Rejoicing in this week's bipartisan pact to balance the U.S. budget in five years, President Clinton and Congressional leaders let the rhetoric flow like bubbly. "We have put America's fiscal house in order again," crowed the President, calling it "an historic agreement that will benefit generations of Americans." Republican leaders were equally ebullient. "Today we celebrate the beginning of a new era of freedom," said Senate Republican leader Trent Lott, before a backdrop of children and red, white and blue balloons. The deal, he said, would lead to "less Washington spending, to tax relief for working Americans, to security for our senior citizens and less dependency on the government." And just how did the legislators celebrate this new era of freedom? They went out and spent some more. The day after the agreement was reached, the Senate voted in a $42-billion transportation bill, including 16 per cent more for airports and a 21 per cent increase in spending on highways. The margin was 98 to 1.

That should signal the true import of the budget package, a bizarre amalgam of new spending programs and tax breaks that, far from hastening the end of thirty years of deficit spending, will actually delay the arrival of a balanced budget by several years. America's fiscal house would very likely be in order by next year without the lawmakers' efforts: the revenue yield from the economic boom will cut the deficit in the current fiscal year to as little as $30-billion.

The agreement's $94-billion in net tax cuts, plus spending increases slated for the first two years, will instead boost the deficit to at least $80-billion.

Any subsequent decline will depend heavily on Congress following through with tough spending cuts pencilled in for the year 2000 -- an election year, as it happens. The chances of a balanced budget even by the year 2002 do not look good.

Further down the pike, the picture looks even less encouraging. The two federal programs that most threaten the fiscal health of future generations, social security and Medicare (a public health care plan, like Canada's, but which in the U.S. is limited to old people), emerged all but untouched. On Medicare, the Republicans backed off earlier attempts to raise the age of eligibility or make richer seniors pay higher premiums, remembering the Democrats' successful exploitation of the issue in the 1996 elections. The most the two sides could agree to was a bipartisan commission on the future of Medicare; social security, it seemed, did not merit even that amount of concern. So when, somewhere around 2010, the budget finally is balanced, it will be just in time for the first crop of retiring baby boomers to plunge U.S. finances back into the red.

But all of this pales beside the mess the dealmakers have made of the U.S.

tax system. The tax cuts are not large -- at just 0.3 per cent of GDP, they are one-tenth the size of the Reagan tax cuts of 1981. Indeed, they aren't really tax cuts at all, but rather a grab-bag of tax credits, deductions and preferences that will further complicate an already horrendously complex tax code Far from the "working Americans" of Sen. Lott's imagination, the bulk of the tax breaks are aimed squarely at the middle class. And while Republicans like Sen. Pete Domenici justify cutting taxes on the grounds that taxpayers "can make better decisions than we can" about how to spend their money, the agreement in fact steers taxpayers this way and that, offering tax relief only where the money is put to those purposes favoured by Senator Domenici and his friends.

Consider the tax treatment of savings and investment in the U.S. once the deal becomes law. An efficient tax code would leave individuals to judge for themselves how much to save and how much to consume, what sorts of investments to make and on what timetable. All income, from whatever source, would be taxable at the same rate; but all income saved or invested, to whatever end, would be deductible, so as to avoid taxing savings twice (once on the principal, a second time on the interest). That amounts to a consumption tax, which is pretty close to what we have in Canada.

Instead, the budget deal slashes tax rates for one particular type of income, capital gains. Even here, at least seven different rates apply depending on the type of asset (gains on principal residences will be exempt up to $500,000 -- on top of mortage interest deductibility!), the type of investor (those with less than $41,000 income qualify for special rates), and how long the asset was held (less than 12 months, 12 to 18 months, more than 18 months, and, after 2001, more than five years).

Rather than a simple, near-universal savings plan such as our RRSPs, Americans will have to choose between three different plans. One allows deductions for contributions, but not for income earned in the plan; a second allows tax-free withdrawals, but offers no deduction for contributions; a third applies only to withdrawals for education or buying a house.

It is, indeed, a historic agreement, one that will benefit generations of accountants.