The Deficit: Why Clinton Won't Seize The Moment

It's enough to make Ronald Reagan and George Bush cry. Despite Republicans' attempts to paint him as a free-spending liberal, Bill Clinton is presiding over a precipitous drop in the federal budget deficit, a feat that eluded his two GOP predecessors. With economic expansion swelling receipts, the deficit is shrinking beyond Administration predictions. And the surprising gains on the economic front give President Clinton new leverage to repel calls for deeper spending cuts from deficit hawks in Congress.

Indeed, new budget estimates show a trend that's almost too good to be true. Clintonites say there's a solid chance the fiscal '94 deficit will be $10 billion below January's forecast. The shortfall for '95 could drop to $165 billion--a third lower than expected 15 months ago. Progress could be reversed if rising rates drive up debt-service costs, but the White House hopes the worst rate spikes are over. "At the moment the signs look golden," one cheerful Treasury official says. The glee is understandable. When Clinton unveiled his economic plan in 1993, he projected a modest two-year dip in the deficit. But low rates fueled an unexpectedly strong expansion. The GOP Presidents wish they'd been so lucky: Recessions following both of their budget-cutting plans produced ballooning deficits.

The disappearing red ink is glum news to congressional deficit fighters, who see the rosy outlook undercutting their budget-cutting drive. "I could set myself on fire and jump through hoops and we still wouldn't get any more deficit reduction around here," concedes Representative John R. Kasich (R-Ohio), the House Budget Committee's ranking Republican.

WHERE'S ALICE? Would-be budget slashers complain that White House resistance to further cuts is disingenuous. Last year, Clinton said deeper reductions could abort a shaky recovery. Now, he warns that more budgetary surgery could disrupt a strong expansion. "It sounds a lot like Alice in Wonderland," grouses Representative Robert E. Andrews (D-N.J.), co-author of a prominent spending-cut plan.

There's a reason for Clinton's timidity: Painful spending cuts would alienate the liberal Democrats he needs to pass health-care and welfare reforms. But political expediency will mean trouble later. Even if his health plan curbs medical outlays, Clinton won't tackle other entitlements before the '96 election.

The Administration sees no problem in stalling, but it can't count on the deficit vanishing by itself. Social Security runs a $100 billion annual surplus, which is used for other programs. The surplus will evaporate as Baby Boomers retire. "We have this terrible structural problem and no plan to deal with it," laments Carol Cox Wait, president of the Committee for a Responsible Federal Budget, a nonprofit research group.

Federal Reserve Board Chairman Alan Greenspan also frets that the deficit will start climbing again in the late '90s after deep defense cuts run their course. But with voters feeling good about the economy now, Clinton sees no need to ladle out another cup of austerity anytime soon. That's swell politics, but the President may be passing up one of the best opportunities in recent times to make a permanent dent in federal entitlement spending.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE