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12 IRET Congressional Advisory 1 (1993)

handle is hein.taxfoundation/iretcgadv0011 and id is 1 raw text is: March 12, 1993 No. 12 CLINTON BUDGET SURPRISES: HIDDEN SPENDING AND EXTRA REVENUES What effect would adoption of the Clinton budget plan have on total federal outlays and revenues in the next four years? The customary way of addressing this question is to compare the Clinton projections of spending and receipts with the corresponding amounts in the Congressional Budget Office (CBO) current-services baseline. (The CBO baseline projects outlays and revenues on the assumption of no changes in existing statutory provisions.) The comparison is misleading, however, because it ignores the very large revenue and spending increases already built into the CBO baseline. CBO projects that fiscal year 1998 federal outlays, for example, will be $470 billion more than actual spending in fiscal year 1992 and that 1998 federal revenues will exceed 1992 revenues by $370 billion. For fiscal years 1993-1998, total federal outlays are $1,534 billion higher under the CBO baseline than they would be if expenditures were kept at their 1992 levels. For the same period, total federal revenues are $1,326 billion greater under the CBO baseline than if maintained at their 1992 levels. (See Table.) The Clinton plan would accelerate the revenue increases and, if taken at face value, moderate the spending increases. The Clinton Administration claims that its plan would cut federal outlays relative to the baseline by $84 billion in fiscal year 1998 and by a total of $215 billion over fiscal years 1993-1998. The Administration also says that under its plan revenues would exceed the baseline by $64 billion in 1998 and by a total of $245 billion for 1993-1998. Compared to 1992 levels, however, cumulative federal government spending under the Clinton plan would still rise by $1,320 billion for 1993-1998 and total revenues would increase by $1,571 billion. (The numbers used here are from the Administration's A Vision Of Change For America. Some Congressional reestimates predict smaller effects on spending and revenues. In response to the reestimates, the Administration is promising more spending reductions. It has not revealed, however, what the additional cuts will be or even agreed to their amount.) One area of spending, national defense, is already slated for large absolute cuts, and the cuts would become much larger under the Clinton budget plan. The arithmetic of the Administration's plan also hinges on a substantial fall in the government's interest costs. (The Administration contends its plan would lower the government's debt service charges in two ways. First, it claims that the other parts of its package would reduce the deficit relative to the CBO baseline, decreasing the amount of debt on which the government must pay interest. Second, it assumes that it can lower interest costs by issuing shorter-term government securities.) Non-defense discretionary spending, however, would actually rise faster under the Clinton plan than under the CBO baseline. This is due to heavy non-defense discretionary expenditures in the the Administration's stimulus/investment package. According to the Administration, its plan would lower mandatory payments by $111 billion relative to the baseline for 1993-1998. The Clinton Administration counts as spending cuts many items that most people regard as revenue increases. These changes include a large number of fees and excises, stepped up IRS enforcement efforts, and, most notably, a sharp increase in the tax on social security benefits. The revenue hikes Institute for Research on the Economics of Taxation IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N.W., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 * Fax 202-463-6199 0 Internet www.iret.org

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