worst instincts of Democrats (protect spending) combined with the worst instincts of Republicans (protect the well-to-do).
What have been absent are strong convictions about the limits and responsibilities of effective government -- what Bush awkwardly calls "the vision thing." From the start, Bush and his closest advisers have pursued a strategy designed to fix the budget through back-room negotiations. There was to be no broad appeal to the public, no attempt to break the basic deadlock: the conflict between the desire for low taxes and the equally strong refusal to abandon any government programs. The president disdained any effort to persuade Americans to reconcile the conflicts and settle for more focused government. The back-room strategy didn't work.
Government ultimately rests on public opinion. Without a clearer idea what government should do, Americans are entitled to their contradictory expectations. And we will all continue to suffer the consequences of a political culture in which elected officials believe that making any unpleasant choice is an act of enormous -- and foolish -- courage.