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 #2 * June 27, 1995 * David A. Ridenour and Karen Kerrigan, Editors

Hill Watch - Update on Pending Legislation on Capitol Hill

House and Senate Republicans Agree to Balanced Budget Plan

Plan Includes $245 Billion Tax Cut -- Sort of:

Thursday night, House and Senate Republicans agreed to a seven-year plan to balance the federal budget that would provide some $245 billion in tax relief. The plan would limit federal spending to an annual growth rate of 3%, increasing the federal budget by $375 billion and producing close to $960 billion in deficit reduction (over baseline budget) by 2002. In 2002, these limits would produce the nation's first balanced budget in more than 30 years -- with a projected surplus of $7 billion.

Under the House/Senate compromise, the $245 billion in tax relief -- including a $500-per-child tax credit and cuts in capital gains taxes -- would be provided only after "balance" of the budget has been certified by the Congressional Budget Office. Tax cuts would not occur if the budget would be out of balance as a result of such cuts.

Other key elements of the compromise: Defense outlays would rise from $263 billion in 1996 to just $270 billion in 2002; the U.S. Commerce Department would be abolished; foreign aid programs would be cut by $23.4 billion and agricultural subsidies would be cut by $13.4 billion; welfare spending would be limited, producing a "mandatory" $100 billion in savings (over current projections) by 2002; and Medicare spending would be limited to an average annual growth rate of 6.4% while Medicaid spending would be limited to 7.2% growth in 1996, 6.8% in 1997 and 4% thereafter. Senate and House negotiators "agreed to disagree" on the possible termination of the Departments of Education and Energy. House and Senate committees have until September 22 to report all reconciliation language.

*Call to Action - How to Promote a Balanced Budget

The recent Senate/House budget compromise places House Republican initiatives to eliminate the Departments of Education and Energy at risk, according to Hill sources. Elimination of the two departments (in addition to Commerce) is the only sure means of making cuts permanent. Advocates of the "Back to Basics Education Reform Act," which would eliminate the Department of Education, say budgetary reasons aren't the only ones for favoring elimination of the department. By terminating the department, the education system could be improved by encouraging greater parental and community input. The Senate/House compromise also places tax cuts -- a key ingredient to economic growth -- at risk. They would kick in only after "balance" has been certified. Some Senate Republicans are also pushing to lower the cap on family tax credits (below the $200,000 income level approved by the House) and some are even advocating that the credits be eliminated from the budget proposal altogether. According to Hill sources, now is the time to weigh in on these key issues.

*Waste Patrol - Where Government Can Slim Down

Time to Eliminate the Department of Cobwebs -- Commerce to Come Out of the Closet:

Former Commerce Secretary Robert Mosbacher once described the Commerce Department as "nothing more than a hall closet where you throw in everything that you don't know what to do with." Over 60% of Commerce's budget is allocated to programs that have nothing to do with its mission. Eliminating the Commerce Department while consolidating and transferring some of its functions would save taxpayers more than $7 billion over five years. Since the Commerce Department shares its mission with at least 71 other federal agencies and departments and sends 40% of its budget to the National Oceanic and Atmospheric Administration, even Clinton Administration officials should have a hard time keeping a straight face when making the case for the department's continued existence.

Nothing written here should be construed as an attempt to help or hinder legislation before the U.S. Congress. Copyright 1995 The National Center for Public Policy Research. Excerpts may be reprinted providing original source is credited.

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