There will be a tax bill this year, but it is unlikely to
involve any major overhaul of the tax code or substantial new tax
So goes the prevailing wisdom among tax policy makers and
lobbyists as the Bush administration and Congress take their first
tentative steps toward negotiation on the budget for the 1990 fiscal
But predictions about tax legislation, like government economic
statistics, are seasonally adjusted in Washington D.C. The
prevailing wisdom of March often yields to the budget reality of
And by then the Senate Finance Committee and the House Ways and
Means Committee could find themselves scrambling for new sources of
revenue to meet deficit reduction targets or to offset the costs of
new programs that Congress chooses to finance through tax credits
rather than direct federal outlays.
Should that occur, the most likely sources are an increase in
the gasoline tax, higher excise taxes on beer, wine, spirits or
cigarettes or further tightening of tax breaks on interest
deductions or fringe benefits.
Despite new proposals by President Bush to finance programs like
child care and business enterprise zones, Rep. Dan Rostenkowski,
D-Ill., who heads the House Ways and Means Committee, is betting
against a raid on the Treasury.
``If Congress and the president do feel a need to act this year,
they'll want to do it on the cheap,'' he said. ``That means either
programs that at least start small so they can be squeezed into the
budget, or programs that cost the government nothing at all - with
the burden shifted to others.''
Indeed, in the two months since the 101st Congress convened,
Rostenkowski and Sen. Lloyd Bentsen, D-Texas, who heads the Senate
Finance Committee, have said what they will not do on taxes.
The chairmen have made clear that they have no plans to overhaul
last year's catastrophic health insurance law, despite complaints
about its higher Medicare premiums and income tax surcharges.
They have been chilly to Bush's proposal for a reduction in
long-term capital gains taxes, and promised real estate interests
that there will be no tampering with the home mortgage deduction.
Behind all the caution on tax policy lies a political and
economic environment that gives Democrats and Republicans good reason
to avoid an assault on the tax code this year. The most important
political reality is Bush's campaign pledge of no new taxes.
Rostenkowski and the House speaker, Jim Wright of Texas, have
both been stating that any effort to reduce the federal budget
deficit will have to include significant revenue increases.
But they have also made it clear that Democrats are not prepared
to make such a move without the firm public support of Bush. And
lawmakers in both parties do not believe that Bush would accept a
broad-scale tax increase this year.
Another factor working to keep the tax code a minor element in
this year's budget debate is the arithmetic of the
Gramm-Rudman-Hollings balanced budget law.
As revised in 1987, the law requires Congress to hold the deficit
to $100 billion in fiscal 1990 to avoid automatic across-the-board
Congressional and administration budget analysts have calculated
that absent any major downturn in the economy or dramatic rise in
interest rates, the deficit target can be achieved without tax
increases this year - a calculation that can change. …