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Administration Challenges GOP Leaders to Produce Their Own Budget

Tuesday, March 4, 1997

OnLine

Office of Management and Budget Director Franklin Raines March 4 challenged GOP congressional leaders to produce their own budget, rather than criticize the administration’s proposal.

"We’d like to hear what the alternatives are," Raines said in response to comments by House Budget Committee Chairman John Kasich, R-Ohio, and Senate Budget Committee Chairman Pete Domenici, R-N.M., that the Clinton plan does not produce enough savings.

The Congressional Budget Office’s analysis estimated that the Clinton budget would produce a $69 billion deficit in fiscal 2002. The administration said its proposal would produce a $17 billion surplus in 2002.

The difference between the two estimates is over economic assumptions, Raines said. "This is not a big debate about spending. ... This is not a big debate about taxes."

Expect a budget deal late in the year

If Congress and the White House agree to a balanced budget deal, the agreement will be reached "late in the year," House Ways and Means Committee Chief Tax Counsel James Clark said March 4.

An agreement will not be reached until the principal negotiators feel compelled to reach a middle ground and will happen later, rather than sooner, Clark said at a conference sponsored by the Federal Bar Association.

At the same conference, Senate Finance Committee Tax Counsel Mark Prater advised tax practitioners interested in when the date of first committee action will be to look at when Congress completes work on the budget resolution. The date of first committee action is important because many revenue-raising provisions in the Clinton proposal are proposed to go into effect on that date.

The budget resolution "is the key" because it advises the tax-writing committees about the size of any possible tax cut, Prater said. April 14 is the target date for completing work on the budget resolution.

As for specific proposals, one congressional aide told the proposal to alter the foreign source sale rule with an activity-based rule could face political problems. Currently, half of the income earned from foreign sales of U.S. manufactured products is attributed to U.S. income.

The current 50-50 split is "rough justice," the aide said. Changing that formula would be difficult because neither Democrats, nor Republicans, want to make tax law changes that would encourage firms to shift manufacturing overseas, he said. Shifting manufacturing overseas could result if the source rule is adjusted.

Interest In CPI Adjustment Growing: Administration officials now have joined congressional leaders in their call to explore ways to adjust the Consumer Price Index, which economists charge overstates the inflation rate.

Adjusting the CPI downward would save the government money because the index is used to determine cost-of-living adjustments and to calculate income tax brackets.

Last week, Senate Majority Leader Trent Lott, R-Miss., suggested that a bipartisan commission be formed to make a binding judgment on how big the cost-of-living adjustment should be.

Failure To Use Technology At the Heart Of IRS’s Problems: Many of the difficulties facing the Internal Revenue Service have been caused by a failure to use technology effectively, General Accounting Office officials told the House Ways and Means Oversight Subcommittee March 4.

"It is clear that in order to achieve its stated goals of reducing the volume of paper tax returns, providing better customer service, and improving compliance with the nation’s tax laws, the IRS must successfully modernize its systems and operations," Lynda Willis, director of tax policy and administration issues at the GAO said.

Of particular concern were the high-risk areas identified by the GAO at the IRS, including the need for tax systems modernization, improvements in the financial management and accounts receivable departments, a decrease in filing fraud, improvement in information security, and the necessity of addressing the year 2000 computer problem.

"For years, the IRS has struggled to collect the nation’s tax revenue using outdated processes and technology," said Willis. It "will take management commitment and technical expertise" to address the IRS’s problems.

In a more general overview of all of the GAO’s findings on high-risk programs across the various federal agencies, Gene Dodaro, the assistant comptroller general of the Accounting and Information Management Division of the GAO stated, "Progress is being made but much remains to be done." Dodaro also echoed Lynda Willis’s description of the IRS’s shortcomings when he noted "that failure to harness technology is at the heart of many of the problems" across the spectrum.