WASHINGTON -- Congress and President Bush should not attempt to totally rewrite the 1990 budget agreement next year because its spending disciplines are the minimum necessary to prevent the deficit from escalating out of sight, two top budget analysts testified yesterday.
The call for nothing other than minor changes in the spending plan, despite major developments in the world since it was written, came from Robert Reischaue, director of the Congressional Budget Office, and Alice Rivlin, former head of the CBO, in testimony before the House Budget Committee.
One of the dire results of the deteriorating deficit -- which the CBO is now projecting will hover around or above $200 billion through the end of the century -- is that interest payments on the national debt will nearly double in the next 10 years and eat up a growing portion of the U.S. budget, Mr. Reischauer said.
"Budget deficits created a vicious cycle of more than borrowing and higher debt service costs, which in turn make it still more difficult to reduce the deficit," he said.
"In 1981, for example, the public held less than $800 billion of federal debt and net interest costs amounted to 2.3% of the gross national product. Today, despite much lower interest rates, the debt approaches $2.7 trillion, and interest amounts to 3.5% of GNP," he said.
"What is particularly striking is the way in which the rise in interest costs has undone the hard-fought reductions in discretionary spending," he added. Defense and domestic discretionary spending have shrunk from 10.8% of the economy to 9.6% in the last decade due to various budget agreements, but that entire savings was consumed by the increase in interest, he said.
The CBO is projecting that, even with the budget agreement in place, net interest payments will explode from $196 billion this year to $342 billion in 2001. Without the agreement, the agency projects that interest payments could reach $381 billion by that time.
The spending on interest, unlike discretionary spending, "is completely beyond any direct governmental control" and will grow inexorably, he added.
The burgeoning interest payments are one major reason that Congress should not only continue to adhere to the agreement, but go beyond it and "take further steps to reduce the deficit," Mr. Reischauer said.
Ms. Rivlin agreed that "even tighter discipline will be necessary in the future to get the underlying deficit on a downward track," but she said one aspect of the budget accord should be changed to give Congress greater flexibility in allocating spending between programs.
The agreement's separate spending caps for defense, international, and domestic programs should be combined into one overall cap next year, allowing Congress to shift some spending now currently slated for defense into the other areas, she said.
One budget analyst testifying before the committee did recommend an overhaul of the year-old budget law, however. Allen Schick, a University of Maryland professor, said the law " has serious shortcomings" that may have actually made the deficit worse than it otherwise would be.
Despite being billed as "the deal of the century," he said, "the most glaring failure is that [the law] has not resolved the deficit crisis." He noted that the CBO is now estimating that the fiscal 1992 deficit will be more than $100 billion higher than the prevailing estimate when the law was enacted.
"What is remarkable about the deterioration in the deficit outlook is that is has occasioned no response in either the executive or the legislative branches," he said. "The age of no-fault budgeting has arrived. Nobody is to blame for the deficit, and nobody has to do anything about it."
Another problem with the law is that it has "frozen budgetary initiatives," he said. "Old spending priorities are protected, while new ones cannot be accomodated."
Mr. Schick recommended that the President and Congress meet "whenever there is a significant rise in deficit projections" to negotiate modifications in the budget law and any other measures necessary to bring the deficit down.
