Another Look at the Balanced Budget

ON AUGUST 5TH PRESIDENT CLINTON signed the balanced budget agreement. And although members of Congress are still congratulating one another on a job well done, there is little in the agreement that is particularly exciting for conservatives who were hoping for real innovation and change. It is interesting to note, however, that only 3 Democrats voted against the final bill compared to 12 Republicans. The difference in voting is emblematic of the dissatisfaction that conservatives should feel toward the newly enacted budget bill.

To begin with, liberals are able to celebrate the largest new health care program since Medicaid, as well as an unprecedented increase in federal spending for higher education. As if this were not enough, conservatives failed to address the very issues that they had claimed they would. Congress did not fix the structural problems associated with the Medicare entitlement program. This means that difficult decisions which need to be made regarding the Baby-Boomer problem have been pushed to a future Congress and a future administration. They also further complicated an already overly complicated tax system. Most disappointing, perhaps, is the prospect that the budget deal may actually stifle the progress made on welfare reform under the Welfare Reform Act of 1996. Looking at the budget bill more closely, we can see that there are three devastating assaults on welfare reform.

First, the budget bill gives the Clinton administration carte blanche authority to design an expensive new Welfare to Work program. With guaranteed funding of $3 billion, this program will fund primarily public-sector “job creation”; that is, it will create expensive public sector jobs for welfare recipients similar to those created under President Jimmy Carter’s Comprehensive Employment and Training Act (CETA). The new program is also highly prescriptive; funds may not be used for conservative initiatives. With lavish funding that would equal 7 percent of total AFDC costs, this new, liberal program could dominate and direct state welfare reform activities for the next five years–erasing many conservative reforms.

Second, the budget bill virtually abolishes the work requirements that were established in the 1996 Welfare Reform Act. Specifically, the 1996 Act contains performance standards that require states to reduce their AFDC caseloads or, if they fail to do so, to require a certain percentage of those recipients to work. The budget bill destroys these requirements by redefining work to include going to school or receiving training.

Finally, recipients of workfare assignments are henceforth classified as regular employees and subject to the Fair Labor Standards Act. This means that some 25 labor laws are applicable to workfare participants. Under the Clinton administration’s regulations then, a state wishing to make its AFDC recipients work would be required to hire the recipient in a formal public-sector job. Such a job would be subject to a union or government wage scale and Davis-Bacon rules. For example, if New York State required a welfare recipient to perform janitorial services in the public schools, it would have to pay that recipient about $20 per hour. By refusing to include language in the budget bill to overrule the administration’s regulations, Congress has effectively outlawed community service workfare.

Congress should make reversing the administration’s welfare changes its top legislative priority when it returns from August recess. But welfare reform is not the only area where the budget agreement falls short. Conservatives should also be apprehensive of some of the assumptions and circumstances which surrounded the entire balanced budget agreement.

We should, initially at least, be concerned that in order to reach this year’s budget agreement Congress had to abandon the spending levels that it had set fourth in its 1993 agreement. If Congress can renege on it’s 1993 agreement, what assurance do we have that the 106th Congress will not do the same? This is particularly alarming given that three-quarters of the deficit reduction is scheduled, under the current bill, to take place between the years 2000 and 2002. Furthermore, the current budget agreement assumes that there will be an increase in revenues while predicting a modest increase in deficit spending during the next fiscal year. In many ways then, the agreement was forged under very speculative budget policy.

Not everything in the agreement is bad. There are some positive provisions in it. Specifically, we should celebrate the much hoped for reduction in the capital gains tax and the introduction of a child tax credit. Although these are modest gains, they do represent a step in the right direction.

However, if the budget agreement is to move us closer to perpetually balanced budgets and significant tax reform, conservatives in Congress must continue to press for lower spending and a fairer, flatter tax system. Specifically, Congress should overrule the welfare reform changes made by the Clinton administration, cut wasteful spending on programs such as the National Endowment of the Arts, eliminate the estate and capital gains taxes, and implement significant, pro-growth tax reform by enacting a flat tax or national sales tax. Only when these programs become law should members of Congress congratulate themselves on a job well done.


Dr. Butler is Vice President and Director of Domestic Policy Studies and the Roe Institute for Economic Policy Studies at The Heritage Foundation.