Credit score what does it mean

It was one small step for President Clinton--and an equally small step on the tortuous road that ultimately may lead to a balanced budget. But by unveiling his own seven-year plan to close the budget gap last week, the president grudgingly signaled that he was finally ready to deal. Republican leaders condemned Clinton's plan as weeks too late--and demanded that the White House quickly propose an additional $400 billion in spending cuts to balance the budget under Congress's more cautious economic forecast. Yet there was a growing sense that the two sides must soon put many of their differences aside in favor of pragmatic negotiations, especially if they want to avert anothergovernment shutdown when temporary spending authority expires this weekend.

The administration's latest budget plan--its third this year-- was both a replay of Clinton's familiar themes and another tacit acknowledgment that the Republicans have set the terms of the debate. While hewing to demands that his spending priorities be protected, chiefly in education and training, the president nonetheless called for decidedly deeper cuts than he had previously sought in so-called discretionary spending. These cuts seemed most likely to fall in areas such as mass transit and housing that are dear to traditional Democratic constituencies--the poor, minorities and the nation's cities.

Edging closer to the White House, meanwhile, key Republicans are also signaling that they may shave the size of their proposed $245 billion tax cut and scale back cuts in the earned-income tax credit (EITC) for low-income working people. The two sides may be pushed even closer this week, when the nonpartisan Congressional Budget Office, which serves as the official scorekeeper for the negotiations, is scheduled to unveil more favorable economic and budget projections that may require tens of billions of dollars less in spending cuts to eliminate the deficit by 2002.

Yet Clinton and the Republicans are still miles apart on some key issues. The GOP insists on cuts in the rate of growth of Medicare that are almost three times Clinton's--$270 billion over seven years instead of the president's net savings of $98 billion. Republicans also want a firmer cap on Medicaid spending than Clinton espouses, and more flexibility than the president appears willing to give the states in administering this joint federal-state program, which pays for basic health insurance for many of the poor and for long-term care for millions of the elderly and disabled. Gearing up for re-election, Clinton also has picked fights over proposed GOP changes in federal student loans and is wooing the farm vote with cuts in agricultural subsidies that appear smaller than the Republicans'--but for complex reasons may not be.

The bitter battles over small proposals are of enormous political significance. The president is appealing the death sentence that Republicans have imposed on his cherished national-service program while he wants to nix a plan, beloved by the GOP's far-right wing, to offer Medicare beneficiaries so-called medical savings accounts, or MSA's.

Still, there's little doubt that Republicans and Democrats are moving closer to forging a common vision of future government-- although not one that either side is wild about. Consider the GOP plan that Clinton vetoed last week. For all the rhetoric about cuts in entitlements such as Medicare and the EITC, by 2002 almost 60 cents out of every dollar of federal spending would be mailed out in a check to somebody (see graphic). That only underscores what many Republicans and moderate-to-conservative Democrats have been saying all along: "Entitlements are the problem," as House Budget Committee Chairman John Kasich of Ohio puts it, and they would remain a problem even after the budget was balanced.

Growing slice. Meanwhile, discretionary spending, or what most people consider the standard functions of government--administering the FBI, subsidizing mass transit, running the national parks-- would shrink by 2002 to a level that is 3 percent less than what Washington now spends in actual dollars and as much as 20 percent less after adjusting for inflation.

That implies that if future Congresses are not willing to make much deeper cuts in defense spending--which means jobs--they will have to cut nondefense discretionary programs by an additional 30 to 40 percent after adjusting for inflation. In either case, the share of discretionary spending compared with entitlements and net interest on the federal debt would be almost exactly the reverse of what it was in 1966--the year that two of the largest entitlement programs, Medicare and Medicaid, were born.

The Clinton administration so far has declined to reveal specifics of its overall spending plans for 2002, but in the end, they are unlikely to look much different from the GOP version. And as the prospects of ever growing entitlements and ever shrinking discretionary spending continue to sink in, the realization could give new impetus to some old solutions. Many have been tried and found wanting in the years since federal deficits first exploded in the 1980s--but that may not stop them from being considered one more time. Among them:

Assume rosier numbers. Although the CBO will adopt a more favorable economic and budget forecast this week, it won't be optimistic enough to suit the White House. That means Clinton and the GOP will remain at loggerheads over how fast the economy will grow, how much tax revenue will flow into federal coffers and how much spending must be cut to balance the budget. Given the huge uncertainties inherent in economic forecasting, neither side has a corner on the truth.

There's a strong, sensible case for using the CBO's more conservative numbers. Until very recently, most government forecasts have traditionally underestimated the size of future federal deficits. Moreover, conventional forecasting methods make the unlikely assumption that there will be no recessions to reduce revenues and raise spending. Yet Joseph Stiglitz, the chairman of Clinton's Council of Economic Advisers, makes an equally strong case for using the White House's more optimistic projections. He points out that the administration's forecasts have for the most part been far more right than wrong--and often closer to the mark than the CBO's. Moreover, using overly pessimistic projections "would mean having to cut billions of dollars from investments," for example in federally funded research, "that are important to the future health and strength of our nation's economy," Stiglitz says. That could make a more pessimistic economic forecast turn out to be a self-fulfilling prophecy.

Try a sequester. It's unlikely that the administration can persuade the CBO to use more optimistic forecasts, since it has already agreed to let the CBO score any deal. So the White House has suggested another end run: Assume that smaller spending cuts will be needed--and if that turns out to be wrong, fall back on a "fail-safe" plan to require automatic cuts later on.

Republicans have already adopted a similar approach to rein in Medicare spending if attempts to nudge more beneficiaries into HMOs and other managed-care plans don't adequately contain costs. But they, along with many centrist Democrats, reject the notion of applying such a measure to the entire budget. That's because the idea evokes bad memories of the 1980s, when Congress repeatedly backed away from such supposedly mandatory "sequesters" of federal spending.

Trim the tax cuts. It has long been assumed that the key to a deal is a seven-year tax cut closer to Clinton's original $105 billion package--including a $500-per-child tax credit geared to low- and middle-class families--than the GOP's $245 billion package, which also contains a big capital-gains-tax cut and a per-child tax credit that could be claimed by higher-income families. Clinton has since added offsetting proposals to raise $28 billion in taxes by closing a number of corporate tax loopholes.

But there is growing sentiment among many conservative Democrats and Senate Republicans to scuttle any tax cut. Democratic Sen. Bob Kerrey of Nebraska notes that the GOP plan would allow the federal deficit to rise for the next two years, making room for the tax cuts just in time for the next presidential election. Spending cuts would come later in the old tradition of "dessert first, spinach later," Kerrey says. That, too, is reminiscent of the 1980s, when no spinach ever followed Ronald Reagan's tax cuts. But it remains to be seen whether the anti-tax-cut crowd will gain much influence with Republicans sworn to follow the Contract With America--or with a president bent on re-election.