Red-Lining the Federal Government Budget; R. Timberlake

A more accurate analysis of public prefer ences shows that while the individual taxpayer wants much less total government, he fears that budget cuts may eliminate the specific program that benefits him without recipro cating cuts in other programs. The net effect is that total expenditures continue to rise out of control so as to accommodate the sum of preferences for specific programs. Dr. Timberlakeisprofessorofeconomicsemeritusat the Universityof Georgia,Athens. The two major political parties are now locked in a titanic struggle over what both sides label "a balanced budget." This label, however, violates the common principle of truth in advertising. First, party leaders are not debating on a balanced budget for now or even for now-plus-five years. They are bargaining about an annual budget that would allegedly be balanced seven years hence! Both parties propose tax revenues and spending projections for the intervening years that supposedly would provide a "path" to budget balance. However, even the Republican "path" includes increased government spend ing of $50 billion a year, and another $650 billion increase in the $5 trillion national debt, before the annual budget is finallybalanced in 2002.

Can anyone believe that these spending projections would remain inviolate? That fu ture Congresses would honor the constraints that this Congress is trying to impose on them? That future "crises" would not provide convenient excuses for abandoning the earlier legislators' pledges? Most important of all, the Republican strat egy for "balance" relies on Congressional Budget Office (CBO) calculations of future years' tax revenues and spendings. These estimates are subject to endless debate over their accuracy, and what effect they would have on various segments of the electorate and special-interest groups. No one can cer tify the "numbers" of either party nor the 734 commitment of future congresses to this Con gress's ideals. A Different Strategy What is needed, as every private house holder and businessman living outside the Washington Beltway understands, is an en tirely different strategy. Budget balancers, who sincerely believe their fiscal principles, should concentrate on balancing the 1997 budget, not the one in 20-ought-something.

No private householder plans a budget seven years hence, or even two years ahead. She plans it month by month for the next year as it unfolds. And she does not use "projections" of future income. She looks at last year's realized income (what could be more cer tain?), and bases the coming year's spending plans on last year's certainty. So the government's budgeteers should similarly calculate. Their accountants know virtually to the dollar how much revenue came into the Treasury during 1995-1996. That "number" should be their spending red-line for 1996-1997. They would then be able to prioritize government spending on programs, agencies, departments, projects, deploy ments, commissions, administrations, and funds. The president, if he is equally sincere about budget balance, should then accept the Congress's total spending limit, based on the last fiscal year's total tax revenues, as his own red line. He should have a line item veto to take out spending items he thinks are unnecessary. The House of Rep resentatives, however, has the sole constitu tional power to initiate fiscal spending. So the president has no authority to add his own line items even though he would be able to bargain quid pro quos with congressional leaders.

735 Several features of this plan suggest its practicality. First, it establishes a fiscal rule for the government's operations that every householder and businessman, regardless of his particular ideology, can understand, ap preciate, and accept. Yes, the federal govern ment would still be spending $1.4 trillion dollars next year-that's a million people each spending $1.4 million dollars, a mind boggling amount. However, a rule-based limit would finally be in place. Second, future Congresses would not be on schedule to take the heat for what the present Congress has planned for them. The Congress now in session would be setting an example and a precedent for subsequent Congresses to follow. Third, since this year's tax revenues will usually exceed last year's, adherence to this rule would normally result in small budget surpluses for the current year. (Yes, I realize that is an unfamiliar word.) These surpluses could be used to reduce especially counter productive taxes or to redeem the national debt. While the debt problem is so enormous now that it requires other medicine, at least with a budget red-line in place it would not get any larger.

Finally, a tax red-line on total federal spending would prevent individual prefer ences for spending programs from forcing up total spending. Total federal spending would be fixed first by the red-line rule, and spend ing on particular programs would have to be tailored to fit this total. The total would still be obscenely obese, but at least it would be under control. Future efforts of economically minded legislators could then be directed to cutting out the most flagrantly useless agencies, departments, and programs with out concern that total spending was still hemorrhaging. D Potomac Principles Killing Enterprise T he Big Apple, as New York City is known, is a bustling, energetic metropolis that nevertheless remains a difficult place for all but the very wealthy to live. It is an especially tough town for the enterprising poor seeking entrepreneurial paths out of poverty. One problem, as described by Raymond Keating in an August 1996 Freeman article, is confiscatory taxation. Another difficulty, reports William (Chip) Mellor, president of the Institute for Justice, is that "In occupa tion after occupation, obstacles to enterprise often far exceed any legitimate exercise of government's authority to protect public health and safety." His new study, Is New York City Killing Entrepreneurship?, paints a depressing picture of a municipality intent more on enriching special-interest groups than encouraging its citizens to prosper.