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The tax cut legislation now being discussed in Washington may stimulate the economy, but it's not an economic "stimulus" bill.

Stimulus bills traditionally have been one-time infusions of federal cash into the economy to increase consumer or business spending. Past occurences include: an increase in public works spending that ended when the specific projects being funded were completed; "counter-cyclical" revenue sharing that provided more funds to the states when the economy needed a boost and then triggered off when the economy recovered; or a tax rebate that gave consumers a single lump sum payment and put cash into their hands relatively quickly.

What is being discussed now, on the other hand, is not one-time. Almost all of the proposals that have been discussed since Election Day are permanent changes in the tax code and would continue even when the U.S. economy starts growing more robustly again.

This makes the public labeling of the tax cut as a stimulus bill very suspect. It is also curious given Treasury Secretary Paul O'Neill's claim that the economy is already recovering - not to mention the stock market's recently improving performance.

The fact that the legislation is likely to make the 2001 tax cut permanent also belies the notion that it is an economic stimulus bill. Those tax changes will not take effect until almost eight years from now and will therefore have virtually no immediate impact on the economy.

Saying that the tax bill is needed as an economic stimulus is also questionable given the fact that Congress is not going to be in a hurry to enact it. Already planned congressional trips overseas shortly after the start of the session will severely limit the legislating that occurs in January. In fact, it now appears that work will not really begin on this so-called stimulus bill until after the president's fiscal 2004 budget is sent to Capitol Hill in early February.

Legislative work in February, meanwhile, will be limited by the President's Day recess. Congress also typically does not meet on Monday and Fridays at this time of the year and that will also reduce what gets done quickly.

That means that it could be May or June at the earliest before a tax bill can be enacted and it is likely to be at least several weeks more before the changes can start to be implemented.

That hardly indicates any sense of urgency on the part of the White House or Congress. Either they are in effect saying that the economic problems will continue through the middle of next year, that the economy isn't in that bad shape, or that the bill isn't really designed to be a stimulus at all.

Discussion concerning the size of the tax cut that would be provided immediately clouds the situation further. At this point there is only talk of a reduction of about $75 billion in 2003, well below the tax cut of at least 1 percent of Gross Domestic Product that economists generally say is needed to have a real impact. But the effect could be even less if, as some are suggesting, federal spending is reduced at the same time.

Add to this the continued budget troubles in the states. Because most of them have balanced budget requirements, they will be reducing spending to match the fall in revenues, causing a negative effect on GDP. That makes a $75 billion federal tax cut woefully short of what is actually needed to stimulate the economy.

But what happens if the bond market decides that the long-term reduction in federal revenues from the permanent aspect of the tax cut will result in a previously unanticipated increase in federal borrowing? That could increase long-term interest rates and further decrease economic activity that would have otherwise occurred. That would decrease the short-term impact of the tax cut even further.

Maybe this is why, instead of insisting that it is needed to stimulate the economy immediately, senior White House economic advisor Larry Lindsey has been saying that it is more of an insurance policy just in case the economy does not pick up on its own next year.

In other words, what is being discussed is just a tax cut. Its provisions should be debated only if they would improve tax policy, not because of some type of magical effect they will have on the economy.

Question Of The Week

Last Week's Question. As the answers to last week's question amply demonstrated, it was not as straightforward as it seemed. The question was, "Which federal budgeting organization has the legal responsibility for providing Congress with the official scoring for all tax bills?" The Joint Committee on Taxation scores all bills that change the internal revenue code. But other bills affecting receipts are scored by the Congressional Budget Office. CBO also scores customs duties which some people consider to be taxes.

However, the question specifically asked about "tax bills" so the Joint Committee on Taxation is the answer "Budget Battles" was looking for. The winner of the "I Won A 2002 Budget Battle" mug is Larry Jacobson, who works for the Office of Management and Budget in Washington.

This Week's Question. An Internet search won't help you win an "I Won A 2002 Budget Battle" mug this week. The question: What is the most appropriate thing to serve on Thanksgiving this year to someone involved in the federal budget debate? Send your responses to scollender@nationaljournal.com by 5 p.m. PST on Saturday, Nov. 30, 2002. You must include your mailing address so the mug can be sent if you win. If there are similar winning responses, the winner will be selected at random from that group.

Register NOW For The Executive Briefing On The FY04 Budget "Houston, We Have A Budget," the executive briefing on next year's budget debate that will be presented by National Journal, Government Executive and Fleishman-Hillard on Jan. 28, 2003, will be presented by "Budget Battles" columnist Stan Collender. Click here to learn more about "Houston, We Have A Budget."

It will use almost every known phrase, song, movie and television program about space to bring the fiscal 2004 budget debate to life. In just three hours, you will learn everything you need to know about what's likely to happen as Congress debates the fiscal 2004 budget, spending and tax bills - and what it means for your company, association, department, agency or clients.

"Houston, We Have A Budget," will be held at the incredible Shakespeare Theatre in Washington. The Shakespeare Theatre is only a short walk from two Metro stops; it is close to a number of hotels; is just seven blocks from the U.S. Capitol; and has some of the best sound, lighting and special-effect capabilities in Washington.

The briefing will be from 8:30 a.m. to 11:30 a.m., and the cost is the same as last year - $299 per person for registrations received before Jan. 1, 2003, and $399 per person for registrations received after that date. Group discounts also are available.

To register or receive more information, contacting Beverly Campbell (campbelb@fleishman.com or 202-828-9712).

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