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Onward, Budget Soldiers


News: Analysis & Commentary: CONGRESS

ONWARD, BUDGET SOLDIERS

Call them heartless. Call them visionaries. But never call them quitters. Despite a crushing defeat for the balanced budget amendment--the centerpiece of their Contract With America--House Speaker Newt Gingrich (R-Ga.) and his lieutenants are pressing ahead with their ambitious agenda to slash government spending and cut taxes.

The House is set to pass $192 billion in tax breaks and a like amount in spending reductions within the next three weeks. And by May, Gingrich vows to produce a second plan to cut spending by $1.2 trillion more and to eliminate the budget deficit by 2002. Without the mandate of a balanced budget amendment, he has aggressively grasped the falling dollar as a symbol of the need for dramatic spending cuts. "The dollar has been sliding against the yen and the mark ever since the amendment went down," Gingrich told Fox Broadcasting Co. on Mar. 8.

COOL-OFF. But boldness doesn't always bring success. Deep divisions threaten the GOP's ability to fundamentally remake tax and spending policy. "We on the House side are going to report a budget that gets to balance in seven years, period," Gingrich said. But, he conceded: "You do hear people sort of saying: `Well, let's back off. Now, we don't have to do it."'

Without a legal requirement for balancing the books by 2002, some deficit-cutting steam has gone out of the GOP rank-and-file. And moderates wonder whether the party isn't making the bigger job tougher by pushing costly tax cuts. "My No.1 priority is to get the budget into balance," says Representative John Porter (R-Ill.).

In the Senate, GOP leaders have all but given up on major tax reduction this year. In April, Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) is expected to unveil a $450 billion deficit-reduction plan that includes tax cuts far more modest than the House version. That has some House Republicans wondering why they should vote for painful spending cuts when the tax breaks they are supposedly financing never will become law.

But aggressive House freshmen insist the amendment's defeat only redoubles their determination to fulfill their balanced budget promise. Says Representative Sam Brownback (R-Kan.): "I'm for doing all the big cuts up front, now." And Gingrich may have found a new club in the falling dollar. He got some support on Mar. 8 from Federal Reserve Board Chairman Alan Greenspan, who told Congress that a "key element" in boosting the dollar "is to address our underlying fiscal imbalance convincingly."

The White House, which insists there is no link between fiscal policy and the dollar's fall, is waiting for Republicans to make agonizing program cuts--now made more difficult without the political cover of a constitutional mandate. "It would have been easier with a balanced budget amendment," concedes Senator Phil Gramm (R-Tex.). "It's going to be a strictly partisan matter now. But we have no choice but to get the job done."

ECHO CHAMBER. And so, by mid-March, the Ways & Means Committee will approve a hefty tax cut. The foundations of the package echo the Contract: a child credit for families earning under $200,000 and reductions in capital-gains taxes achieved by halving the rate on gains and indexing profits for inflation. The bill also will restore individual retirement account tax breaks to most Americans and offer a new depreciation scheme for business investment. In addition, Committee Chairman Bill Archer (D-Tex.) wants to phase out the alternative minimum tax over five years. But he would limit capital-gains indexing to individuals and to assets held for at least three years. The corporate gains rate would be set at 25%.

The GOP-dominated House will pass its version of the tax bill knowing little will survive the Senate Finance Committee. Its chairman, Bob Packwood (R-Ore.), hasn't shown much interest. Says committee member Alan K. Simpson (R-Wyo.): "All of this is chicken feed." The Senate bill could end up looking much more like Clinton's proposed $63 billion tax cut than the House version.

Still, House Republicans have vowed to finance all tax cuts with offsetting spending reductions. A big chunk will come from radical reforms in social-welfare programs. Over the next five years, $16 billion would be cut from planned spending for food stamps, $11 billion from Supplemental Security Income, $5 billion from Aid to Families With Dependent Children (AFDC), and $1 billion from school nutrition.

But far more spending restraint will be needed--much of which would have to come from programs dearer to GOP constituents. House Budget Committee Chairman John R. Kasich (R-Ohio) continues to shop ideas among his Republican colleagues--such as restructuring Medicare and eliminating the Education and Energy Depts. Even the Pentagon could take some hits.

To make it easier for lawmakers to trim programs, Kasich wants to ditch the current system of "baseline budgeting," which automatically increases annual program budgets by factoring in inflation and demographic changes. Thus, when the growth of spending is curbed, critics decry the change as a "cut." Even with the accounting overhaul, though, Republicans wonder how much trimming they can do.

Indeed, GOP leaders now seem much more cautious about deficit reduction--partly because of the budget amendment's failure, but also because of sharp criticism they have received for trying to curb social spending. Now, a number of Republicans acknowledge that it may be difficult to achieve serious deficit shrinkage without the support of Senate Democrats and the White House. In the Senate, says Packwood: "We don't have enough Republicans" to balance the budget.

RUNNING IN PLACE.. For now, the Administration seems content to watch the GOP take the heat for politically unpopular spending cuts. Many White House aides bitterly recall that not a single House Republican supported Clinton's five-year, $450 billion deficit-reduction plan in 1993. "We got it done two years ago without them," says one Administration official: "Let's see them do it this time." However, some Administration aides hint that the hard line might soften in the coming months, and the White House could begin to work with Congress to cut federal spending more deeply. "That's still an open issue," says one.

Congressional Republicans are playing a high-stakes game. No one really knows how the public will respond to a dramatic shift in spending priorities. And balancing tax and spending cuts makes the job even tougher. If the GOP sticks with generous tax cuts, deficit-cutting becomes much harder. But if Republicans ditch the tax reductions, they will have only austerity to sell in the next election. And as Bill Clinton learned last November, when it comes to the deficit, no good deed goes unpunished.By Howard Gleckman, with Richard S. Dunham and Mary Beth Regan in Washington


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