ongressional leaders and President Clinton and his budget team have resumed meeting face-to-face trying to craft a broad outline of a plan that balances the budget by 2002 and cuts taxes.

Negotiations have picked up since Congress returned from their Easter recess, and the Republican Congress now must determine whether it will pursue a budget independently or as part of a compromise with the White House.

The budget resolution outlines Congress's spending and taxing plans for the upcoming year. It is approved by Congress independent of the President, and it guides Congress through the budget process. The resolution directs various committees, including the tax-writing committees, on the year's spending and tax policies. The committees then enact specific policy changes in a process known as reconciliation and the entire bill is then put together as a budget bill, which Congress and the President must approve. If all goes according to plan, the budget reconciliation bill is signed into law by Oct. 1, the first day of the new fiscal year.

Nervousness about the economy also is putting pressure on the system. Rising mortgage rates, credit card rates and other interest rates often force policy makers to look over their shoulders toward Wall Street, where economists wait impatiently for Washington to get its act together and "do something" about the deficit.

Budget snapshot

The two things to remember when considering the state of budget talks is that negotiators often make public threats and ultimatums that do not mean much at the negotiating table. Also the budget process is very fluid from day to day so it is difficult to assess the situation in a meaningful way until concrete acts, such as passage of the budget resolution, occur.

If the negotiators (who hope to conclude their negotiations this week) can agree to such an outline, it will then be turned into a budget resolution that Congress will pass sometime this spring.

GOP participants warned that if the President does not show signs soon that he is willing to make concessions, Congress will pursue a budget resolution without the President's support. Belief that an agreement on a broad outline on the budget can be reached grew after the latest meetings, only some of which focused on the tax proposals in the budget.

The latest optimism sprung more from the positive tone of the negotiations than from the compromises that were announced at the meetings, according to published reports. Administration chief lobbyist John Hilley recently praised the "bipartisan" spirit of the meetings, and Senate Budget Committee Chairman Pete Domenici, R-N.M., said "we're moving in the right direction." No concrete decisions were announced.

Date of first committee action

The timing of the passage of a budget resolution is important because it provides clues about the effective dates of many of President Clinton's corporate loophole closing provisions, which may be included in a subsequent tax bill.

Some revenue-raising items in the President's budget, such as altering the dividends-received deduction on certain debt instruments, treating preferred stock as boot, deferring deductions for accrued but unpaid interest on convertible debt, and requiring gain recognition on certain distributions of controlled corporation stock, are proposed to be effective after the date of first committee action by the tax-writing committees.

Action by the authorizing committees will not occur until after a budget resolution is passed, if the precedent of previous years is followed. If Congress passes a budget resolution in late April or early May, the date of first committee action probably will occur before the July 4 recess, most likely in late May or early June, congressional sources say.

If Congress and the President do not reach a budget compromise that results in the passage of a budget resolution, and if the Republican-controlled Congress does not reach a consensus on the budget independently, then the date of first committee action probably will be put off until after the July 4 recess and action may not occur until mid-summer or early fall.

Other provisions have effective dates that are pegged to the date of enactment. Even if a budget resolution is passed and the committees complete reconciliation this spring, a budget reconciliation bill probably will not be enacted until late summer at the earliest. There are many hooks on which the bill can get snagged, so enactment of a budget probably will not occur until the fall.

Loophole closers

The President proposed about $30 billion worth of so-called "loophole closers" in his budget. House Ways and Means Committee Chairman Bill Archer, R-Texas, has criticized these revenue-raising proposals on the grounds that they are tax increases. In particular, he opposes the proposals to extend the unemployment tax, require cost averaging of securities, and to replace the foreign sales source rule with an activity-based rule. Archer indicated he could support only about $5 billion in corporate loophole closers. Proposals to change the dividends-received deduction also have met with resistance.

Pressure to approve the corporate loophole closers will mount as the negotiators get closer to approving a compromise that extends various expiring tax provisions and other desirable revenue raisers. Under budget rules, the revenue loss from extending the Research & Development tax credit, for instance, must be offset by corresponding tax increases or spending cuts.

As the negotiators approach reaching a deal, many of the President's proposals probably will be added to the bill as the list of "must-do" revenue "losers" grows.

Components of the package

The budget negotiators have been quiet about which big ticket items may be included in any agreement. Administration officials have indicated the importance of enacting middle-class tax relief, while congressional leaders expressed support for various pro-business proposals that they say would boost the economy.

Central to the GOP's position is a capital gains tax cut, which administration officials say they may go along with. GOP leaders also have been pushing estate tax relief, which seems to have bipartisan support on Capitol Hill, at least in its more modest versions.

Recent indications are the parties may be willing to agree to capital gains and estate tax relief that amounts to less than a total victory for supporters and less than a total capitulation for opponents.

The next step in the budget process will be to craft a broad outline of spending and revenue priorities. The success of that process does not mean that a budget or a tax bill will be signed into law soon after. Instead, it means that Congress and the President are on the road to writing a budget or a tax bill and that there will be many opportunities for the process to be side-tracked or come to fruition in the coming months.

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