Cutting remarks.

When Bill Clinton told Americans in February that the budget deficit was so serious that it demanded tax increases and "deep cuts in existing government programs," something strange happened. People believed him. The budget deficit became a serious national issue, at least for a few weeks. And, even on Capitol Hill, people started demanding more spending cuts.

By late March, the president was back-pedaling, suggesting that more cuts might not be such a good idea. But the seed has been sown. The deficit remains an issue (as Ross Perot pops up every now and then to remind us).

What's still missing, however, is serious talk about where the deficit came from and how we might really get the federal budget under control. To provide that talk, REASON asked four noted budget analysts to spend the afternoon discussing the subject

Our roundtable included:

* Martha Phillips, executive director of the Concord Coalition, a grass-roots educational group chaired by former Sens. Warren Rudman and Paul Tsongas. Phillips is the former Republican staff director for the House Budget Committee.

* Norman Ture, president of the Institute for Research on the Economics of Taxation. Ture was undersecretary of the Treasury in the early Reagan administration.

* Daniel Mitchell, the John M. Olin Senior Fellow in Political Economy at the Heritage Foundation.

* William Niskanen, chairman of the Cato Institute and editor of Regulation magazine. He was a member of the Council of Economic Advisers from 1981 to 1985.

The roundtable was moderated by REASON Editor Virginia Postrel.

Virginia Postrel: Is the budget deficit a problem? If so, why?

Martha Phillips: The Concord Coalition was formed because we believe that the deficit is a problem, particularly for the long term. The country cannot continue indefinitely spending 23, 24, sometimes even 25 percent of GDP, while taxing itself 18.5 percent. The deficit has to be brought under control, so that we can increase net savings, so that there will be funds from America available for investment in this country's economic future.

Norman Ture: I think the deficit is a problem for an entirely different reason. The deficit deceives us about what the government is extracting from us. Its alleged adverse economic effects are really attributable to government spending. When the government spends, it removes our resources or directs their use, and that raises the cost of resources in the private sector. When the government taxes, it distorts our decision making. That's costly.

Daniel Mitchell: Federal spending is the problem, not the deficit. I don't ever lose sleep about the budget deficit. Federal spending is what measures the resources the government is pulling out of the economy, at least in terms of fiscal policy. If you finance that spending by taxes, that has ill effects; if you finance it with the deficit, it has ill effects.

William Niskanen: The deficit is primarily a moral problem. It leads to a redistribution of tax obligations away from the current generation toward the future generation. That would be appropriate if the budget were financing a major system-threatening war or a major temporary increase in public investment activity, but for the most part we are financing current public and private consumption by borrowing from our children without their consent.

Postrel: So what is to be done?

Niskanen: Well, arithmetically, the deficit can always be reduced either by constraining spending or by increasing taxes. The choice depends on how much the current level of federal spending is valued. The American public has no general comprehension of two conditions. One is that the total government spending in the United States is now over $20,000 per household.

The second is that it costs a good bit to increase taxes. [Harvard economist] Dale Jorgensen estimates, for example, that on average the last dollar of federal revenue costs about $1.50 in resources displaced from other uses. We should ask then whether there are any federal programs for which the last dollar of spending is worth a buck fifty.

Phillips: By and large, most people somehow have the idea that somebody else is paying for government programs. Congressmen who have been working on the health-reform issue say they've sadly had to conclude after reading all their mail that what their constituents want is every medical service that could possibly benefit them that somebody else would pay for.

So I would have to say that Norm Ture has a point. You've got to get your spending and your taxes calibrated in some way. If people want the services, they have to be willing to pay for them.

Ture: That's right.

Phillips: And if they're not willing to pay for them, then we'd better look at the services, benefits, income transfers, and what have you--

Niskanen: One major reform that would do more than anything I can think of is to take the Constitution seriously in terms of the limit, on enumerated powers. The federal government has taken on functions that have no explicit constitutional authority. That includes many of our largest programs, including Social Security and Medicare, and we provide everything from babysitting to midnight basketball now through the federal budget.

Ture: When I was a sophomore at Ohio State University I had an economics professor who defied his class to name a single type of human activity in which the federal government wasn't involved. And nobody could actually meet his challenge. Now that was when the federal government was a tiny fraction of what it is now--in the days of Jefferson.

(Laughter.)

Niskanen: One way to make the tax cost of government spending much clearer is to devolve a great many federal functions back to the state and local governments. The primary reason why the states and local governments have been more constrained in their spending is that it is much more obvious who pays if they raise taxes. And, as a consequence, you have much more serious tax revolts and real tax constraints at the state and local level than you do at the federal level.

Postrel: Spending cuts are on the table for the first time in a long time as a good in and of themselves. In discretionary domestic spending, what would you cut?

Niskanen: May I suggest that that's not the place to start? Two-thirds of the federal program outlays are in defense, Social Security, and medical care. And you're never going to get control of the budget unless you're prepared to address those three big programs themselves. You can cut an awful lot out of all this discretionary domestic spending, but in fact it hasn't grown enormously, at least over a longer period of time. It did during the Bush years, but that's unusual.

Ture: What is the focus of the question, though? Is it reducing the aggregate amount...