Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, February 13, 1991 TAG: 9102130077
SECTION: NATIONAL/INTERNATIONAL PAGE: A-3 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
Nope. This year's federal shortfall should hit a record $318 billion, and next year's is expected to reach $281 billion, the second-largest budget gap.
What's going on here?
Here are some of the questions and answers about the government's relentless flood of red ink and the struggle against it.
Q: Why didn't last year's deficit-reduction bill solve the problem?
A: It was never supposed to solve it, it was simply supposed to gradually make the deficit smaller. Through a combination of tax increases and spending cuts, it was supposed to shrink the shortfall by $43 billion in fiscal 1991 - which runs through next Sept. 30 - and by a total of about $500 billion over the next five years.
But the deficit it was aimed at was huge. When the package of savings was being considered, the administration estimated that unless the measure was enacted, this year's deficit would be $294 billion.
Q: $294 billion? But now, even with the savings enacted, this year's budget gap is supposed to be $318 billion. What happened?
A: A lot. For one thing, we're now in a recession. With business activity down, the deficit goes up because the government collects less in taxes and pays more for unemployment benefits, food stamps and other items. The Bush administration says the weak economy will cost the government $87 billion this year in lost revenues alone. If the recession gets worse, Congress and President Bush may start programs to create jobs and help the poor, swelling the deficit even more.
Q: What about the problems facing the savings-and-loan and banking industries?
A: That's another big-ticket item. The government thinks its costs for insuring and bailing out those ailing institutions will be $112 billion this year - every penny of it driving up the deficit.
Q: I guess the costs of the war with Iraq are another reason this year's deficit will be $318 billion, correct?
A: No. The $318 billion estimate for this year's deficit includes very little of the war's expenses, and the actual cost of the fighting should end up making the deficit much higher.
The administration's budget arbitrarily assumes that the war will cost the government $8.2 billion this year. But since no one knows what the war's price tag will actually be, or how much of it will be defrayed by contributions from U.S. allies, the actual cost may be much more.
In addition, no one knows what other financial burdens the government will assume once the war is over - for postwar aid, replacing ammunition and weapons, possibly keeping troops in the Middle East, and benefits for returning troops.
Q: Wasn't it just a year ago that President Bush predicted this year's deficit would be $100 billion?
A: That's right. But Bush assumed the economy would remain strong and that it would cost very little to help the savings-and-loans.
Q: Well, at least we know that over the next five years, the shortfall will be $500 billion less than it would have been because of the deficit-reduction bill passed last year.
A: Not necessarily. About two-thirds of the savings - in the form of tax increases and reductions in benefit programs like Medicare - has already been enacted into law. But the remaining $144 billion in cuts, mainly from defense, will have to be made in annual appropriations bills from 1992 through 1995. Budget procedures require that those savings be enacted, but Congress and the White House have ignored inconvenient budget procedures before and written new, less onerous ones.
Q: What about long-term prospects for reducing the deficit?
A: Here's one area where most people are relatively optimistic - in the long term.
The recession and the war won't last forever. And both congressional and White House budget experts say federal bank bailout costs will drop sharply in the next few years. In fact, by the mid-1990s, the government should actually be making money in this area as it sells off assets it has taken over from failed banks, analysts say.
Using optimistic assumptions that the recession will end by mid-1991 and that the economy will rebound strongly, the White House says it expects a small budget surplus in 1996, a phenomenon unseen since 1969. The more pessimistic Congressional Budget Office says there will still be a $56 billion shortfall in 1996. Either way, both sides detect a trend in the right direction.
by CNB