Budget Process in the Service of Tax Cuts

It is important to remember the magnitude of the federal budget process on the outcome of community results. While budget process issues are often arcane and sometimes difficult to determine the affects on results, in the case of several of the president’s proposals, the purpose is very clear—to make tax cuts easier to pass and expansion of government services more difficult.

One mechanism that has been used in the past to reduce budget deficits and move towards budget surpluses is called "pay-as-you-go" or "pay-go." This is a requirement that legislation that will increase entitlement (non-discretionary) spending or reduce revenues must be offset by cuts in other entitlement spending or by tax increases, to insure that the deficit does not rise. The statutory pay-go rules expired after 2002, although modified pay-go rules in the Senate were created through the FY 2004 budget resolution.

The president proposes to reinstate the "pay-go" rules, with some very big differences. Rather than "pay-go" rules that apply to entitlement spending and revenue reductions (tax cuts), the President wants to apply the "pay-go" rules only to increases in entitlement spending or refundable tax credits. Any legislation that reduces revenue through tax cuts (other than refundable tax credits) does not have to be offset. Additionally, under the usual "pay-go" rules, the offset for increases in spending or reductions in revenue can come either from reducing other program spending or by increasing revenue through tax changes. Under the President’s proposal, increases in entitlement spending could only be offset by program cuts, not through savings on the tax side.

Under the President’s proposal, legislators could not expand a program like prescription drug benefits under Medicare, for instance, and pay for it by eliminating a corporate tax loophole—rather, it would have to be paid for by cutting something from the entitlement side.

Entitlement programs, like Social Security, Medicare, and Medicaid, and refundable tax credits, like the Earned Income Tax Credit (EITC) or the child care tax credit, are most important to low- and middle-income families. On the other hand, high-income people receive most of their government benefits from tax cuts (or tax "entitlements.”) Once again the bias of this administration is made clear. Tax cuts are "free," even though they increase deficits just as much as spending, and in fact, are more dangerous, since once taxes are cut, it is politically difficult to raise taxes.

The President has yet another way to make tax cuts look free of cost. Another of his budget process "reform" proposals is to have the Congressional Budget Office essentially "pretend" that all of the 2001 and some of the 2003 tax cuts (all of which are scheduled to expire by 2010) are already permanent. The official budget "baseline" is supposed to reflect current law and be a reference point from which to measure the impact of new legislation or tax cuts. If the huge cost of making expiring tax cut provisions permanent is already incorporated into the baseline, proposals to make the tax cuts permanent will have zero cost when compared to the baseline.

The administration justifies these skewed and gimmicky proposals because they will put pressure on keeping spending down so deficits can be cut. As OMB Budget Director Josh Bolton stated, "We want to keep the focus on spending and that’s where we think the [deficit] problem is." Actually, the deficit problem is really on the side of revenue. Federal revenue for FY 2004 – at just 15.7 percent of gross domestic product – is projected to be at its lowest level since 1950; and federal income tax receipts for FY 2004, at 8.0 percent, will be at their lowest level since 1942. The President’s proposals are designed to continue the nosedive of federal revenue and the defunding of government.

Besides these budget process changes, the President has proposed to:

  • Extend the discretionary budget "caps" for 2005 through 2009. The caps set annual limits on the overall amount of discretionary spending. The President proposes that the amounts be based on his 2005 budget (which limits the increase in discretionary spending outside of defense and homeland security to less than .5 percent increase for 2005) with only small increases. This is another way to keep spending down.
  • Make the requirements for "emergency" spending (which is not counted under the budget caps) stricter. "Emergency" spending must be necessary, sudden, urgent, unforeseen and not permanent.
  • Change from a concurrent budget resolution (passed by House and Senate, but not signed by the President) to a joint budget resolution (agreed upon jointly by the House and Senate, signed by the President, and having the force of law).
  • Change from an annual appropriations process to a biennial appropriations process (taking place every two years).
  • Allow a Presidential line-item veto, giving the President the authority to veto new appropriations, mandatory spending, or "limited grants of tax assistance" whenever he determines that the spending is not an "essential government priority." The savings would go to deficit reduction.
  • Make a "continuing resolution" automatic when appropriations are not enacted by the start of a new fiscal year, by funding at the level of the President’s budget or the prior fiscal year – whichever is lower.

Some of these changes, like the "emergency" spending provision, may be worthwhile. Even budget "caps," if they are set at adequate levels, have been useful in the past. However, under this Administration, the caps are far too low to fund the programs and services that most Americans want. Most of the budget "reform" provisions that the President has proposed either give him more power over the spending process – the line-item veto, the joint budget resolution – or, like the budget "caps" or automatic continuing resolution are ways to reduce government while preserving tax cuts for the wealthy.

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