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COLUMN RIGHT / MARTIN FELDSTEIN: KATHLEEN FELDSTEIN : Clinton's Budget Fables : His 'user charges' and 'outlay reductions' are a backdoor way of shifting the cost from the government to the rest of us.

April 25, 1993|MARTIN FELDSTEIN and KATHLEEN FELDSTEIN | Martin Feldstein is a former chairman of the presidential Council of Economic Advisers. Kathleen Feldstein is an economist.

During the presidential campaign, Bill Clinton brushed away accusations that he was a typical tax-and-spend Democrat with the reply: "I will not raise middle-class taxes to pay for my programs." Enough moderates believed Clinton to give him the margin of votes that made him President.

Less than a month after he took office, President Clinton presented an economic program with massive tax increases and a wide array of new social spending programs. The taxes were defended as ways of reducing the deficit and the spending programs were defended as investments. But it doesn't take much analysis to see that the big tax hikes will actually finance an increase in social spending programs.

Going beyond this economic program, Mr. and Mrs. Clinton will soon unveil their national health plan. Even though 85% of Americans already have health insurance, Administration officials say it will require new taxes of as much as $90 billion a year to extend benefits to those who do not. That's equivalent to a 15% jump in all personal income taxes or a doubling of all the taxes that the government now collects on gasoline, tobacco and alcohol.

To promote his plan as a way of cutting the deficit, the President claims that it cuts spending by $2 for every extra dollar in revenue. That's intended to make the plan more acceptable to political moderates and to persuade taxpayers that their higher taxes are going to deficit reduction rather than new spending.

But according to Clinton's budget, extra federal taxes would rise to more than $75 billion a year in 1997. That would push the share of taxes in national income to the highest peacetime level in our history. And yet a close look at the Clinton plan shows that he would actually increase spending on social programs above the level implied by current laws.

Clinton tries to hide some of his new taxes by calling $7 billion a year of new taxes on high-income Social Security recipients a spending cut. It would show up in Treasury tax receipts as more tax revenue. So it's not surprising that the official Congressional Budget Office rejected Clinton's attempt to call it a spending cut and classified it as a tax increase.

Taxes aren't the President's only way of raising revenue. His budget calls for a wide variety of "user charges" that individuals would pay or that businesses would pay and pass on to their customers. These $9 billion of revenue raisers are all classified as "outlay reductions." They make up a large part of what Clinton calls non-defense spending cuts.

Another major part of the budget's "outlay reductions" would result from cutting reimbursements to hospitals for Medicare and Medicaid patients. Since there would be no change in the actual services to these patients, the hospitals would make up the lost revenue--about $17 billion a year in 1997--by raising charges to patients with private insurance. That in turn would raise the insurance premiums that Americans pay either out of pocket or, if paid by employers, through lower wages or higher consumer prices. In the end, it's a backdoor way of shifting the cost from the government to the rest of us.

There are in fact only two kinds of outlay reductions in the Clinton budget that are not just hidden revenue increases. The President claims to save $23 billion a year by making agencies like the Agriculture Department and the IRS more efficient and by reducing the number of government employees. Achieving such painless savings has been the hope of every Administration.

In the end, the only real cuts in programs and benefits are in the tiny category that the Clinton plan describes as "programs that don't work or are no longer needed." Here, out of the nearly $1.5 trillion of non-defense spending projected for 1997, Clinton has proposed only $3 billion of spending cuts.

Astonishingly, while there are no significant cuts in programs or benefits, Clinton plans $39 billion a year in new spending on social programs by 1997. That's on top of the $280-billion growth of government spending over the next four years that would happen with no legislative changes.

So that's the real arithmetic of the Clinton budget. There's $75 billion of higher taxes plus $26 billion from a combination of user fees and health-care cost shifting for a total of $101 billion that will come out of everyone's pockets. On the other side of the ledger, there are $3 billion in proposed cuts in non-defense programs and $39 billion of new domestic spending. Unless Congress stops him, Clinton will raise middle-class taxes to pay for his social programs.

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