Opinion Editorial | |
| Wednesday, February 10, 1999 | |
Spending Spree And Tax Cuts May Lead To Budget Reform |
Although Congress and Bill Clinton may be at odds over impeachment, they still must work together on many key issues. In fact, once the impeachment debate ends, they will almost certainly cut a deal on the budget to allow both higher spending and a large tax cut.
The reason a deal will be struck is because the 1990 budget deal established two legally binding constraints that both Congress and the White House now want to revise. The first imposes caps on discretionary spending, programs for which funds must be appropriated annually. These caps are now severely confining. According to the Congressional Budget Office (CBO), the caps will force discretionary spending to be cut in each of the next three fiscal years and rise very little thereafter, causing such spending to fall from 6.6 percent of gross domestic product (GDP) this year to just 5 percent by 2009.
The second constraint is the so-called paygo procedure. Under this provision, reductions in taxes must be offset either with tax increases or cuts in entitlement programs, those for which spending is automatic. The law expressly prohibits tax cuts from being offset with cuts in discretionary programs. Moreover, the CBO has ruled that the paygo provision applies equally when the budget is in surplus or in deficit. Therefore, no matter how large the surplus is it is just about impossible to cut taxes.
Both Clinton and Congress now have very strong incentives to change the budget law. Clinton wants to increase discretionary spending, which means raising the caps, while Congress wants to cut taxes, which means modifying paygo. Hence, there is room for both sides to deal in order to allow the other to get at least some of what they want.
Senator Pete Domenici (R-N.M.), chairman of the Budget Committee, has taken the first step. On January 19, he introduced S. 93, a bill that would modify the paygo law in order to allow some of the surplus to be tapped for tax cuts. The reason for such a change, he says, is because "current budget procedures allow us to spend the taxpayer's money more easily than it is to let the American taxpayer keep what he has earned."
Domenici notes that the budget law allows spending above the caps for "emergencies," but there is no provision for an emergency tax cut. Just last year, for example, Clinton used $27 billion from the surplus for emergency spending, despite his oft-stated pledge to use all of the surplus to "save" Social Security first, in order to forestall Republican tax cut efforts. Says Domenici, "We could not find $1 out of the budget surplus to return to the American taxpayer, but we found $27 billion of 'emergency' spending in one year to take out of the surplus for a host of programs, many of which are difficult to classify as an emergency."
In his latest budget, Clinton continues the use of budgetary gimmicks to increase spending in direct violation of at least the spirit of the budget law. As David Wessel of the Wall Street Journal reports, Clinton's budget uses "audacious assumptions to make the numbers add up." These include raising cigarette taxes, increasing fees, cutting health funds for states and squeezing payments to doctors and hospitals.
A more straightforward approach would be to admit openly that the surplus makes such maneuvers unnecessary. The law should be changed to allow Congress and the White House to establish tax and spending priorities through the normal political give-and-take, and not have to jump through legal hoops to cut taxes or raise spending for necessary purposes, such as national defense.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, February 10, 1999.
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