
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: WEDNESDAY, November 30, 1994                   TAG: 9411300029
SECTION: EDITORIAL                    PAGE: A8   EDITION: METRO 
SOURCE: 
DATELINE:                                 LENGTH: Medium

BUDGET DEFICITS, POLICY DEFICITS

THE HOARY analogy between federal and household budgets - if I have to balance my budget, why can't the government balance its? - can be misleading. But in its implication that both kinds of budgeteering entail choices, the analogy is on target.

Replace the furnace or take that long-planned vacation trip? Slash entitlements and cut taxes, or preserve entitlements but don't cut taxes? If such choices are persistently resisted, if the default option of not choosing is persistently taken, then the result - spiraling debt - eventually becomes more unpleasant than making the hard budget choices would've been in the first place.

In Uncle Sam's case, the problem is a failure to make budget choices that since 1980 has raised the federal debt from about one-third of the nation's annual economic output to about three-fourths. As one consequence, the debt now controls fiscal policy rather than the other way around .

Debt service, the most ironclad entitlement of them all, has risen from 8 percent to 13 percent of federal spending, much of it paid to foreign creditors. This alone severely limits the government's flexibility to respond to new problems with new initiatives, or to cut taxes, or both - and almost certainly contributes to Americans' sense that they're not getting close to full value from government for taxes paid.

During the latter half of the '70s, federal deficits averaged from 2 percent to 2.5 percent of national output, small enough to keep the debt from growing as a percentage of the gross domestic product. Under President Clinton's 1993 budget plan, the deficit is approaching 1970ish levels. But because so much now must go to servicing past debt, the strain on domestic and military discretionary budgets is greater. Indeed, the cost of government operations nowadays is within revenues; current borrowing goes simply to pay the interest on past debt.

This is so even though the U.S. economy is in an expansionary phase. Now ought to be a time when the federal budget is showing surpluses, or at least deficits small enough for the debt to decline as a percentage of national economic output. The massive debt cripples the government's ability to help jump-start the economy, with (temporary) deficit spending, when the next slowdown arrives.

The debt is in command of more than fiscal policy.

The new Republican-controlled Congress is apparently ready to pass and send on to the states a balanced-budget amendment that would either junk up the Constitution with policy details or be vaguely meaningless, and in any event raises the prospect of new reams of court-clogging litigation.

Welfare reform, once regarded as a long-term investment for ending a dependency subculture among some of the nation's poorest citizens, is now viewed as a short-term cost-cutting opportunity - reminiscent of the "deinstitutionalization" experiment some years ago that ejected thousands of mentally ill patients from public hospitals before there was any place for them to go.

Somehow reducing income taxes on nonaffluent families with children (the GOP proposes to do it via a $500 income-tax credit) is overdue, a "family values" issue clearly within government's realm to resolve. But to the extent it hinders debt reduction, such tax relief today would simply add to children's burden tomorrow.

America now is paying for choices avoided in the early '80s. Choices not made in the mid-'90s may similarly haunt later taxpayers and generations.

by CNB