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What’s The Next Step for the Budget?

Monday, May 5, 1997

OnLine

Congressional leaders still are working on a timetable for legislation needed to implement the balanced budget and tax cut accord announced May 2 by GOP leaders and President Clinton, congressional aides told .

The budget agreement includes a net tax cut of $85 billion, which assumes $50 billion in tax increases and $135 billion in gross tax cuts over the first five years.

Two possible approaches for putting the budget deal into action are under consideration. Under the fast track approach, the House and Senate would work simultaneously on a budget resolution, which would translate the accord into a spending and tax policy outline, and on a budget reconciliation bill, which would make specific tax and other policy changes in current laws to reconcile them with the budget resolution.

A final reconciliation bill, with May or June effective dates for many provisions, could be ready for final passage by the House and Senate by Memorial Day or July 4th, if leaders successfully implemented this approach, the aides said.

Under the second approach, the budget resolution would be passed before Memorial Day, but the reconciliation process would be split in two. One reconciliation bill would implement spending policy and a second would carry out tax policy. The tax reconciliation bill likely will move through Congress during the summer, as usual.

Gramm unhappy

Sen. Phil Gramm, R-Texas, warned that translating the budget agreement into law will be difficult and could divide the Republican party over the type of tax cuts that should be enacted.

"I think it’s going to be a destructive debate," Gramm predicted, according to CongressDaily news service. Gramm made his remarks to reporters after a speech delivered to the CATO Institute.

"It’s going to be excruciatingly painful" for the GOP to decide how much of the cut should be targeted to the child credit, capital gains relief, and to individual retirement account expansion, said Gramm, a member of the Senate Finance Committee.

Gramm objects to the budget agreement because it does not cut the deficit by reducing the size of government, but instead relies too much on revised budget estimates to declare that the budget is in balance. Recently issued figures show the government collected and likely will continue to collect more revenue than expected due to the strength of the economy, so the budget negotiators’ job of reaching a balanced budget deal was easier to complete.

Hearing On EITC Announced: The House Ways and Means committee May 8 will hear testimony about the earned income tax credit study that was released by the Internal Revenue Service recently.

"Despite the Government’s best efforts, EITC fraud and errors are still shockingly high," House Ways and Means Committee Chairman Bill Archer, R-Texas, said.

Lott Endorses Tax Reform: The current tax system should be replaced with a new system that sharply reduces the effective tax bill Americans pay, Senate Majority Leader Trent Lott, R-Miss., said in a speech to the Economics Club of Chicago.

Taxes on capital gains and estates should be eliminated and the overall effective tax rate should not exceed 25%, Lott said. The current effective rate is about 40% to 50%.

Lott did not explain how the system could best be reformed. Both a consumption tax, favored by Archer, or a flat-income tax, favored by House Majority Leader Dick Armey, R-Texas, should be discussed, Lott said.