Congress Expects No Budget Fracas

LIKE American taxpayers, Congress this week will be preoccupied with money. Individual Americans are focusing on paying taxes, due next Monday, April 15.

Congress is focusing on spending tax dollars: Beginning this week with its budget committees, it is drawing up the overall budget for the next fiscal year, which starts Oct. 1.

Compared with last year's bitter six-month struggle between Congress and the Bush administration over the budget, this year's process should be smooth. An example: The House Budget Committee, chaired by Rep. Leon Panetta (D) of California, expects to begin writing its version of the budget resolution today - and complete the work by day's end.

"It will be a rather unexciting year on the budget front," says Stephen Moore, director of fiscal policy of the Cato Institute. "All of the parameters of the spending total have been established by last year's budget.... I think we'll see a lot less divisiveness on the budget than last year."

That's amazing, Mr. Moore adds, given the increase in this year's deficit. Last year the deficit loomed between $150 billion and $200 billion; most Americans, including Washington officials, insisted it be trimmed.

This year the deficit will be at least $300 billion and possibly $400 billion, Moore says. "Everyone's saying, 'No problem, we've taken care of [it].' "

In an effort to avoid future budget wars, last year's agreement set spending parameters for the next three years. Previously the budget process had started from the beginning every year; This year Congress, for the first time, in effect will be ratifying what was decided last fall.

"All the [budget] resolution will do is reaffirm that budget agreement, so there won't be any big surprises in it," says Rudolph Penner, senior fellow at the Urban Institute and a former director of the Congressional Budget Office.

Another reason for this year's anticipated smooth budget sailing: Last year's agreement says Congress won't have to cut spending when the deficit rises due to factors beyond its control, such as the current recession. Thus there will be no repeat of last year's pressure to trim programs to reduce red ink.

Spending ceilings

Last year's agreement set three ceilings for so-called discretionary spending for domestic, international, and defense programs. Congress is not supposed to exceed these caps: If it wants to increase the funds for one program it likely will have to reduce the money planned for another.

There should be relatively little argument over the amount of money spent on domestic programs, a major bone of contention last year. Last fall's agreement permits domestic spending to rise by the amount of inflation; and it allocates an additional $20 billion to domestic programs.

The likelihood is that Congress will agree on the size and shape of the overall budget within the next few weeks. "Then we move to where the real action is," says Mr. Penner, "which is the appropriations process, where the various subcommittees divide the pie. That's where the real fights will be," with each subcommittee battling to get more money for the programs under its jurisdiction, at the expense of other subcommittees' programs.

Just like the subcommittees, Republicans and Democrats will be jostling over spending priorities. "Bush and the Democrats want to spend the same amount of money," says Dan Mitchell, Olin senior fellow in political economy at the Heritage Foundation. "Bush wants to spend more of it on things like the supercollider in Texas, and the Democrats want to spend it on social issues."

The official budget does not actually encompass all government spending. Two important kinds are not included: the federal bailout of savings and loan institutions, and the US share of the cost of the Gulf war.

But Mr. Mitchell worries that an undisciplined Congress may let a third area get out of hand: emergency spending. Congress "can show how porous the spending caps are by just declaring all spending that goes over [the caps] 'emergencies.' "

Biggest threat to a smooth budget process: the effort led by Sen. Daniel Patrick Moynihan (D) of New York to cut the payroll tax that Americans pay for Social Security. It's the congressional tax-cut proposal with the greatest chance of passage; Senator Moynihan is expected to introduce the proposal as an amendment to the budget resolution.

"This is an issue that most senators don't relish voting on," Moore says. "If they vote to cut Social Security taxes, they could be crucified for tampering with Social Security. If they vote against, they could be crucified for voting against a popular tax cut. This is a no-win situation for them."

Baby boomers' pension

Trimming the tax will mean less money is piling up in the Social Security trust fund, which is intended to finance the retirement of the baby-boom generation, beginning about 2015.

Penner thinks Americans will worry about this: "People really do think that if you cut back the payroll tax, their future benefits are in jeopardy." Thus, he says, "I don't think the idea is a political winner."

Besides, Penner notes, the idea is opposed by politically powerful officials, including: President Bush; Sen. Lloyd Bentsen (D) of Texas, chairman of the Senate Finance Committee; and Rep. Dan Rostenkowski (D) of Illinois, chairman of the House Ways and Means Committee.

But a Social Security tax cut is politically appealing. It would put additional money into the paycheck of virtually every working American. If the House budget resolution does not include the tax-cut proposal, House supporters of the idea are expected to try to tack it onto any tax bill that reaches the House floor.

In the Senate, once Senator Moynihan moves to cut taxes, Republicans plan to offer a substitute, four-part tax proposal. Besides cutting Social Security taxes, theirs would cut capital gains, restore IRAs, and reduce the tax on business investment. Republican strategy is "to let Moynihan make the break in the enemy lines, and then they'll come in behind him," Mitchell says.