Revised June 24, 2004


By Robert Greenstein and Richard Kogan

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The House is scheduled to consider budget enforcement legislation on June 24.  The legislation coming to the House floor — H.R. 4663, which is similar to legislation the House Budget Committee reported in March — would reinstitute pay-as-you-go rules for entitlement programs but exempt tax cuts from those rules.  The legislation also would establish caps for two years on discretionary programs.  (The version of the bill that the Budget Committee approved contained five-year discretionary caps, but the House Rules Committee made in order a version changing the duration of the caps to two years in an effort to pick up more votes for the bill.)  The proposed discretionary caps for fiscal year 2006 are severe and almost certainly would force substantial cuts in domestic discretionary programs.


1.         Pay-As-You-Go Rules

The House Budget Committee bill includes a proposal to reimpose the pay-as-you-go rules on entitlement programs but to exempt tax cuts from these rules.  Under the pay-as-you-go rules established on a bipartisan basis in 1990 with the support of the first President Bush, both entitlement increases and tax cuts had to be paid for.  Entitlement increases and tax cuts were treated the same — both had to be offset, and their costs could be offset either through reducing other entitlements or raising more tax revenue.

The House Budget Committee bill would reimpose this discipline on entitlement expansions only.  Tax cuts would not have to be paid for.  In addition, entitlement improvements could be paid for only by cutting other entitlements.  Measures to close abusive tax shelters or other tax avoidance schemes and use the savings to finance improvements in an entitlement benefit, such as a veterans benefit or a program to shrink the ranks of the uninsured or reduce poverty, would not be allowed.  Savings on the tax side of the ledger would be off limits for pay-as-you-go purposes.

This proposal, which ignores calls from Federal Reserve Chairman Alan Greenspan and a host of budget watchdog groups to apply the pay-as-you-go rules to both tax cuts and entitlement increases, would have a number of deleterious effects.  It would leave the door open to unlimited, costly tax cuts that could raise deficits to still higher levels.  The proposal also poses other problems:


2.                  The Proposed Discretionary Caps

The discretionary caps for fiscal year 2006 would be very tight and likely lead to substantial, widespread cuts in domestic discretionary programs.

The total of $843 billion for fiscal year 2006 equals the level in the House-passed budget resolution, is $2 billion below the level in the Bush budget, and $9 billion below the level in the Senate-passed budget resolution.

The proposed discretionary caps would stand in contrast to the discretionary caps imposed in 1990 and 1993.  The caps that House Budget Committee Jim Nussle is now proposing would necessitate significantly deeper cuts than the 1990 and 1993 caps.  Moreover, unlike the caps enacted in the 1990s, these new caps would not be part of a balanced deficit-reduction package that puts every part of the budget on the table — including taxes — and calls for shared sacrifice.

End Notes:

[1] The House Budget Committee bill treats the refundable portion of refundable tax credits as entitlement increases, and so requires them to be paid for.  It makes an exemption to this rule only for the continuation of refundable tax credits enacted in the 2001 or 2003 tax-cut bills.

[2] The House-passed budget resolution assumes a modestly higher funding level in 2006 for domestic discretionary programs outside homeland security but does so only by assuming a very low level for international affairs funding that would gut most of the President’s initiatives to address global poverty and disease.