Tax cuts, more than anything else over the past two decades, have been the Republicans' Holy Grail. Now, with the federal budget surplus at levels beyond optimistic projections of even a few months ago, the object of their pursuit would seem to be easily within reach. You would think the GOP Congress would be leaping, with wild shouts of joy, to give voters election-eve tax breaks. Instead, divided Republicans seem destined to miss the opportunity.
Many GOP insiders on Capitol Hill and some outside budget experts have already concluded, in fact, that there's not enough time or enthusiasm to win approval of even a modest tax cut package before Congress adjourns by Columbus Day. "We have a once-in-a-lifetime opportunity to hit a home run by passing a broad-based and Reaganesque tax cut," said retiring Rep. Bill Paxon, R-N.Y. "But it hasn't come together."
Richard E. May, a former top aide to House Budget Committee chairman John R. Kasich, R-Ohio, is among those who point out that big surpluses or not, tax-cutting remains hostage, under the congressional budget rules, to corresponding reductions in federal spending--an area upon which little agreement exists. "It will be very difficult to cut taxes this year, simply because there is no consensus among Republicans of what is the best approach to reduce the growth of spending," said May, who last August joined the Washington lobbying firm of Davidson & Co.
The inability of Kasich and Senate Budget Committee chairman Pete V. Domenici, R-N.M., to resolve the differences between the House- and Senate-passed versions of a fiscal 1999 budget resolution--well after their April 15 deadline--is one of several conspicuous signals that tax cuts are on their legislative deathbed.
Not so long ago, it looked as if House and Senate Republicans would find their way to some sort of cuts this year. During the spring, the leadership in the two chambers moved haltingly toward consensus on a package including a reduction in the so-called marriage penalty for some couples, greater deductibility of health insurance premiums for self-employed workers and a cut in the capital gains tax rate (the last of which chiefly benefits higher-income groups). In late June, House Speaker Newt Gingrich, R-Ga., threw new elements into the mix when he proposed a steeper capital gains rate cut, plus rollbacks in estate taxes--both anathema to Democrats.
The plethora of proposals served to split rather than unite. During the budget debate, moderate Republicans, especially in the Senate, had opposed significant tax cuts this year. Furthermore, some GOP leaders argue that last year's balanced budget package, which included modest tax cuts, should be sufficient reason for their party to receive the voters' thanks at the ballot box. And while top Republican leadership aides are wary of publicly declaring that tax cuts are in jeopardy, they privately acknowledge that winning approval won't be easy.
Still, conservatives are unwilling to concede failure, if only because the goal is vital to their campaign message. "We have to push the envelope now with the people who are objecting," said House Majority Whip Tom D. DeLay of Texas. Once the pressure builds, he predicted, Congress will approve a tax cut this fall after returning from the month-long August recess.
Some Republicans contend that they can accomplish their campaign objectives simply by securing House approval in September of a tax cut package from the Ways and Means Committee. If the measure never reaches the finish line, Republicans can blame Democrats and President Clinton. "It's a win-win for us," said a House leadership staffer.
Among their other problems, tax cut proponents have been stymied by House and Senate rules designed to encourage fiscal responsibility. The most prominent of these, enacted in 1990 in the depths of the deficit blues, is the "pay-go" requirement that spending cuts must offset tax reductions. Many members, including some Republicans, objected this spring to the House budget resolution's tax cuts--$100 billion over the next five years--because the corresponding spending cuts were not detailed.
In addition, unless a House-Senate budget resolution wins final approval--which would trigger special procedural protections for subsequent budget-implementing legislation--a tax cut bill would need the support of 60 Senators to overcome a likely filibuster. That number has been an elusive target for an array of recent legislation.
Faced with that dilemma, some Republicans contend that their response should be to change the rules. "The American public doesn't give a hoot about the Congressional Budget Act or other rules," said Paxon. But changing the rules is not easy, particularly in the realm of budget procedures, where even modest proposals of alterations can inspire debate of Talmudic dimensions.
The reluctance to get into this sort of thing was obvious last month, when a Republican task force secretly submitted to Gingrich a draft report on budget-process reforms that emphasized "controlling spending [and] reducing the debt and the size of government" as prerequisites to cutting taxes. Although the panel, which is chaired by Rep. C. Christopher Cox of California, criticized the 1974 Budget Act as "fundamentally flawed" and the tool of a Democratic-controlled Congress, the report conspicuously did not focus on taxes and made no mention of the current surplus.
Some Republicans have sought, with little success, to focus public discussion on the burgeoning surplus. "How we deal with these potential surpluses holds the key to how we, as governing conservatives, respond to the post-balanced budget world," said House Republican Conference chairman John Boehner of Ohio in a speech last fall to the Heritage Foundation. "The next great Washington debate should be ... about how we are going to best cut taxes."
Maybe, but it hasn't turned out that way. Since last fall, Congress's most significant fiscal action has been to enact in May the expanded federal highway program--a bill that Boehner and Kasich, among others, opposed as budget-busting.
For months, many Republicans have criticized official projections of the budget surplus as both too cautious and off the mark. In May, Clinton announced a $39 billion surplus for the current fiscal year; on July 15, the Congressional Budget Office put the figure at $63 billion. (Those figures went well beyond forecasts by both camps earlier this year.) Wall Street analysts, however, continue to peg the total at $75 billion-$100 billion, said Stanley E. Collender, managing director of the Federal Budget Consulting Group at Fleishman-Hillard, Inc.
As the surplus has grown, Republicans have become even more divided in their response. "Without a deficit to shoot at, there is no common enemy," Collender said. "Republicans are all over the lot." He listed a half-dozen GOP approaches to the surplus: tax cuts, spending cuts, spending increases, new spending for targeted programs, federal-debt reduction and protection of Social Security. "We have so little experience with surplus politics, that no one knows what to do."
Political paralysis has exacerbated the problem, especially in the House, where the GOP is hampered by its narrow majority, rampant factionalism and internal wars. "It's a question of leadership," said a well-placed Republican source. "Newt is in his cautious and calculating mode. He wants to get out of [this Congress] with the least amount of contentiousness. ... In the Senate, their thinking is writ small."
When it comes to the surplus, though, it's not only lawmakers who have been slow to react. Collender and May say they sought last fall to establish a "Black Ink Coalition" of outside interest groups to work to assure that the surplus not be squandered. But Washington business leaders and K Street lobbyists "looked at us cross-eyed, as if we were crazy," May said. "First, the whole town didn't believe the surplus. Now, they don't know what to do with it." Collender, who said he was "flabbergasted" that the pro-surplus group did not coalesce, added that the news media likewise have reacted to the surplus as a non-story.
With projections of continuing large surpluses for the next decade, until Social Security and Medicare expenditures are expected to turn sharply higher, Congress will face more of the same questions that it has failed to resolve in the past year. GOP leaders, who are likely to hold their majorities, could attempt next year to lift some of the deficit-era restraints. Among the possibilities: removing from budget terminology the distinction between "discretionary" and "mandatory" spending; requiring that the annual budget resolution receive presidential approval; and waiving the "pay-go" rules in certain circumstances.
Even though the Democrats have received less attention, they have struggled with their own tensions over the budget. Clinton continues to pitch for additional spending for favored programs, such as education and child care, which he included in his February budget. But he proposed paying for those programs with a hefty tobacco tax hike, which appears dead.
The way longtime Senate Democratic budget aide William G. Dauster sees it, the end of the deficit debate is analogous to the collapse of the Soviet Union. "Without a deficit to fight," he said, "both parties need to figure out new rules."
NEXT STORY: House leaders: Use surplus for tax cuts