[Congressional Record Volume 143, Number 63 (Wednesday, May 14, 1997)]
[Extensions of Remarks]
[Page E931]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                          THE BUDGET AGREEMENT

                                 ______
                                 

                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                        Wednesday, May 14, 1997

  Mr. HAMILTON. Mr. Speaker, I am inserting my Washington Report for 
Wednesday, May 14, 1997, into the Congressional Record.***HD***The 
Budget Agreement
  President Clinton and congressional leaders recently reached an 
outline agreement on a plan to balance the budget in the year 2002. The 
agreement was reached principally because of the benefits of a roaring 
economy. Some tough decisions were made; many more were postponed. The 
agreed outline is a significant political achievement, but its economic 
impact remains to be seen.
  Balancing the budget would be a major accomplishment. It would show 
that the federal government can get its fiscal house in order, and it 
would boost the economy. But I have been uneasy with the extravagant 
rhetoric accompanying the agreement. Several proponents have labeled it 
``historic'', yet the plan makes fewer tough fiscal choices than the 
1990 and 1993 budget agreements. I think there is a little less here 
than meets the eye.
  The agreement is only a broad outline of budget policies. It calls 
for Medicare savings of $115 billion and Medicaid savings of $15 
billion. Tax changes include $135 billion in reduced taxes, which may 
include a child tax credit and modest capital gains and estate tax 
relief. The agreement also reportedly includes education tax credits.
  Details Unknown: The outline of this agreement is vague and missing 
critical details. Almost nothing is in writing. Negotiators disagree on 
interpreting key details, and the entire agreement may be in jeopardy. 
Congress must divide the money for tax cuts among popular competing 
proposals. New education programs must be fleshed out, and politically 
unpopular spending cuts must be approved. Disagreement on any of these 
unknown details could derail the agreement.
  Economic Projections: One thing is clear: this agreement will fail to 
balance the budget if we have a recession before 2002. The longest 
period without a recession in the United States was 8 years and 10 
months, from 1961 to 1969. We are now 6 years and 2 months into the 
expansion that began in March 1991; five more years without a recession 
would be unprecedented.
  Final agreement was reached only when last-minute favorable economic 
forecasts gave negotiators an additional $225 billion to play with. 
This dramatic, overnight change demonstrates the power the economy has 
on the federal budget. With strong growth, deficits remain low. But if 
the economy falters, income falls and deficits soar, and it is 
difficult to rejuvenate economic activity. For this reason, budgets 
should be evaluated not just on bottom-line spending, but on the 
specific details with potential for long-term economic growth. The 
specifics in the following areas will be critical for the economy's 
future.
  Tax Cuts: The proposed tax cuts include some measures, such as a 
child tax credit, that few economists believe will increase economic 
activity. They also do not reform payroll taxes, which hit low- and 
moderate-income families hardest and deter job creation.
  Education: Investing in education can increase economic potential, 
but we must be careful to avoid tax credits or spending programs that 
will just drive up college tuition. The focus must be on training 
skilled workers for today's competitive, hi-tech markets.
  Infrastructure: A successful budget will provide and maintain the 
roads, bridges, airports, water systems, and information networks 
necessary to keep the economy running smoothly. In southern Indiana, 
virtually all of the growth in the past few decades has coincided with 
improved infrastructure.
  Long-term outlook: There is little in this agreement to avert the 
spending problems caused by our aging population. No serious Medicare 
policy changes are in this agreement, and negotiators did not consider 
proposals to improve the long-term health of Social Security. Also 
worrisome is the long-term impact of the proposed tax cuts. The 
proposed tax cuts will reduce revenue by $85 billion in the first five 
years, but they double in cost over the next five years. The previous 
five budget plans (1978, 1981, 1983, 1986, and 1990) all projected 
long-term balance, but Congress backed down when confronted with later-
year tough decisions.

  Winners and Losers: I have concerns about the fairness and equity of 
this plan. It will further imbalance a society that already has a sharp 
divide between well-to-do and moderate-income Americans. The agreement 
apparently gives tax breaks to the well-to-do and the middle class. 
These cuts are attractive, but they are offset by spending reductions 
in programs for the poor. We continue our recent habit of putting most 
of the balanced budget burden on the backs of people with modest means. 
The cuts in food stamps, job training, and public assistance have been 
substantial.
  Like most successful negotiations, each party claimed victory, but 
they also gave things away. The congressional majority will get tax 
cuts for investors and the middle class, but they had to accept many of 
the President's spending priorities. The President got some extra money 
for education, children's health, and environmental protection, but he 
had to accept some of congressional leaders' tax and spending cuts. For 
this budget to be enacted, both parties will have to vote for specific 
proposals they find distasteful.
  If a balanced budget is achieved, many Americans will gain. Interest 
rates will fall, savings and investment will rise, the trade deficit 
will shrink, and the economy should grow a little faster for a longer 
period of time. But older persons will pay more for Medicare, and 
physicians and hospitals will be squeezed. Defense industries will see 
some reductions, and airline travelers will continue to pay a ticket 
tax. Lower income Americans, who receive housing, heating, and 
nutrition support, are likely to see those programs reduced.
  Conclusion: This budget agreement is significant more for the 
political consensus it represents than any great policy shift. I will 
reserve judgment until I see more than a vague outline. The plan may or 
may not reach balance in 2002, but it was achieved in an atmosphere of 
civility that can be important for the future. I am hopeful this spirit 
will give all parties confidence to work together on greater challenges 
in the future. These challenges must include a serious effort to 
address the longer-term budget issues that have been pushed to the 
side.

                          ____________________