The $50 Billion Bill - Two Artful Budget Dodges
WHEN the saving-and-loan crisis eventually meets the federal budget, Congress's legal budget discipline - the Gramm-Rudman Act - will be escorted quietly from the room. Meeting the Gramm-Rudman targets for the deficit will be difficult next year anyway. Add in the massive bailout, rule out new taxes, and the targets are beyond reach.
So some useful fiction is called for.
The battle over how to finance the bailout is between two artful dodges each claiming it has the moral high ground.
The Bush administration wants the cost of the bailout off the federal budget altogether by setting up an off-budget, government-sponsored corporation to spend the money. The Senate bailout bill follows the Bush plan.
The House bill puts the cost squarely in the budget, then simply excludes it from the Gramm-Rudman requirements.
On each side, combatants find a dangerous precedent in the other plan for escaping budget discipline.
``Here's the irony,'' says Robert Litan of the Brookings Institution. ``Both the administration and the House agree that we've got to circumvent Gramm-Rudman. This seems to me to be a ludicrous debate.''
It is nonetheless expected to be one of the hottest debates when the Senate-House conference committee resumes trying to forge a single bailout package next month.
Lobbyists currently give the House plan a slight advantage, but if the administration chooses to fight hard on the issue, it becomes a close contest.
One option that has not survived on Capitol Hill is accounting the bailout cost honestly. Rep. John LaFalce (D) of New York proposed levying a special tax to pay the $50 billion bill in cash over three years. The total cost would amount to a fraction of borrowing the amount. His amendment lost 256 to 171 last Thursday night.
The surviving plans are not equal on the ledger sheet. The Bush approach ultimately costs the US Treasury about $4.5 billion more than the House approach. By using an off-budget corporation, the government would have to pay higher interest rates than when borrowing on the full faith and credit of the United States government. The difference is smaller, perhaps by half, when the future pay-out is counted at its ``present value'' - a better accounting measure for such comparisons.
Nevertheless, why pay more?
Because, explains Larry Neal, press secretary to Sen. Phil Gramm (R) of Texas (an author of Gramm-Rudman), to put $50 billion of spending in the budget and then ignore it for purposes of Gramm-Rudman ``is a fraud and a sham.''
``If you do it this time,'' says US Treasury public affairs director Art Siddon, ``then the next time a crisis comes along it's very easy to do it again.'' Treasury Secretary Nicholas Brady has been the administration's leading lobbyist for the off-budget approach.
Proponents of the House approach tend to see the Bush plan as even less honest. ``It's all the quintessential blue smoke and mirrors,'' says Sherry Edelson, a staff lawyer for Public Citizen's Congress Watch. ``They're spending more money to say they're spending less.''
Under the off-budget Bush plan, says Washington lawyer Thomas H. Stanton, ``you're not just violating Gramm-Rudman, you're violating fundamental budget principles.''
Bush would create an agency that would sell 30-year bonds to finance the debt. The S&L industry would theoretically own the agency through the Federal Home Loan Bank, but the US Treasury would pay the interest. The first such off-budget agency was set up to bail out S&L insurance in 1987. The second was to bail out the farm credit system last year. The current bailout proposal is five times the previous S&L bailout, and more than seven times the farm credit bailout.
Mr. Stanton argues that these are bad precedents, that off-budget agencies traditionally are privately owned commercial ventures that have the implied guarantee of the US government.
The bailout corporations do not meet any of the true criteria for private ownership, he says, and have no serious prospects as commercial ventures. All that is left is the backing of the US government.
Says David Keating, executive vice-president of the National Taxpayers Union: ``It's a heck of a lot of money to spend for a worthless accounting gimmick.''
If the savings-and-loan bailout were subject to Gramm-Rudman requirements, the government would be forced to raise taxes, cut spending dramatically, or both. Dr. Litan of the Brookings Institution suggests that some sleight of hand is called for.
Since the $50 billion will be paid to people who had deposits in failed S&Ls, most of the money will remain in savings accounts, therefore stay in the financial markets as lendable funds.
So Litan does not expect the bailout to hurt the economy by tightening money supply. To bend the budget around it, he says, would ``just shoot ourselves in the foot macro-economically.''