Clinton Budget Reaffirms Stand Against Broad GOP Tax Cuts
By Andrew Taylor, CQ Staff Writer
President Clinton's new spending and tax plans received a frosty
reception from congressional Republicans, and it is not likely to get much
warmer when Clinton's fiscal 1999 budget arrives on Capitol Hill on Feb.
Clinton's State of the Union address set the stage Jan. 27 for a budget
debate in which his proposals for greater federal aid for child care and
education will collide head- on with an unimpressed Republican majority.
Clinton also gave his clearest signal yet that he will play hardball
against any major GOP tax cut by casting it as a threat to the Social
Clinton's initiatives depend on a shaky $66 billion in revenues
from a national tobacco settlement reached between the tobacco industry and
40 states. Prospects for the settlement have soured in recent weeks,
leaving a potentially huge hole in Clinton's plans.
But the picture appears no better for Republicans. Despite their talk
about another round of tax cuts, a combination of budget rules and an
abbreviated congressional calendar has created hurdles that should block
any ambitious plans for tax cuts or new domestic programs.
Preliminary signals suggest the annual budget blueprint will not
deviate much from the path set out in last year's landmark budget pact (PL
105-33; PL 105-34).
The debate will officially kick off when Clinton submits his budget. It
will feature a president embroiled in scandal going up against an
opposition party that has yet to pull its factions together.
Whatever the problems stemming from the sex allegations engulfing the
White House, Clinton has assembled initiatives to increase spending and
provide targeted tax cuts in areas such as child care and education that
appear popular with the public. He also warned Republicans to hold off on
any new broad-based tax cuts until Social Security's financial health can
be fixed for the long term.
Two years after declaring that "the era of big government is over,"
Clinton presented a poll-tested activist agenda of $40 billion to
$50 billion in new domestic spending programs over five years.
Subsequent polls indicate that the plans resonate well with voters, but
Republicans vow they will not let the president breach tight caps on
spending enacted in the 1997 budget deal.
Administration officials say the new spending will not break the caps,
that it will be fully paid for by spending cuts or new revenues. But to
finance many of the initiatives, Clinton is assuming tobacco-related
revenues that would produce $10 billion in 1999 and $66 billion
over five years. That is not a safe assumption.
Republican reaction to the Clinton agenda was decidedly chilly. Besides
pledging to honor the spending caps, they vowed to rewrite many of the
initiatives to give them a GOP tilt.
"I thought we had convinced the president and the president had made up
his mind that he was committed to a smaller federal government," said House
Budget Committee Chairman John R. Kasich, R-Ohio.
But Republicans have yet to unite behind their own agenda. Top GOP
leaders have promised another round of perhaps modest tax cuts to follow
on last year's tax law (PL 105-34), but enthusiasm among some of the rank
and file is decidedly muted.
"I don't care about tax cuts," said Rep. David L. Hobson, R-Ohio.
The hottest topic in this year's debate is the tantalizing possibility
of the first budget surplus in 30 years. It already has lawmakers making
plans about what to do with it. But plans to devote some of the future
surplus to tax cuts or new spending will prove difficult, especially in the
Spending the surplus may sound good, but the nuts and bolts of the
budget process, and Congress' desire to settle on a budget plan early in
this election year, may quash any such plans.
And it is not only Clinton and Democrats who favor new spending.
Republicans must also figure out what to do about the upcoming
reauthorization of highway programs, on which they are divided. House
Transportation and Infrastructure Committee Chairman Bud Shuster, R-Pa., is
leading an effort to spend much more on highways than is permitted under
the current caps.
Another contingent wants to use all or most of the surplus to reduce
the $5.5 trillion national debt. Many of these Republicans are
reluctant to support spending increases or tax cuts.
All told, the GOP has much work to do to assemble its budget agenda.
"In our caucus, both House and Senate, you've got people who believe debt
reduction is the No. 1 priority," said Sen. Connie Mack, R-Fla. "For
others, it's tax cuts. And others even have got their own spending
priorities. We've got to draw some conclusions pretty soon."
The fire over this year's debate has been
stoked by the prospect of the first budget surplus since 1969. The
Congressional Budget Office (CBO) projects the deficit for the ongoing
fiscal year at $5 billion and for fiscal 1999 at $2 billion.
But CBO estimates, as well as those from the president's Office of
Management and Budget (OMB), have recently proved too pessimistic. So
lawmakers are listening to private-sector economists who predict that a
surplus of as much as $50 billion could appear in fiscal 1998. Many
lawmakers are salivating.
Even if there is a fiscal 1998 or 1999 surplus, congressional
budgeteers would still operate under budget rules that make it virtually
impossible to use a surplus for tax cuts, at least without help from
Democrats. The same budgetary fences that make it difficult for lawmakers
to increase the deficit make it just as hard, procedurally, for them to
spend any surplus.
Here's why: Under so-called pay-as-you-go (or PAYGO) rules extended
last summer in the budget deal, any bill that would increase the deficit
(or decrease any surplus) is subject to an objection, or point of order, on
the Senate floor. It requires 60 votes to waive the PAYGO rule. "There are
going to be a lot of disappointed people," said a top Senate Budget
Committee staff aide. "They're going to lynch me when they find out about
PAYGO points of order."
PAYGO means that if Republicans are going to pass a tax cut, they will
have to find savings or offsetting revenue increases elsewhere in the
budget. That might prove difficult.
At the same time, Senate GOP leaders such as Majority Leader Trent Lott
of Mississippi and Budget Committee Chairman Pete V. Domenici of New Mexico
promise to pass the annual budget resolution by the end of March -- much
earlier than usual. If they are to meet that schedule, they have to make
decisions soon. What they appear poised to devise is a budget blueprint
that hews largely to last year's pact.
The tentative thinking, according to a senior House GOP aide, is to
proceed with a "quickie, hold-the-line budget" resolution and not assume a
tax cut in the short term. But later in the spring, if the budget picture
brightens further and it appears that there will be a sizable 1999 surplus,
Republicans would move ahead with a tax-cut bill. The assumption is that a
considerable surplus would be too irresistible to leave alone. Enacting any
bill would require trade-offs with Democrats.
House Republicans will hold a retreat Feb. 8-11 in Williamsburg, Va.,
to plot strategy; Senate Republicans met Jan. 30 in Washington.
Poll-Tested and Popular
Capitol Hill Democrats appear
united behind most of Clinton's plans, many of which they helped devise. To
build momentum, the White House leaked selected elements of Clinton's
initiatives over the past few weeks.
Unfortunately for Democrats, Clinton's legal problems escalated at the
wrong time. The scandal over his alleged relationship with a White House
intern has sparked a media furor that threatens to drown out his budget
Nevertheless, several polls suggest that to the extent that people are
aware of Clinton's agenda, they support it.
For example, a Pew Research Center poll taken Jan. 14-18 found that 33
percent of those surveyed would prefer that any surplus be dedicated to
spending on domestic programs such as health, education and the
environment. Another 32 percent preferred strengthening Social Security and
Medicare; 22 percent favored retiring some of the national debt; and only
11 percent preferred tax cuts.
An NBC News poll taken Jan. 27 found that 77 percent of those who
watched Clinton's speech supported the policies he outlined. Only 12
percent opposed them. "This agenda's more powerful than any one person's
problems," said Sen. Richard J. Durbin, D-Ill.
Countered Sen. Craig Thomas, R-Wyo.: "Everybody's for child care.
Everybody's for doing some of the things he mentioned. The question is:
'What's the role of the federal government? How do you best do it? Can it
be better delivered by the states?' "
Perhaps the biggest surprise -- and the most potent political salvo --
of Clinton's speech was his admonishment to Congress to hold off on any
major tax cut until the long-term solvency of the Social Security system is
"What should we do with this projected surplus? I have a simple
four-word answer: 'Save Social Security first,' " Clinton said. "I propose
that we reserve 100 percent of the surplus -- that's every penny of any
surplus -- until we have taken all the necessary measures to strengthen the
Social Security system for the 21st century."
Clinton added that the administration would conduct forums around the
country and host a White House conference on Social Security in December as
a precursor to a legislative effort early next year. Many Republicans,
including Kasich, applauded his decision to push for a Social Security
But Clinton's edict also is a powerful weapon that has the potential to
cut off any Republican bid to use a surplus to cut taxes. It signals that
Clinton and Democrats are poised to attack a big tax cut as a threat to the
sacrosanct retirement system. "I think the president makes [Republicans]
face a choice -- cutting taxes or protecting Social Security -- and on that
issue, he wins," said Sen. Richard H. Bryan, D-Nev.
Added Grover G. Norquist, president of Americans for Tax Reform: "He's
not saying 'I want to reform Social Security.' He's saying 'I'll do
anything to keep from cutting taxes.' "
Even as Congress must adhere to the just-released CBO numbers as it
proceeds with the annual budget process, private-sector economists say a
significant surplus will emerge as early as the current fiscal year.
Fluctuations in the economy are among factors that can turn deficit
projections on their head, and the current outlook points to a 1998
surplus. For the 12 months from December 1996 through November 1997, the
government ran a surplus of $2.4 billion. Moreover, the deficit for the
first quarter of fiscal 1998 (October through December 1997) was $39.6
billion -- $19.6 billion lower than the first quarter of fiscal
The key to determining whether a surplus will occur in fiscal 1998 --
or whether it will be large enough to tempt Congress to spend it -- is the
big surge in April tax receipts. Last year, the April surplus was a
whopping $94 billion.
That number will not be available until late May. At that point,
building a consensus to waive budget rules and pass a bill to spend the
surplus would take unusually quick action and enthusiastic participation
from the president and congressional Democrats.
Republican leaders are unified in wanting tax
cuts, but the rank and file has doubts. "I'm part of the group that says,
'What surplus?' " said Rep. Christopher Shays, R-Conn. "My first preference
is to institutionalize the balanced budget. We need to do that before we
talk about additional tax cuts or more government spending."
Both House Ways and Means Chairman Bill Archer, R-Texas, and Senate
Finance Chairman William V. Roth Jr., R-Del., have proposed using a portion
of the projected surplus to cut taxes. In separate interviews, neither
acknowledged that any tax cut would have to be financed by offsetting
spending cuts. Asked whether he would produce required offsets or try to
waive the rules (which needs 60 votes), Roth said, "We haven't looked at
As Republicans prepare for the budget debate, they face a challenging
landscape: factions, a narrow House majority, and an opposition party
poised to play the Social Security card.
Clinton has the easier job. His proposed budget assumes easy passage of
controversial legislation to reap billions of dollars from the proposed
tobacco settlement. The money would come from a combination of industry
payments and penalties that are projected to increase the price of
cigarettes by $1.50 per pack over the next decade.
Like typical budgets, Clinton's 1999 document will contain unrealistic
cuts in some programs, and will unrealistically assume enactment of hardy
perennials such as new revenues from closing tax loopholes. Political
reality is not a litmus test for inclusion in the budget. "The president's
budget doesn't have to get enacted," said Stanley Collender, managing
director of Burson-Marsteller's Federal Budget Consulting Group. "It just
has to come together mathematically."
© 1998 Congressional Quarterly Inc. All rights reserved.