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Administration, Congressional Deficit Projections Close

Thursday, February 13, 1997

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The Congressional Budget Office’s informal estimates show the Clinton budget deficit projections to be on the mark, and that should make reaching a long-term balanced budget agreement easier rather than more difficult this year.

The President’s plan, using the CBO’s preliminary economic assumptions, projects a $50 billion deficit in fiscal 2002, CBO director June O’Neill told the House Budget Committee. The Office of Management and Budget’s estimate projects a $17 billion surplus based on its assumptions.

The more pessimistic economic assumptions used by CBO result in "a very small difference" between the deficit numbers produced by the two sides, O’Neill said. Despite the minor differences, "balancing the budget by 2002 may not be much easier this year than last," since there is less time to do it, she said. Both this year and last year the goal was to eliminate the deficit by 2002.

CBO’s formal estimates will not be complete until late February.

Estate Tax Receipts Growing: Estate and gift tax receipts have grown at double-digit rates in the early 1990s and receipts will continue to grow, Joint Committee on Taxation Chief of Staff Ken Kies wrote House Ways and Means Committee Chairman Bill Archer, R-Texas.

Total estate, gift, and generation-skipping excise tax receipts will be $19.2 billion in 1997, and they will increase to $35.3 billion by 2007, the January 21 letter said.

The revenue projections should fuel arguments made by legislators who claim the current estate and gift tax is burdensome. They claim reform is needed because small business owners and family farmers cannot pass these entities to their heirs without saddling them with an overwhelming tax burden.

Explaining the source of the increase in receipts, Kies wrote that the number of individuals subject to these taxes increased because estate and gift tax exemptions and the tax rates are not indexed for inflation.

The dramatic increase in the stock market and the high number of elderly Americans also have increased the amount and number of estates that will be subject to tax.

Another factor contributing to the increase is the provision enacted in the Economic Recovery Tax Act of 1981, which gave spouses a 100% marital exemption and delayed payment of estate and gift taxes until the surviving spouse died.

Prominent Democrat Offers Capital Gains Relief: A bill, S.306, that would provide capital gains tax relief based on a sliding scale determined by the number of years an asset is held was introduced by Senate Minority Whip Wendell Ford, D-Ky.

Under the plan sponsored by the prominent Democrat, assets held for more than one year would be taxed at no higher than the current 28% rate. The tax rate would be reduced by 2 percentage points per year until the proposal’s benefit reaches its maximum, when assets held for more than 8 years would be taxed at 14%.

By offering the bill, Ford responded to criticism from the GOP that Democrats only support targeted tax relief. "I am aware of the criticism by some on the other side of the aisle that certain Democratic capital gains proposals are ‘picking and choosing’ among certain types of assets," he said on the Senate floor.

Support for Software Manufacturers Growing: A majority of the House Ways and Means Committee supports extending foreign sales corporation benefits to licenses of computer software for reproduction abroad, two Ways and Means members announced at a press conference Feb. 13.

Reps. Jennifer Dunn, R-Wash., and Bob Matsui, D-Calif., said there is growing support for their bill, HR 143, which is similar to a provision in the President’s budget request.

"The U.S. software industry is a vital and growing part of the U.S. economy, and it is absolutely crucial to enable American companies to complete fairly on the international market," Dunn said.