Magazine

Budget Reform: "A Fig Leaf For The Election"


Congressional promises of a new era of fiscal discipline are fading as fast as Washington's cherry blossoms. On the surface, the talk of budget rules and spending curbs sounds tough. But the closer you look, the more you see old-fashioned fiscal gimmickry. After all, it's an election year. While lawmakers want voters to think they're stanching the red ink, these same pols also want to cut ribbons. So they will propose a spending "freeze" on domestic programs other than homeland security but exclude such big-ticket items as highways and "emergency" money bills. They will also debate new budget rules to require that tax cuts and new entitlement spending be financed by either raising other taxes or cutting other programs. But they will probably exempt at least $86 billion in tax breaks.

So much for fiscal integrity. "It's a fig leaf for the election," says University of Maryland professor of public policy Allen Schick.

And not much of a fig leaf at that. The pay-as-you-go rules for tax cuts are nonbinding, may last just a year, and could apply only to the Senate. But the $86 billion loophole will allow Congress to extend three popular tax cuts aimed squarely at the middle class, including marriage-penalty relief and the child tax credit -- without paying for any of them. "While they talk about bringing the deficit under control, they are expanding tax cuts," says Robert Bixby, executive director of Concord Coalition, a nonpartisan Washington group that advocates deficit reduction.

The new rules may open the door to as much as $170 billion in additional business tax breaks. They have been added to a bill intended to repeal $50 billion in tax subsidies for U.S. exporters that were declared illegal by the World Trade Organization. Originally, lawmakers such as Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) simply wanted to replace those breaks with a broad-based rate cut also worth roughly $50 billion. But Congress squabbled over details, and the bill stalled. Now, like mosquitoes attracted to a stagnant pool, lobbyists have swarmed over the measure and added hundreds of special-interest amendments.

Games Pols Play

Business reps also want to extend a 2002 measure that gives companies extra write-offs for plant and equipment purchases. That break -- worth $30 billion annually -- is due to expire in September.

Similar games are being played with the massive highway-funding bill -- the most expensive nonsecurity item on Congress' agenda this year. The Senate has passed a bill that would cost $318 billion over the next six years. The House version runs $284 billion. The White House insists it will not spend more than $256 billion, but neither the proposed spending freeze nor the new budget rules would apply. At the end of the day, lawmakers expect to settle on something close to the $284 billion version, though they may use some clever accounting gimmicks to make it seem cheaper.

In the end, some of the corporate tax goodies will fall away, and the highway bill may shrink a bit. With a strong economy, this year's deficit will even fall below the White House prediction of $521 billion. But with Congress already planning to cut taxes and boost spending by at least $350 billion over five years, the pork-addicted pols on Capitol Hill are missing a chance to put a dent in the deficit. Independent Presidential candidate Ralph Nader insists that he is drawing his support not from Democrat John Kerry but from disaffected Americans who otherwise wouldn't vote. But in an Apr. 5-7 Associated Press/Ipsos Poll, 65% of Naderites said they would choose Kerry in a two-way race with Bush; 13% would opt for the President. Just 19% said they would stay home or vote for another fringe candidate. The Securities & Exchange Commission, already battling the legal profession on two fronts, is postponing a third fight. It is deferring until fall a final decision on a controversial proposal that would require corporate lawyers to blow the whistle when they have evidence of company wrongdoing and can't get management or the board to act. The "noisy withdrawal" proposal would force lawyers to resign and tell the SEC why. Agency insiders say they're waiting until corporate lawyers quiet down about proposed rules to tighten mutual fund governance and give shareholders more say in nominating directors. Stalled legislation to restore the ban on state taxes on Internet access fees may finally move through the Senate. The federal moratorium expired last November, and lawmakers deadlocked over whether to expand it to other forms of telecommunications. Now the Senate is expected to approve a two-year extension of the ban, but only on Web access.


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus