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Negotiators Optimistic About Reaching Budget Deal

Wednesday, April 23, 1997

Deloitte & Touche OnLine

Clinton Administration officials and GOP congressional leaders expressed optimism April 23 that the two sides soon will reach agreement on a spending and tax plan for the next five years that will bring the federal budget into balance in 2002.

"I think it is time for action. In every negotiation and every contract arrangement there comes a time when you have to enter the final agreement and move forward. I think that time is now," Senate Majority Leader Trent Lott, R-Miss., told reporters.

Meanwhile, Office of Management and Budget Director Franklin Raines told a Senate hearing, "I hope that in the coming weeks, the administration can reach a bipartisan agreement with the Congress to put policies in place this year."

The Treasury Department’s announcement that federal tax revenues are higher than expected gave the negotiators an unexpected boost. The increased revenues are a result of stronger than anticipated economic activity. Over October 1, 1996, through March 31, 1997, the deficit was $111 billion, compared to $128 billion over the same period last year, according to recently released figures. The lower than expected deficit numbers should make the negotiators’ jobs easier.

How big of a cut?

GOP negotiators have been pushing for a net tax cut of about $100 billion to $135 billion over five years, but the White House favors a cut of less than $100 billion, congressional sources said. Negotiators also have been looking at $5 billion worth of reductions in so-called corporate "loopholes."

Negotiators are trying to agree on broad spending and revenue targets for the 1998 through 2002 period. The agreement will contain broad policy goals, but will not include the fine details about the budget in many areas, such as how specific tax cuts will work or which tax breaks will be closed. Any agreement will have to be fleshed out over the next several months.

Supreme Court To Review Line-Item Veto: The Supreme Court April 23 announced that it will hear May 27 arguments in the case challenging the line-item veto law which allows the President to veto certain sections of a bill without vetoing the entire measure.

A lower federal court ruled earlier that the law is unconstitutional on the grounds that it interferes with the legislative process by allowing the President to overturn provisions that grant targeted tax relief, or other limited benefits, without rejecting the entire bill passed by Congress.

The U.S. Court of Appeals for the District of Columbia also declined to review a lower court ruling upholding a House rule requiring a three-fifths majority vote to pass federal tax increases.

Johnson To Offer Changes To Housing Credit: House Ways and Means Oversight Subcommittee Chairman Nancy Johnson, R-Conn., will offer legislative recommendations for improving the low-income housing tax credit once the panel completes its hearings.

Johnson expressed concern that working families, the intended recipients, do not benefit the most from the current system. Real estate developers benefit too much when housing is built using the credit, and large families with many children do not benefit enough, she said.

Too often beneficiaries of the credit are families that get other federal assistance and that also is a problem, the chairman said. Also, the federal government, unlike many state governments, does not take steps to make sure the housing built with the credit is habitable.

The Oversight panel’s hearings on the credit will continue May 1.

Estate Tax Relief Debate: Clinton Administration official’s recent criticisms of the estate tax are "an outrage" because the remarks show an insensitivity to burdens placed on businesses by the tax, House and Senate Small Business Committee chairs April 23 declared.

Senate Small Business Committee Chairman Christopher Bond, R-Mo., and House Committee Chairman James Talent, R-Mo., criticized remarks by Deputy Treasury Secretary Lawrence Summers, who said those advocating repeal are selfish.

The estate tax generates only about one percent of federal revenues, but causes two-thirds of affected businesses to sell or liquidate their operations, Bond said in testimony before the House Small Business Committee. "Clearly, he hasn’t talked to anyone adversely affected" by the tax, Talent added.

Most legislators agree that full repeal is unlikely, but some fear the Administration’s reluctance to support relief beyond what it proposed in the budget could complicate efforts to reach a bipartisan balanced budget agreement.

Clinton’s budget proposal does have estate tax provisions targeted at small businesses.

Small Business Bill Discussed: The committee also heard testimony on bills (H.R. 1145, S.460) that would allow health insurance to be fully deducted, broaden the home-office deduction, and clarify the IRS’s independent contractor provisions.

It "shouldn’t be our job to tell a business that they have to hire employees or independent contractors," Bond said about the independent contractor provisions of the bill he wrote with Talent.

Ranking Committee Democrat John LaFalce, D-N.Y., was skeptical about the proposal because it would not protect the U.S. Treasury from employers improperly classifying workers as independent contractors in order to avoid payroll taxes.

The fact that the House Small Business Committee held hearings on the measure is significant, but the bill will advance procedurally only if the Ways and Means Committee, which has jurisdiction, decides to act.

Finance Holds Hearing On Gas Tax: The Senate Finance Committee heard testimony April 23 about a bill that would apply one-half cent of the current gasoline excise tax to a new passenger rail trust for Amtrak.

"Our legislation would raise about $4 billion over 5 years for the rail trust fund. It would allow Amtrak to make capital improvements necessary to operate a modern and efficient railway," said Committee Chairman William Roth, R-Del.

The portion of the excise tax that would be directed to Amtrak would come from the 4.3 cents per gallon levy that currently is applied to deficit reduction. Shifting all or part of the 4.3 cents to transportation spending would undermine opponents of the levy, who argue that it should be repealed because it is unfair to apply proceeds of the excise tax to anything other than transportation expenses.