No easy target for US budget cutters

Rupert Cornwell in Washington tries to fathom the murky depths of the g reat fiscal debate on a Republican-dominated Capitol Hill

In Congress as anywhere else, the illusionist's art depends on the right props. Thus the weaponry displayed by Bob Livingston, newly installed chairman of the House Appropriations Committee as he drew up his troops this week for the great assault on federal spending.

First the Republican congressman from Louisiana produced a "Cajun scalpel", for skinning alligators. Next came the larger Bowie knife. Finally, a fearsome machete, for cases where only wholesale butchery of government programmes will do the trick.

Light relief, but welcome to those trying to unravel the mysteries of the budget-cutting debate which dominates the new Republican-produced show on Capitol Hill. All fiscal life is there, from expenditure cuts, to more exotic creatures like a "flat rate income tax,'' the line item veto, unfunded mandates, "dynamic scoring" for tax cuts - items bandied around in today's supreme name of balancing the national books and getting government off the back of the citizens. They are, however, but su pporting players in search of the central character - a balanced budget amendment.

Ever since the federal budget tumbled into deficit under Ronald Reagan, Congress has been searching for a fix. But the Gramm-Rudman amendment requiring a steady return to fiscal probity failed, and the 1990 budget agreement was a mere palliative. Hopes of cost-saving health care reform ended in chaos. So what is left? Nothing less, it seems, than a change in the Constitution, ordering Washington to balance its books.

The plan sounds simple. The measure would be passed by the two-thirds congressional majority needed to alter the Constitution. Once three-quarters of the states (38 out of 50) endorsed it, the amendment would come into force. The target date is 2002. Argument continues, but some version of the measure is expected to pass House and Senate by spring. Then comes the hard part.

The Congressional Budget Office reckons it will take $1,000bn (£640bn) of cuts over seven years to achieve balance by 2002. But as the Clinton administration and those Democrats opposed to the amendment daily taunt Mr Livingston and his colleagues, wherefrom?

US Budget outlays are dominated by three items: defence spending, interest on existing federal debt and, largest of all, "entitlements": the social security, welfare and health care benefits automatically due to Americans who qualify.

Interest payments are untouchable, defence may be a "discretionary" item, but the Republican "Contract with America" calls for a larger, not smaller, military budget. In any case, as the chart suggests, even swingeing reductions in defence cannot sufficeto eliminate the $322bn deficit projected for 2002. As for foreign aid, it will consume a derisory $13bn in 1995.

Which leaves entitlements: but even if every welfare programme is eliminated, and every needy child is packed off to private orphanages, the saving would be a mere $60bn a year. The real money ($600bn in 1995) goes on social security and the health care programmes of Medicare and Medicaid.

The demands of an ageing population mean that if nothing is done, federal pensions and health care alone will consume every dollar of budget revenue by around 2010. But better long-term financial calamity, calculate both parties, than short-term elector al defeat. Hence the truth which few care to admit. Either entitlements are cut, or the rest of the budget must be slashed by a third if the 2002 target is to be met. If defence is spared too, the figure rises to half.

If that is what they intend, the Republicans are not saying. Thus far only Dick Armey, the House majority leader, has come close, acknowledging that the size of cuts required may arouse public ire "which will make the knees of congressmen buckle".