Congress Bobbles the Debt

An uncommon burst of good sense gripped leaders of the U.S. Senate the other day and they agreed to strip all the extraneous non-essential items from the budget bill, including consideration of a capital-gains tax cut and a variety of outrageous special-interest provisions. Still, the action came too late to avoid what Washington has dreaded ever since 1985: imposition of across-the-board spending cuts under the Gramm-Rudman deficit reduction act on Monday. Without similar action from the House, the broad ax of the law will fall on $16 billion in expenditures, half from the defense budget and half from domestic programs.

The Gramm-Rudman cuts have been the hammer that forced Congress in recent years to meet specific deficit-reduction targets. Doing so involved making painful choices--along with considerable sleight-of-hand--but those choices were not as painful as the threat of deeper, mindless reductions under Gramm-Rudman. This year, however, the budget process got delayed by President Bush’s proposal to cut the capital gains tax and his opposition to any tax increase--both promises from his election campaign.

So finally, the Gramm-Rudman budget doomsday will arrive on Monday. Will the Capitol evaporate in smoke? Will the Washington Monument fall? Will the Mint’s money presses grind to a halt? Of course not. No one needs to worry about the Gramm-Rudman curse because Congress already had decided to make that relatively painless, too. Leaders made it clear well in advance that if the Gramm-Rudman cuts actually went into effect, they would be restored just as soon as the budget reconciliation bill finally passed. In this case, Gramm-Rudman turns out to be a paper tiger after all.

The problem is that both Bush and congressional leaders decided back in the spring to fudge the deficit issue this year and attempt to forge a major deficit compromise in 1990. The implication was that Congress then could persuade the Administration to go along with a tax increase after giving the President one year of grace on his campaign pledge. But by deciding to just slide by in 1989, Chairman Dan Rostenkowski (D-Ill.) of the House Ways and Means Committee said in a newspaper column Friday that the nation lost its best opportunity to achieve some real progress against the deficit since it was a year of clean slates with a new President, a new Congress and no congressional election.

The offshoot of Friday’s action is that the capital gains tax will be considered in separate legislation in coming weeks. And it appeared that Bush was ready to accede to Democrats’ demands that there also be a restoration of the tax deduction for funds invested in individual retirement accounts. Such deals cost the Treasury money, of course, and it will be interesting to see where the revenue is to come from to pay for them (the capital gains reduction would earn new revenue for three years and then become a deficit-producer).

Almost certainly the plan will make permanent the 3% federal excise tax on telephone service and cancel a scheduled reduction in the 8% tax on airline tickets. Thus the consumer will bear much of the burden, on top of the high interest rates he is paying as a result of the nation’s staggering, and growing, debt. Anyone surprised?