Week Ending June 25 2004

TheWeekInCongress.com

Week Ending June 25 2004

HR 4663 Pay As You Go Budget Rule

(Editor's Note: Here are a few definitions that will make this and other budget type bills easier to digest:

According to Federal budget expert, Stanley Collender, author of the annual Guide to the Federal Budget (Price Waterhouse) 'discretionary spending' is spending in a bill that Congress has passed and the President has signed into law such as the various appropriation bills that fund the 13 departments of government.

' Mandatory spending' is defined as spending that will automatically take place unless the President and Congress take action to stop it or change the spending amounts. Under mandatory spending you will find entitlement programs such as aid to the poor or disadvantaged, Social Security, Veteran's pensions and Medicare. Other mandatory spending includes payment of interest on the National debt and spending authorized in the past for multi-year programs now coming due.

'Sequesters' are spending adjustments that automatically kick in when spending limits are breached, revenue limits drop below a predetermined amount or the deficit rises above a predetermined amount.)

BRIEF

With the nation facing monumental deficits, the bill is an effort to reinstate rules that would govern spending by Congress. The rules originated in the Budget Enforcement Act of 1990, the bill that guided Congress through most of the 1990s to the budget surplus enjoyed in 2000. The deficit, that difference between what the government takes in and what it spends is around $400 billion. The Public debt that grows with deficit spending is currently authorized at over $8 trillion.

The bill would reinstate spending caps on discretionary spending, and a 2-year extension of the pay-as-you-go, (PAYGO) requirements for mandatory spending, however, bills that would increase entitlement spending must be offset by reductions in other spending but not by raising taxes.

The bill also provides that any breach of either of these spending disciplines would result in automatic spending cuts known as ``sequesters.''

The bill permits emergency (off budget) spending only when the emergencies “result from circumstances that are truly unanticipated, temporary, and are needed for the preservation of life, property, or national security.”

Unlike the 1990 rules the bill would not apply the PAYGO rule to taxes. Consequently, reductions in tax revenue that might otherwise cause cuts in spending would not have that affect.

Sponsor: Representative Jim Nussle (R-IA)

Vote: Failed to pass the House 146 to 268 (RC 318) The vote was on the rule that would govern the debate. Defeating the rule, defeated the bill.

Cost to the taxpayers: Bill was not passed.

MORE INFORMATION

Gil Gutknecht (R-MN) “This is an important debate, Mr. Speaker, so I hope that Members are paying attention. The real power of the purse rests with us here, in the people's House.”

Rep. Gutknecht discussed a budget meeting in the 1990s, “At one of the meetings we were at, we had some economists saying, if Congress does not get serious about balancing the Federal budget, that by the time my children got to be my age they would be paying an effective tax rate to the Federal Government of over 80 percent, just to pay the interest on the national debt.”

“So what we did is we began to limit the growth in Federal spending, and I am proud to report that from 1995 until the year 2000, the Federal budget was growing at a slower rate than the average family budget. That, combined with a fairly strong economy, we literally went from a $250 billion shortfall every year to a $250 billion surplus. In fact, just 3 years ago, the Congressional Budget Office told us that we could look forward to surpluses in the Federal Treasury over the next 10 years of $5.4 trillion. Now, that same Congressional Budget Office today is telling us that we can look forward to deficits of $1.6 trillion over the next 10 years. The only thing we can really say about the Congressional Budget Office's forecasts is that they are both wrong.”

“What we do know that is right is that over the last several years we have allowed Federal spending to grow at a rate double what it grew through most of the 1990s. And part of the reason that happened is we allowed some of the budgetary rules to expire, the things that control the growth in Federal spending.

There was a farmer who told me several years ago, we were talking about the deficit, and he said, you know, the problem with you guys in Washington is you do not quite get it. The problem is not that we are not sending enough money to Washington. The problem is you spend it faster than we send it in. He probably expressed it more accurately and more simply than any of us would like to admit.”

"What we want to do today, and this is an important event and these are important votes, we want to bring back some of the rules that controlled Congress with regard to spending. One of them is PAYGO. That means if you want to have a new program, you have to figure out a way to pay for it. And I do not think that is too much to ask. The other is setting up some spending caps.”

“Last year, our budget resolution called for spending $784.5 billion. But when all the numbers were in and the spending was done and the conference committees at last had concluded, the number actually was $873 billion. Pogo was right. We have met the enemy, and he is us.”

The other view.

John M. Spratt, Jr. (D-SC) said, “Let us look first at what has happened over the last several years on the watch of the Bush administration with respect to the debt that we have accumulated, the mountainous debt that we are building up now. The best indicator of that is where does the debt ceiling stand? There is a statutory ceiling on the amount of debt we can incur. When President Bush came to office, it was $5.95 trillion. Within a year, he had to increase that by $450 billion. Last year he had to increase it by, get this, $984 billion. The other day they increased it by $650 billion, to $8.74 trillion once it finally passes the Congress.”

“That is the record of the last 4 years, three increases in the debt ceiling in 4 years, from $5.9 trillion to $8 trillion and this is the bad news: It does not stop here. The Congressional Budget Office tells us looking at the President's budget out over the next 10 years, as they are required by law to do, that if we follow the policies laid down by the Bush administration, the debt of this country will grow in 2014 to $13.6 trillion. That is where the debt ceiling will have to be taken in order to accommodate their fiscal policies.”

“What does this bill propose with respect to this problem? As it turns out, very, very little. Essentially it proposes to clamp down on that wedge of the budget called domestic non-homeland discretionary spending. That is, discretionary spending from which we have backed out international spending and from which we have backed out homeland security, because in both of those categories, they foresee substantial increases, but they are going to bring all the force of their efforts to bear on this wedge of the budget which constitutes 16 percent of the budget.”

“Let us ask the question, is this where the problem arises, in this segment called domestic non-homeland discretionary spending? This is what has happened over the last three fiscal years to that particular account: $383 billion in 2002, $382 billion in 2003, $383 billion in 2004. The problem does not arise here. But this is where they go for a solution. On the other hand, look what the solution is. The President proposes to take domestic non-homeland security resources down to $376 in 2005. That is a reduction of $7 billion. Actually it is hard to do but in truth, we have got a deficit this year of between $400 billion and $500 billion, you have only dented the problem once you have done it.”

“This is where the problem lies. If you want to look at spending, which this bill does not do, over the last 4 fiscal years, 90 to 95 percent of the increase in discretionary spending has occurred in defense, homeland security and our response to 9/11. But this bill ignores that particular aspect of the problem. And where is the rest of the problem? When the Bush administration held their tax cuts out to us and when they were passed, they told us this is the path that revenues will follow, between $1 trillion and $1.1 trillion. This is where revenues, income taxes, have actually gone over that period of time, largely responsible to their tax cuts. And this is what has happened to spending generally. Spending generally has gone up in the Bush administration. Revenues have gone down. Spending, however, is still…below the historic norm for the last 25 years. Revenues, on the other hand, are at an all-time low. Personal income taxes as a percentage of GDP are at their lowest level since the early 1950s. So revenues are low, spending is high, and this bill unfortunately does nothing about the problem at hand.”

Rep Guknecht responded, “Much of what he said, I do not disagree with. But there is something I think we need to clarify for all of the Members. Even if we had a balanced budget last year and this year, we would have to raise the debt ceiling. That is something I think it is hard for many Members and frankly I think most Americans. They wonder how in the world can that be. It is kind of a complicated thing to explain but even in a very strong economy with surpluses, we would probably have to raise the debt ceiling. The reason is this. When money comes into the Social Security trust fund, there are only two things they can do. They can either pay benefits or they can buy government bonds. When they buy government bonds they in effect drive up the debt. I know that is hard for people to understand, so yes, we are going to have to raise the debt ceiling, but even if we were balancing the budget we would have to do that. (Editor’s note: When the government sells bonds to raise money it incurs a debt to those bond holders. If the Social Security Trust Fund dollars are used to buy bonds they are ultimately being used to make funds available for increased spending. Funds that would not necessarily be available to the departments or agencies that want to increase spending.)

Opposition to the bill continued. Rep. C.W. Bill Young (R-FL} explained his concerns with what he thinks are the bill's shortcomings, "Specifically, this legislation lets the Congress keep digging deeper to make the deficit bigger. By covering only mandatory spending, tax cuts would not have to be paid for, and entitlement increases would ultimately have to be paid for by cutting other entitlements. That is Social Security, Medicare, and Medicaid. In essence, this is the way in which they mask the dismantling of entitlement priorities. In addition, the measured spending caps would be set at unrealistically low levels, which would lead either to devastating cuts in domestic spending, in education, in health care, in research, or, to the ignoring of the caps. Record deficits are not due to discretionary spending. If we eliminated all non-defense discretionary spending, we would not eliminate the anticipated fiscal year budget deficit of $478 billion, all non-defense discretionary spending. Forget about it. Eliminate it all. We still would not take care of the deficit."

"So since most Federal benefits for low and middle class people are provided through entitlement programs, and most government subsidies for high-income individuals and corporations are in the Tax Code, this measure would then turn the policy practice on its head in favor of the affluent and against the low and middle income families of this country," he continued.

"The bill was designed so that the new spending caps would be set at discretionary spending levels contained in the conference report on the budget resolution, which calls for cutting domestic discretionary programs outside of homeland security by $77 billion over the next 5 years."

"Unlike the caps imposed in the 1990s, the new caps require much deeper cuts and would not be part of a balanced deficit reduction package that puts every part of the budget, every part of the budget on the table and calls for shared sacrifice."