[Congressional Record Volume 144, Number 2 (Wednesday, January 28, 1998)]
[Extensions of Remarks]
[Page E37]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                               THE BUDGET

                                 ______
                                 

                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                      Wednesday, January 28, 1998

  Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington 
Report for Wednesday, December 31, 1997, into the Congressional Record:

                      Celebrating Fiscal Restraint

       The most highly praised accomplishment of this past session 
     of Congress was passage of the agreement to balance the 
     budget by 2002. Federal budget deficits have been too large 
     for too long, and this bipartisan agreement was a welcome 
     development. But I am becoming increasingly concerned about 
     comments suggesting that our fiscal problems are behind us. 
     Despite all the talk about a balanced budget, I believe it is 
     much too early to celebrate fiscal restraint.
       Status of deficit: There is no doubt that major progress 
     has been made on the budget deficit in recent years. Over the 
     past five years it has been reduced from $290 billion to $23 
     billion in 1997, both because of the 1993 deficit reduction 
     package passed by Congress and the strong U.S. economy. The 
     1997 deficit was much lower than expected because federal 
     revenues grew by nearly 9 percent while spending increased 
     only about 2.5 percent.
       In addition to the small federal budget deficit in 1997, 
     state and local governments ran a combined budget surplus of 
     $29 billion. That means that the government as a whole 
     enjoyed a budget surplus in 1997, something that has not 
     happened for many years. Less government borrowing means 
     lower interest rates on everything from home mortgages to car 
     loans.
       Thus far in fiscal year 1998, which began on October 1, 
     revenues are coming in faster than expected and spending is 
     slower than expected, so some budget experts think that the 
     federal budget could even be balanced this year.
       Concerns: Despite the progress, there are several reasons 
     for being cautious about thinking that our country's fiscal 
     house is in order and that the only question now is how to 
     spend the budget surpluses.
       First, progress on reducing the deficit depends heavily on 
     the continued strength of the U.S. economy. If we are off in 
     our assumptions about how the economy will perform in the 
     months and years ahead, the deficit could again balloon. Even 
     an average-size recession could add $100 billion to the 
     deficit for a year or two. It would be a huge mistake to 
     pretend that the business cycle has been repealed. I've come 
     to the conclusion that it is risky to start worrying about 
     how to handle a surplus when we don't have it yet and it may 
     not materialize.
       Second, even with a balanced federal budget, we still have 
     the huge accumulated federal debt to contend with. The 
     federal debt is what was built up during each of the years in 
     which the federal government was running a deficit, and it 
     now stands at a huge $3.8 trillion. The interest payments 
     that the federal government makes on that debt are now almost 
     $250 billion each year. That's 15% of total federal outlays. 
     Reducing these debt service costs through paying down the 
     debt should be a priority.
       Third, I am worried about discretionary spending increases 
     under the balanced budget plan. Since 1990, discretionary 
     (non-entitlement) spending--the spending that Congress passes 
     each year on roads, defense, parks, and the like--has been 
     frozen at around $550 billion. Yet in 1997, spending for a 
     host of discretionary programs was increased, for everything 
     from health research and highway building to anti-drug 
     efforts and the FBI.
       The Balanced Budget Act of 1997 assumes that discretionary 
     spending caps will keep spending increases less than the rate 
     of inflation, with most of the tough decisions left to future 
     Congresses and the next President. The assumption that these 
     caps will be adhered to is certainly called into question by 
     the performance during the first year. With the pent-up 
     demand for more spending on all kinds of worthy projects we 
     have to wonder whether fiscal restraint has come to an end.
       Fourth, I am concerned about how the tax cuts in the 
     balanced budget agreement are structured. The problem is that 
     although in the first few years the bulk of the tax cuts go 
     to middle-income families, backloaded tax cuts favoring 
     higher-income households kick in later and would mushroom 
     after 2002. Long-term the agreement will be much more costly 
     than the deceptive figures for the early years suggest and it 
     will become less fair. It will accentuate the income 
     inequality that has been increasing in this country in recent 
     years, in which the rich have gotten richer and everyone else 
     has struggled to stay even or seen their income decline. The 
     traditional function of the federal government has been to 
     lean gently against these kinds of trends in the economy. 
     It serves as a moderator of inequality. This agreement 
     leans the other way.
       Fifth, the agreement masks the long-term problems facing 
     entitlement spending for older persons. Over the next few 
     years Social Security will be building up a surplus, and that 
     surplus--which will reach $120 billion in 2002--is one of the 
     main reasons this budget agreement projects an overall budget 
     surplus of $32 billion in 2002. But everybody knows that the 
     Social Security system is incurring large future liabilities 
     that exceed its surpluses and that it needs major reform to 
     avoid insolvency.
       The long-range problem is that the budget is increasingly 
     dominated by spending for older persons in the form of Social 
     Security, Medicare, and Medicaid. These entitlement programs 
     will rise powerfully as the baby boomers begin to retire 
     early in the next century. Congress and the President ought 
     to begin an attack on them now while they are much more 
     manageable.
       Conclusion: I have been quite uneasy about the self-
     congratulatory rhetoric that Members of Congress in both 
     parties and the Administration have engaged in as a result of 
     the balanced budget agreement. I supported the agreement 
     because we're better off with it than without it. It does 
     move us in the direction of a balanced budget, but it is much 
     too early to claim that it eradicates the deficit. It was 
     neither as tough nor as fair as it ought to be.
       Over the past several years we have made considerable 
     progress in reducing the deficit, and our economy is stronger 
     as a result. It would be a large mistake to abandon that 
     fiscal discipline as I am fearful we may be doing.
       A lot more work needs to be done on balancing the 
     discretionary part of the budget, addressing the tilt toward 
     the wealthy in the back-loaded tax cuts, and restructuring 
     Social Security and Medicare for the long term. Our focus 
     should remain on these challenges, not on how to spend a non-
     existent surplus.

     

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