[Extensions of Remarks]
[Page E37]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

THE BUDGET

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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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