By Heinemann, H. Erich
American Banker , Vol. 150
THERE ARE TWO major sideshows running on Capitol Hill these days -- tax "reform" and budget "control." Both deal with the size, functions, and financing of the federal government. Unfortunately, neither seems likely to produce conclusions that will satisfy the needs of the economy or, equally as critical, those of the body politic.
The House Ways and Means Committee -- more particularly its chairman, Rep. Daniel Rostenkowski, D-Ill. -- has temporarily seized the initiative on tax reform from the White House and is concocting its own very special stew of tax measures. Just last week, Mr. Rostenkowski promised that his committee would produce a bill by the end of this month.
Assuming that Mr. Rostenkowski, who has aspirations to be speaker of the House in the next Congress, can deliver on his promise, it is still far from clear that the result would represent "reform" in any generally accepted sense of that world. Mr. Rostenkowski's version of an ideal tax code is likely to be sufficiently removed from the consensus in the Senate, not to mention the administration, as to send the whole tax debate back to square one.
A typical reaction came from Jack F. Bennett, senior vice president of Exxon and undersecretary of the Treasury for monetary affairs under President Ford. "Those unprincipled proposals [drafted by Mr. Rostenkowski's staff]," Mr. Bennett said, "would not only seriously delay the recognition of depreciation, but would all but eliminate the small step proposed by the administration to reduce the double taxation of income earned through corporate investment."
PRoposals to Balance Budget
Meanwhile, a gaggle of 57 congress-persons (nine senators and 48 representatives) is attempting to hammer out compromise legislation to boost the federal debt limit above $2 trillion for the first time and at the same time to mandate a balanced budget by 1991. Senators Phil R. Gramm, R-Tex., Warren B. Rudman, R-N.H., and Ernest F. Hollings, D-S.C., have proposed a plan that would purportedly force Congress and/or the White House to cut spending and/or raise taxes sufficiently to balance the budget over the next five years.
In essence, if Congress fails to meet the guidelines for the budget in the bill, the President would be required to "sequester" a sufficient amount of spending to achieve that result. The proposed legislation calls for all programs to be sliced by an equal percentage. However, Congress has already exempted 55% of the budget from the provisions of the bill (Social Security, interest on the debt, and payments required under outstanding contracts), so it is obvious that the impact will be far from even.
Lawrence A. Kudlow, a Washington consultant and erstwhile chief economist of the Office of Management and Budget, called the Gramm-Rudman-Hollings bill "a major step forward. This new rule will be used by Congress," he said the other day, "as a crutch to lean on when it comes time for politically tough budget cuts. [It] will result in greater election-year deficit reduction than would have otherwise been the case."
Mr. Kudlow may be correct in his assessment. But many analysts are skeptical. In particular, they note that in the short run the level of federal revenues and outlays is primarily a function of economic performance -- not of actions by the administration and Congress.
Like King Canute, who commanded the tide to stay out, Congress can legislate a balance budget, but unless the economy cooperates, nothing much will happen. In fact, this is recognized in the Gramm-Rudman-Hollings bill -- in case of recession, the proposed time-table would be suspended.
A Comic Spectacle that Isn't Funny
There are many elements of comic relief in the tax, spend, and borrow sideshows, but as a bottom-line matter, the spectacle really isn't very funny. The congress people are playing around with our money. …