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August 9, 1996
More evidence of Dr. Greenspan's Amazin' Slowdown has added to last week's bond market gains. Mortgage rates are flirting with eight percent even, and 30-year T-bonds broke under 6.70% this morning.
Retail sales at chain stores slid 2.5% in the last couple of weeks, and the Fed's "beige book" described a moderating economy in every region of the country.
Two weeks ago, this column gave Mr. Dole a rough time, in advance, for his economic plan. The announcement this week, complete with $250 billion in "spending cuts to be named later" fell as flat as Mr. Forbes' tax.
After all these years, the hardheads just can't grasp the arithmetic: it is not possible to balance the budget while leaving Social Security, Medicare, and Medicaid untouched -- with or without a tax cut.
However, a tax increase would do the trick. Enough Dole-bashing: let's expose the inside strategy of that great, born again deficit hawk, Mr. Clinton. (Hold on a second; I can't help myself. What's the difference between Mars and the Dole campaign? Once upon a time, there was life on Mars.)
In Mr. Clinton's attacks on the Dole tax cuts, he takes credit for fiscal discipline, and especially the drop in the deficit, down to $117 billion in 1996. While still a lot of money, it is an enormous and legitimate improvement. When Mr. Clinton took office, the deficit was $310 billion; and even under the optimistic projections of his 1993 plan, the 1996 deficit would fall only to $214 billion.
Mr. Clinton beat his own numbers by almost a hundred billion. How slick.
How did he do it?
You may recall Leon Panetta's post-election promise of "two dollars in spending cuts for every dollar in tax increases." You may also remember the subsequent revision to "one for one."
It turns out to have been a somewhat different equation. 1996 federal spending of all kinds is running 14% ahead of 1992, and federal revenue from all sources is 33% higher. Let's see, nowŠ "One dollar in new spending for every three dollars in new taxes!" How about that for a catchy campaign slogan?
Mr. Clinton's stealth plan is to maintain the entitlement status of the big social programs (capping welfare at $12 billion a year was a trivial sacrifice). The big three require immense new revenue to maintain their future spending: Medicare by itself surged 51% since 1992.
Granted, neither candidate wants to talk serious reform of entitlements (look what those nice old ladies did to Mr. Gingrich). However, Mr. Clinton's solution is clear: you can't have your cake and eat it, too; but you can have your cake and eat somebody else's.
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