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April 18,
2006
CHANGING THE BUDGET RULES:
Administration’s New Rules Would Favor Tax Cuts
Over All Other Budget Priorities
by Richard Kogan
Summary
In the budget it presented to Congress last month,
the Bush Administration proposed a series of changes in the rules under which
Congress considers and approves the federal budget.[1]
The principal Administration proposals have a common theme: the new rules would
allow unlimited tax cuts while imposing tight limits on federal programs.
The leaderships of both the Senate and the House
have indicated that they plan to take up legislation later this year to change
the budget rules. Some of the Administration proposals may be considered at
that time.
In the first part of this analysis, we discuss
four Administration proposals to limit or “cap” the costs of budget programs.
- Medicare costs would be subject to an
artificial cap, based on a formula that is designed to induce cuts in
benefits, reductions in provider payments, increases in beneficiary premiums,
and/or increases in regressive payroll taxes, but to rule out any increases in
progressive income taxes as part of a larger plan to address Medicare’s
financing problems.
- Legislation that would increase the cost of
entitlement programs in any of the first five years after its enactment would
be prohibited.
- For major entitlement programs such as
Medicare and Social Security, program expansions with long-term costs also
would be prohibited, unless paid for with dedicated taxes such as the
regressive Medicare payroll tax.
- Finally, annually appropriated or
discretionary programs would be capped at levels that imply substantial
reductions in domestic programs.
On the other hand, the Administration proposes no
new rules to impede tax cuts of any size, no matter how costly. Moreover, the
Administration proposes a fifth rule, a new accounting gimmick under which the
2001 and 2003 tax cuts, which are temporary, could be extended indefinitely by
Congress — at an actual cost of hundreds of billions of dollars per year — with
such extensions officially considered to have zero cost. The extension of these
tax cuts could thus be accomplished outside of even the routine budgetary
constraints that Congress places on tax cuts in its annual budget plans.
Capping budget programs but allowing unlimited
tax cuts has four consequences, all undesirable.
- Savings achieved by capping budget programs
would likely facilitate more tax cuts rather than reduce the deficit
- Congress would be more likely to provide new
or increased benefits by way of special tax deductions, preferences, or other
tax loopholes, even when new targeted tax breaks were more costly and less
efficient than providing benefits through targeted program increases.
- Budget policies would favor the well-off
rather than the middle class and the poor to a greater extent than they
already do.
- Congress and the President probably would be
less, rather than more, likely to enter into a major deficit-reduction deal.
In the second part of this analysis, we examine
four additional Administration budget-process proposals. These proposals would
strengthen the President and weaken Congress in various ways:
- creating fast-track “expedited” rescission
powers, sometimes called a line-item veto;
- requiring the President’s signature on
congressional budget plans;
- establishing biennial budgeting; and
- enacting an “automatic” continuing appropriations
bill to preclude government shut-downs.
In the third and final part of this analysis, we
suggest some changes to the budget process to strengthen fiscal responsibility
across the entire budget and to improve congressional consideration of budget
legislation.
Click here
for the full report.
End Notes:
[1] See Chapter 15 of the FY 2007 Analytical Perspectives, one of
the documents making up the Administration’s budget.
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