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Congress returns to budget challenge: key leaders plan big changes to aid 'middle class.'

Both President Bush and the leadership of the House and Senate last week signalled their willingness to alter the 1990 budget agreement to allow more than $100 billion in cuts in defense spending to be spent for other purposes.

The signals came as NLC President Glenda Hood and other municipal leaders prepared to meet with President Bush at the White House this week to present the priorities set by cities and towns at the Congress of Cities last month.

The issue of how to change the agreement and how the savings should be used promises to be one of the most divisive issues of the new session of 102nd Congress and one of the most critical for the nation's cities and twons.

In the Senate, two leaders, Senate Budget Committee Chairman Jim Sasser (D-Tenn.) and Joint Economic Committee Chairman Sen. Paul Sarbanes (D-Mid.), unveiled a $55 billion economic recovery package which would provide grants and loans to cities, towns, and states, as well as provide for "middle income" tax cuts and extended unemployment benefits. They call it a Marshall Plan for America.

At a press conference to announce their proposal, both senators indicated they would push for prompt action on legislaion to tear down the "firewalls" of the current budget agreement which prohibit the transfer of savings from defense for domestic investment--the highest priority adopted by NLC's Board of Directors at the Congress of Cities last month.

In the Senate, Senate Majority Leader George Mitchell (D-Me.) indicated his support for such legislation, and House Speaker Thomas Foley (D-Wash.) appeared to signal his support when he commented that tearing down the budget walls would not force any increase in the federal deficit.

On Tuesday, Senate Labor and Human Resources Committee Chairman Ted Kennedy (D-Mass.) offered his own proposal. Kennedy would create a $40 billion short-term stimulus plan including immediate funding for transportation, CDBG, urban and rural wastewater construction grants, and the HOME state and local housing block grant program. The proposal includes a $170 billion long term component for a seven year investment program in human capital. Kennedy proposes to pay for both parts of his package through a seven year $210 billion reduction in defense spending.

Kennedy also proposed both middle income tax cuts and corporate tax cuts to encourage investment. He proposed that such cuts be paid for under the existing budget law by increasing taxes on both wealthy individuals and corporations.

At the same time, the president indicated in a press conference in Singapore, as part of his two week Asian tour, his willingness to change the budget agreement to permit savings from defense cuts to be used for tax cuts--rather than investment in cities and towns.

At the request of the White House, the Pentagon is preparing budget options for cuts ranging from $50 to $120 billion in defense spending over the next five years.

The president is expected to propose tens of billions of dollars worth of a tax cuts in his State of the Union address and new budget at the end of the month for:

[section] families with children,

[section] capital gains,

[section] investment tax credits, [section] tax credits for new homebuyers,

[section] real estate investors and owners, and

[section] upper and middle income savers.

Likewise, on Monday, Sen. Phil Gramm (R-Tex.) offered what he called the "Peace Dividend Investment Act" to cut defense spending and use the savings to pay for a permanet federal tax cut.

Gramm said he would not only oppose any legislation to tear the "firewalls" separating defense and domestic spending, but he would propose that the firewalls stay in place for two additional years after their scheduled self-destruction on October 1, 1993.

102nd Congress Begins Round Two

Both the House and Senate met for less than five minutes on January 3, to formally close the first session and open the second session of the 102nd Congress. Congress is scheduled to resume next week as it prepares for the president's State of the Union address on January 28, and the president's budget request on February 3.

Senior members used the opening to jockey for position on efforts to respond to the recession.

The greatest obstacles to any such efforts are the record federal deficit and the 1990 budget agreement.

With the federal deficit expected to exceed $350 billion this year, nearly $100 billion larger than any deficit ever recorded in U.S. history, there is some opposition within both parties to either new spending or tax cuts paid for through adding to the deficit.

The 1990 budget agreement similarly presents an obstacle. It prohibits any increase in domestic discretionary spending until 1993, when the firewalls are scheduled to come down. It requires any tax cuts to be paid for on a pay-as-you-go basis--the same way cities and towns finance their budgets.

Clear Path to Cutting Defense

President Bush's remarks from Singapore hint at a major change and the possibility of a peace dividend such greater than any thought likely as recently as last month. Such reductions in defense spending without serious consideration of the the impact of economic conversion could, however, have significant impacts on many cities and towns.

In the face of White House pressure, the Pentagon has drawn up budget contingency plans ranging from $50 to $120 billion. These would include cancellation of some major weapons systems impacting contracts in hundreds of cities. It could also mean laying off as many as 150,000 officers and as many as 1.3 million active duty forces. Such reductions would have a dual impact on cities and towns: it would mean both a substantial increase in military base closings and a substantial increase in unemployed, albeit skilled personnel.

Peace Dividend

The release of $100 to $200 billion in defense savings over the next 5-7 years appears certain to be the most important single issue in the new session of Congress: How can such reductions be made? Who will they affect and how? And how should such savings be spent--to reduce the deficit, to invest in America, or to cut federal taxes?
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Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Jan 13, 1992
Words:1011
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