A budget based on barter

THE US is the only significant economy in the world that conducts its fiscal/budgetary functions in such uncivilised fashion. Last week, as legislators worked feverishly to pass President Clinton's dollars 496bn ( pounds 331bn) deficit-reduction programme, the real action was occurring in the back rooms and corridors of Congress. This was political horse trading at its worst; exemptions and perks were flying fast and furious as Congressional leaders bartered for votes. New York members wanted a special exemption from a federal employer healthcare regulation. Western senators urged federal compensation for industries claiming losses on efforts to preserve the spotted owl. A deal was cut to give a powerful Louisiana senator more money for inner-city public hospitals. Congressmen influenced by the powerful US restaurant lobby squeaked through a higher tax deduction for the 'business lunch'.

After three days of such haggling, the budget conferees also imposed a moratorium on a bovine growth hormone to allay the fears of small dairy farmers that an increase in the nation's milk surplus would drive them out of business.

When the dust finally settles on the Budget Reconciliation Act of 1993 and its subsequent money appropriation bills, it will take weeks to read the fine print and see what Congress has actually wrought. No sane person would call this responsible budgeting of the sort that President Clinton appealed for on national television.

The stakes have been even higher than usual in this year's budget exercise, regarded as one of the make or break events of Bill Clinton's presidency. For the first time in decades, a solid Democratic majority in Congress is asked to demonstrate that it can work with a Democrat in the White House to set the nation's priorities. The goal is deficit reduction but the means are highly unpopular tax increases proposed by a president who has only lukewarm public support in the run- up to next year's congressional by- elections.

The strain showed clearly on the face of House Speaker Thomas Foley as he rose on Thursday night to rally his troops with one last speech before the final vote. Knowing there would be no Republican 'yes' votes, Mr Foley said: 'Although I would wish for more bipartisan support, in the end, my fellow Democrats, it comes down to us - every last one of us.' Victory was sweet but surprisingly close with only a two-vote majority - 218 to 216 and 41 Democrats opposed. However, the 'no' Democratic votes came in at the last, suggesting that Mr Foley had accommodated those facing tough races but actually had more votes if he needed them. The Senate deliberations were altogether different but no loftier.

From the beginning, this budget exercise has been wrapped in superlatives and unusually strong political colours. Both parties have competed for public support in the belief that the next election could turn on the issue of taxes. As a result, there has been a great deal of misinformation.

The claim of Senator Robert Dole, the Republican minority leader, that the legislation contains 'the largest tax increase in world history' is patently incorrect. President Clinton was equally wrong in describing it as 'the largest deficit reduction in history'.

According to analysis supplied by the independent Congressional Budget Office, the plan is neither. It proposes a deficit reduction over five years of dollars 496bn, with dollars 241bn of that in tax increases. When adjusted for inflation, the programme that President Bush signed in 1990, which was developed by Democrats in Congress, actually set up a reduction of dollars 532bn over five years. It included higher taxes than the Clinton plan and lower spending.

Ronald Reagan won election on an anti-tax pledge but his tax increases in 1982 of dollars 215bn over five years were also bigger than those backed by Mr Clinton. Measured in 1993 dollars, the Reagan increases amounted to dollars 286bn. The point of this exercise is to demonstrate that it is easy to massage numbers and even history to obscure the main intent.

The main intention should be deficit reduction through responsible budgeting. President Clinton has made costly compromises in reaching towards that goal but he has not abandoned deficit reduction. One of the pillars of his programme is a tax on the wealthy - not, as Senator Dole claims, on the middle class. Most independent analysts agree with Mr Clinton's assertion that 80 per cent of the higher taxes would be paid by those with incomes above dollars 200,000.

Where both men agree is on the debilitating size of the deficit, projecting it to grow by dollars 1 trillion over the next five years even under the Clinton plan, but by dollars 1.5 trillion if nothing is done. They also agree that after the 1997 fiscal year, US deficits will soar again. Mr Dole argues that this demonstrates the ineffectiveness of Mr Clinton's plan. However, he proposes no alternatives, certainly none that would tackle the spiralling costs of entitlement programmes. Mr Clinton argues that these numbers simply underscore the desperate need to bring US healthcare costs under control.

Of course, he is correct. However, if healthcare reform is held captive by the same forces that dictated this budget deal, its fiscal responsibility is in question. The process itself is in desperate need of reform.