Budget Watch

A newsletter covering budget reform and the latest news and views on the federal budget, published by The National Center for Public Policy Research, 20 F Street NW, Suite 700 , Washington, D.C. 20001, (202) 507-6398, Fax (301) 498-1301, E-mail [email protected], Web http://www.nationalcenter.org and the Small Business Survival Foundation, 1320 18th St. NW, Washington, D.C. 20036, (202)785-0238, Fax (202)822-8118, Web http://www.sbsc.org.

Issue #31 * May 22, 1997 * David A. Ridenour and Karen Kerrigan, Editors

Hill Watch - Update on Budgetary Issues on Capitol Hill
The Incredible Shrinking Tax Cut

The GOP has been touting its budget deal with the White House claiming that it includes $135 billion in gross tax cuts over five years. Anyone who has ever looked at their pay stub understands that there is a big difference between net and gross. The budget agreement includes some $50 billion in tax hikes, including $34 billion generated by the Airport and Airway Trust Fund tax, shrinking the net tax cut to just $85 billion. But it get worse. One of the provisions of the budget deal is that the Bureau of Labor Statistics will adjust the Consumer Price Index (CPI) downward by 0.25 percentage points. Since tax brackets are linked to the CPI, the adjustment will produce a tax hike of $6 billion, shrinking the net tax cut further to just $79 billion. But it gets worse yet. According to some reports, Republican negotiators agreed that $35 billion of the net tax cuts would be devoted to the President's education credit, shrinking the amount available for such tax cut priorities as $500 per child tax credit, a cut in the capital gains tax rate, estate/death tax relief and expansion of Individual Retirement Accounts to just $44 billion. This amount is just 23% of what is needed to fully fund these four tax cut programs. For more information about the GOP's incredible shrinking tax cut, contact Scott Hodge of The Heritage Foundation, author of "The 1997 Budget Agreement: The Return of Big Government," @ 202/546-4400. Hodge's study is available on the web at http://www.townhall.com/heritage/library/categories/budgettax/bg1116.html.

Budget Deal Factoids

Based on published reports, here is what we know about the budget deal struck by President Clinton and Republican congressional leaders:

1) The deal would give President Clinton 101% of the spending he requested.

2) The deal would produce the largest domestic spending increase in 15 years.

3) The deal would breech the spending caps put in place by the Democrats in 1993 -- the same agreement that included the single largest tax increase in history.

4) The deal would provide $9 billion more in spending than was proposed in Clinton-Gore '96 campaign literature.

5) The deal would push the hard choices off until the final two years of the budget deal. 130% of the deficit reduction represented in the budget deal would come in the final two years.

6) The deal would permit spending to grow by $267 billion over five years, rising from $1.622 trillion this year to $1.692 trillion in 1998, $1.753 trillion in 1999, $1.809 trillion in 2000, $1.857 trillion in 2001 and $1.889 trillion in 2002.

For more information, contact the Cato Institute @ 202/842-0200 or visit them on the web at http://www.cato.org.

A Movement's Reach Must Exceed Its Grasp

One analyst's view of the budget accord: "Speaker Gingrich's and Senate Majority Leader Lott's agreement to a budget deal that will raise federal spending is the second blow in a two-blow punch, the first being Senator Lott's defection on Chemical Weapons Convention," said Amy Ridenour, President of The National Center for Public Policy Research. "Even the last conservative holdouts should now be convinced that a conservative revolution will not be led by these two gentlemen. Two irreconcilable facts make this so: One, the Speaker and Senate Majority Leader, preoccupied with appearances, are afraid to make bold moves. And two, a political movement's reach must exceed its grasp. The conclusion: backbenchers and conservative organizations must be much more aggressive."

Small Business Survival Committee Foundation * 1320 18th Street, N.W. * Washington, D.C. 20036 * (202)785-0238 * Fax: (202)822-8118 * Web http://www.sbsc.org. * The National Center for Public Policy Research * 777 N Capitol St NE #803 * Washington, D.C. 20001 * (202) 507-6398 * Fax: (301) 498-1301 * E-mail http://www.nationalcenter.org * Web ttp://www.nationalcenter.org * Nothing written here should be construed as an attempt to help or hinder legislation before the U.S. Congress. Reprints of material in Budget Watch is permitted provided that original source is credited. ###