TAX POLICY
SPECIAL SECTION: THE PLAN THAT WASN'T:
How the Budget Would Have Balanced

By John F. Cogan

Hoover fellow John F. Cogan does the arithmetic.

The centerpiece of the Dole-Kemp economic plan was a balanced budget by the year 2002 and a $548 billion tax cut over the next six years. Democrats swore this couldn't be done, and many voters didn't believe elected officials would have the discipline to produce the necessary savings.

In fact, the Dole-Kemp plan was realistic. It did not require cutting the level of federal spending, but provided for slowing its growth. Spending would have risen and by 2002 would have been 14 percent higher than it was in 1996. Revenue would have grown at a somewhat faster rate; as a result, the deficit would have gradually shrunk until the budget was balanced.

Congressional Republicans demonstrated the will to cut spending; they passed a budget resolution in mid-1996 that included two-thirds of the required savings. Some of the savings had already been enacted. Congress had begun phasing out farm support payments, for example, and in August the president bowed to Republican pressure and signed the welfare reform bill.

At the same time, Congress proposed reforms to both keep Medicare solvent for another ten years and offer recipients more choices among health plans. The Republicans' Medicare plan and the president's had important differences, but there was only a 2 percent difference in what each proposed to spend on Medicare.

Still, the Dole-Kemp tax cut plan would have required the next Congress to enact an additional $217 billion in savings. The plan ruled out Social Security, Medicare, and defense as sources for the savings, leaving one-third of federal spending available to pay for the tax reduction.

Critics charged that taking such large savings from this third of the budget would have threatened vital government services. But basic budget facts refuted this claim. Over six years, projected spending on programs in this one-third totaled about $3.9 trillion. The $217 billion in required savings was therefore only about 5 percent of this total.

As a start, the Dole-Kemp plan called for eliminating parts of the Energy and Commerce Departments and cutting the federal workforce and related expenses by 10 percent. These actions alone would have produced nearly one-half of the required additional savings. Reductions were long overdue, especially in large agencies such as the Internal Revenue Service (IRS), the Agriculture Department, and regulatory offices. In the last ten years the IRS budget has doubled. About one of every eleven federal nondefense employees works for the agency. The number of employees in regulatory agencies has also grown. According to the Center for the Study of American Business, the number of these workers has risen by 21 percent since Ronald Reagan left office.

The Dole-Kemp plan would also have saved $34 billion by auctioning off, rather than giving away, the rights to the broadcast spectrum set aside for digital television. There is no reason why NBC, CBS, ABC, and CNN should simply be given the spectrum.

Auctioning the broadcast spectrum and eliminating industrial research subsidies would have begun the job of trimming corporate welfare. Studies by groups from the Cato Institute to the Progressive Policy Institute have identified more than $50 billion a year in corporate welfare spending. Reducing these programs could have shaved 2 percent off the $3.9 trillion projected spending outside of Medicare, Social Security, and defense.

Thus it was possible to reduce taxes and balance the budget. More than possible, it was-and remains-essential. If the economy doesn't grow faster, the problem of wage stagnation and income inequality will only worsen, and we will be unable to finance our entitlement programs. The Dole-Kemp plan would have promoted growth by putting $548 billion in the hands of American workers, entrepreneurs, and investors.

John F. Cogan is the Leonard and Shirley Ely Senior Fellow at the Hoover Institution and a professor in the Public Policy Program at Stanford University. His current research is focused on U.S. budget and fiscal policy, social security, and health care. He has devoted a considerable part of his career to public service. He is a member of Governor Arnold Schwarzenegger's Council of Economic Advisers and serves on the governor's Public Employee Post-Employment Benefits Commission. He has also served on numerous congressional and presidential advisory commissions. He served deputy director of the U.S. Office of Management and Budget (OMB) from 1988 to 1989, associate director for economics and government and subsequently as associate director for human resources between 1983 and 1986, and as assistant secretary for policy in the U.S. Department of Labor from 1981 to 1983.