The numbers certainly are impressive. The federal budget deficit, according to the Office of Management & Budget, will fall this fiscal year to $117 billion, or about 1.6% of gross domestic product. The deficit as a share of GDP hasn't been that small since 1974. But it's way too early to cheer. Credit is due, OMB admits, mostly to higher tax collections resulting from a stronger-than-expected economy. And the deficit is slated to start climbing again in fiscal 1997--and could hit $403 billion by 2006, according to estimates by the non-partisan Congressional Budget Office. That's thanks to runaway entitlement costs, chiefly Medicare, and mounting interest on the $5.1 trillion debt.
Serious budget-cutting efforts have stalled in Washington, and now the Republicans are pushing for a massive income-tax cut. GOP supply-siders Jack Kemp and Steve Forbes, along with Senate Majority Leader Trent Lott (Miss.) and House Majority Leader Richard K. Armey (Tex.), are applying maximum pressure on presumed GOP Presidential nominee Bob Dole to focus his campaign on tax cuts. Dole appears to be caving in.
We went down this road before in the early 1980s, and look where it left us: battling budget deficits and paying that huge interest bill. Everyone favors tax relief--but it cannot come without commensurate spending cuts, as BUSINESS WEEK noted in its prescription for economic growth recently (BW--July 8). We cannot, as the supply-siders believe, simply grow ourselves out of the budgetary fix when we enact tax cuts without offsetting spending cuts.
The fact is that the hard work on the budget is yet to be done, and both parties have shunned the tough decisions of late. Clinton did manage, during his first term, to cut the deficit in half. But recently the Administration has simply carped about how the Republicans are "attacking" Medicare. It wasn't so long ago that the Republicans vowed in their Contract With America to bring the budget into balance. Now they're embracing massive tax cuts. It's time for both parties and their leaders to recognize that trouble lies ahead, and plans should be made to redouble budget-cutting efforts. We await the details.