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White House, Congressional Leaders Release Written Details of Budget Deal

Friday, May 16, 1997

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White House and congressional negotiators late May 15 worked out the details of their May 2 budget agreement and will begin work today on the fiscal 1998 budget resolution, the next step toward developing a tax bill.

"We would like to take this opportunity to confirm important aspects of the Balanced Budget Agreement," House Speaker Newt Gingrich, R-Ga., and Senate Majority Leader Trent Lott, R-Miss., wrote President Clinton May 15.

The letter represents a commitment from congressional leaders to seek approval of a broad array of Clinton Administration tax proposals, but cautions that the tax-writing committees will need to balance many competing interests as they translate the budget agreement into actual tax legislation.

"It was agreed that the net tax cut shall be $85 billion through 2002 and not more than $250 billion through 2007," Gingrich and Lott wrote. "We believe these levels provide enough room for important reforms, including broad-based permanent capital gains tax reductions, significant death tax relief, a $500 per child tax credit, and expansions of IRAs."

Education tax breaks coming

The committees of jurisdiction will consider other additional areas, according to the letter. "Specifically, it was agreed that the package must include" $35 billion over five years for the President’s post-secondary education proposals, "including a deduction and a tax credit."

Gingrich and Lott also pledged to "seek to include" in the tax bill a package of other Clinton proposals, including the welfare-to-work tax credit, capital gains tax relief for home sales, the administration’s empowerment zone provisions, brownfields legislation, foreign sales corporation benefits to software producers, and tax incentives for the District of Columbia.

"In this context, it should be noted that the tax-writing committees will be required to balance the interests and desires of many parties in crafting tax legislation within the context of the net tax reduction goals which have been adopted, while at the same time protecting the interests of taxpayers, generally," the leaders wrote. This carefully worded sentence suggests the possibility that, while every effort may be made to accomplish all the stated goals, in the end it may be impossible to achieve them all.

An outline of the annual net tax relief for each year from 1997 through 2002 suggests that the tax-writing committees will need to phase in some of the larger tax cuts, including the child tax credit, and perhaps drop other popular provisions such as back-ended individual retirement accounts.

Net tax relief would be zero for 1997; $7.4 billion for 1998; $11.3 billion for 1999; $22.4 billion for 2000; $23.4 billion for 2001; and $20.5 billion for 2002, for a total net tax cut of $85 billion, according to the outline.

Will tax cut be smaller?

The revenue raisers available for each year during the five-year period are relatively low because of the agreed-to $50 billion cap on tax increases, and because, according to the Joint Committee on Taxation staff estimates, none of the proposed revenue increases grow very quickly.

These revenue constraints suggest that the gross tax cut may need to be smaller than the $135 billion amount originally cited by budget negotiators, and that there may have to be a relatively dramatic delay in a full phase-in of the child tax credit, by far the most expensive provision, or some other extensive modification of the outstanding proposals.

The budget numbers also indicate that it will be very difficult to add to the package other popular tax provisions, such as the $3 billion package of expiring tax provisions, which includes the research and experimentation tax credit, Section 127 tuition credit, and deduction for contributions of appreciated stock to private foundations.

Work On Budget Resolution Begins: The House Budget Committee is expected to approve a budget resolution today so that it can be considered on the House floor next week. The Senate also will act next week.

It is important to remember that the budget resolution does not implement specific policy changes. The resolution outlines the tax and spending goals for the year, and the specific policy changes needed to carry out the goals will be made as part of the reconciliation process later in the year.

Congressional and Treasury Department revenue estimators also will cooperate on the revenue estimating process, a separate letter from Gingrich and Lott to the White House stated. Negotiations snagged between the administration and Congress previously over revenue estimates, so the two sides are trying to hot-wire the process and avoid future problems.