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88 IRET Congressional Advisory 1 (1999)

handle is hein.taxfoundation/iretcgadv0085 and id is 1 raw text is: Cngressional August 26, 1999 No. 88 OMB TRASHES TAX CUT ON TECHNICALITY, NOT REALITY The Office of Management and Budget (OMB) when the government was running a deficit, and which outlaw any net tax reduction unless offset by cuts in entitlements. Such a waiver would have required a 60 vote margin in the Senate, under the budget rules. There was no point in struggling to insert such a section in the tax bill, since the President made it quite clear that he would veto the bill. If by some fluke he were to sign it, or if by some miracle the Congress were able to muster the margin to override the veto, the Congress would quickly pass the necessary waiver to make the spending cuts that OMB is threatening unnecessary. The budget rules enacted as part of the 1990 budget agreement were bad policy. They created an artificial distinction between discretionary spending has issued some numbers on the tration that would occur under the budget rules if the recently- passed Congressional tax bill became law. The report is being spun by the White House to claim that the $792 billion ten year tax cut is too large, and would result in across-the-board spending cuts in popular programs such as Medicare. This spin is untrue. OMB is setting up a straw man. The tax cuts would only trigger spending cuts because of the PAYGO (pay-as-you-go) spending seques- on one side, and The tax cuts would only triggeer spending cuts because of the PA YGO (pay-as-you-go) budget rules, not because the cuts are too lar-ge relative to the projected budget surplus, and the PAYGO rules would be waived if an agreement were reached by the Congress and the White House on a tax plan. budget rules, not because the cuts are too large relative to the projected budget surplus, and the PAYGO rules would be waived if an agreement were reached by the Congress and the White House on a tax plan. In fact, the same objection, and the same rebuttal, would apply to the $300 billion tax cut that President Clinton and Congressional Democrats are offering. The tax cut just passed by the Congress shows the public what Congress hopes to do with the budget surplus. The bill does not, however, contain a waiver of the old budget rules that were adopted mandatory spending and tax changes on the other, and tied each category up in knots with silly restrictions. They imposed caps (since revised) on discretionary spending. If discretionary spending exceeds the caps without being classified as emergency spending, the President must 'sequester discretionary outlays across-the-board to offset the excess spending. Congress could avoid that sequester by not overspending the caps, by setting specific cuts to offset program increases, or by raising the caps. This threat-ened sequester is due to the caps and additional spending just voted by Congress, and would occur with or without a tax bill. The PAYGO budget rules also state that, if Congress either increases mandatory spending or cuts taxes, there must be either offsetting cuts in other mandatory spending or offsetting tax hikes to compensate; for no sane reason, the rules do not allow cuts in discretionary spending to be used to make room for a tax reduction. If Congress does not choose what mandatory spending to trim to pay for a tax cut, there must be a sequester of outlays Institute for Research on the Economics of Taxation IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 e Fax 202-463-6199 0 Internet www.iret.org

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