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30 Tax Features 1 (1986)

handle is hein.tera/taxfeaturs0030 and id is 1 raw text is: TAX FEATURE Gramm-Rudman-Hoflings Measure Leaves Major Questions Unanswered New Watchdog Committee Bolsters TF Oversight Of Federal Budget Action ,iit e Tax Foundation has established a hadow Committee on the Federal Budget o scrutinize official budget and fiscal re- orts uf the Federal government and pro- Ovide reliable information on them in clear and concise English. The Washington-based tax watchdog organization has assembled a team of ex- perts to conduct this ongoing audit of the Federal bud- get and its economic implications. The group is patterned on the Shadow Open Market Committpe, the existing private sector effort to assess the Federal Reserve's conduct of monetary policy. Objective Scrutiny Needed Budget and fiscal policy reports from any Admin- istration and any Congress are by their very nature po- litical documents. The Administration has a built-in bias to understate the budget dilemma, and Congress has a similar bias driving it to attack the Administra- tion's budget and press for changes. The Congressional Budget Office was set up in 1974 as a check on any Administration's budget claims. While CBO has done some good work, it also has added more confusion to the budget process. The re- sult is widespread uncertainty over such seemingly simple matters as the proper baseline (starting point) for measuring proposed changes in spending and Fed- eral revenues. Budget cuts claimed on paper fail to materialize as baselines are juggled at the whim of the estimators on Capitol Hill and in the White House. In setting up the Shadow Committee, Tax Founda- tion's Trustees sought to ensure that an independent agency could exist that might work to keep the base- lines and estimates honest and accurate. This is particularly important now because of the Gramm-Rudman-Hollings budget initiative which calls for 10 percent across-the-board spending cuts whenever deficit reduction targets for the next five years are not met. This will intensify the need for such a private-sector effort to sort out what is-and what isn't-real deficit reduction. Plain English Needed Another major aspect of the current budget debate is (Continued on page 4) 'A bad idea whose time has come. The above words of one of its principal sponsors, Senator Warren Rudman (R- NH), may be the most apt descrip!.'on of the Gramm-Rudman-Hollings (GRH) bal- anced budget initiative. What started out as one of our perennial after-the-fact protests about the size of the national debt is now the law of the land, mandating a staged reduction in the Federal budget deficit to zero by 1991. Despite widespread dissatisfaction with the measure, it was approved by comfortable margins in both the House and Senate. Many Congressmen held their noses while voting for it but approved it nev- ertheless to show the state of frustration and despera- tion over our budget/debt situation. The Administration had reservations about the impact of GRH, too, particularly on defense spending. But the President committed early to the concept and went along with changes insisted on by the House. The table below shows the budget deficit-reduction targets by fiscal year. Like past legislative efforts to pose a balanced bud- get, GRH prescribes no way to get there in terms of substantive changes in specific expenditure programs. It does not even mention the possibility of tax action except for an oblique reference to the corporate mini- mum tax. It does carve out and safeguard certain (Continued on page 2) THIS ISSUE: PAGE 1: Gramm- Rudman Shadow Committee PAGE 3: Public Service Award Front Burner: Budget Oversight PAGE 4: Conference Summary INSERT: House Tax Bill Federal Deficit Projections Under Current Policy and Gramm-Rudman-Hollings Fiscal Years 1986-1991 ($bils) 1986 1987 1988 1989 1990 1991 (A) Current Services Budget asof August 30, 1985 .. 242.6 253.1 255.9 243.8 237.9 (B) Mid-Session Review of Fiscal '86 Budget ...... 177.8 139.3 99.8 53.6 17.7 (C) Realistic Current Policy Budget, January 1, 1986 (average of A + B) ............... 210 196 178 149 128 100 (D) G-R-H DeficitTargets .. 172 144 108 72 36 0 E) Potential Mandated Budget Cuts .......... 122 52 70 77 92 100 'For fiscal 1987-1990, the deficit targets must be missed by more than $10 billion for sequestration to be ordered. 2Limited by formula to $11.7 billion in fiscal 1986 only. Sources: Office of Management and Budget, Tax Foundation computations. VOL. 30, NO. 1 JANUARY1986 TAX FOUNDATION'S

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