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The Federal budget deficit: where do we go from here?

Though the 1992 Federal budget deficit is nearing the $350 billion mark, elected members of both the House and Senate recently opted to delay further consideration of this matter until 1993. With interests charges mounting by the second, one has to wonder, when will it finally be a "good-time" to address the nation's budgetary noose?

Previous Reduction

Initiatives

Despite the voters growing clamor, Congress continues to exhibit a reluctance to address the nation's growing debt. Public promises are made and broken and initiatives are implemented, amended and re-implemented. Previous efforts to address the nation's growing debt include The Gramm-Rudman-Hollings Agreement and the Budget Enforcement Act of 1990. While Gramm-Rudman-Hollings should have made a considerable dent in the deficit, difficult and restrictive enforcement provisions were regularly bypassed as legislators increased spending levels and decreased deficit reduction targets. So much for self-regulation.

On the other hand, the Budget Agreement of 1990, for which President Bush sacrificed his "No New Taxes" pledge, has made most legislators' lives a living nightmare. Unfortunately, the agreement only holds the Federal budget deficit to current levels by forcing Congress to implement a pay-as-you go spending procedure - under which all proposals must contain revenue offsets. No proposal may be considered by Congress unless it is revenue neutral during every year of proposed implementation.

In addition, the budget agreement established three discretionary spending categories - international, domestic and defense - within which relevant spending must be contained and may not exceed established ceilings without automatically triggering a sequestration. Unspent funds may not be used to offset spending in any other proposal or category until fiscal year 1994, when the three categories will become one. Today, savings found within any category must be allocated to deficit reduction.

Though the budget agreement of 1990 has remained intact, it continually undergoes analysis, challenge and review. In fact, there have been numerous efforts to re-allocate from deficit reduction to entitlements the savings realized in the defense category.

Budget Considerations of

1992

Line-Item Veto

Without the line-item veto, the President cannot be held accountable for the growing deficit, particularly as he plays a relatively small role in drafting the budget and submitting it to the Congress who ultimately produces the budget. Once the Congress has produced a budget, the President has the option only of signing vetoing all 13 appropriations bills which make up the budget.

Without participating in the production of the budget, the President cannot be held accountable for the state of the budget or deficit thereof. A line-item veto would allow for the elimination of individual projects without the ultimate destruction of the entire package undergoing review and thus allow the President to assume responsibility for the state of the nation.

Recision Proposals

President Bush identified 1,391 programs for proposed spending cuts, to force Congress's hand regarding "pork-barrel-spending." The first recision submission, totalling 68 "pork-barrel-programs," represented $3.6 billion in reduced spending alternatives. To date no Congressional action has been taken.

Tax Increase

While unlikely in an election year, tax increases were nonetheless considered. This is not surprising from a system which, in the last 30 years, has raised taxes 56 times and balanced the budget only once.

In all,the Congressional Budget Office (CBO) presented 47 defense and international discretionary spending options, 54 possible domestic discretionary spending cuts and 66 specific suggestions for reductions in entitlements and other mandatory spending programs, including impossing a tax on a portion of the insurance value of medicare benefits, and a tax on employer paid health insurance.

In fact, CBO reported the most revenue would be derived from: raising individual marginal tax rates across the board from 15%, 28%, and 31%, to 16%, 30%, and 33% respectively; raising the marginal corporate tax rate to 35% while imposing a 5% surtax on corporations at the 34% marginal rate; eliminating the home mortgage deduction; limiting the tax benefit for itemized deductions to 15%; imposing a 5% tax on investment income of pension plans and individual retirement accountants, and an increase in the portion of Social Security benefits and railroad retirement benefits subject to tax.

While a modest tax package has cleared the Congress, it does not address deficit reduction needs and does not include any of the previously mentioned CBO recommendations.

Balanced Budget Amendment

Given the state of the budget deficit, and Congress's inability to move for containment, proponents believed that a Balanced Budget Amendment was necessary to force Congressional action. Unfortunately, a balanced budget amendment without an enforcement mechanism would be yet another alterable deficit reduction mechanism. Thus came the call for a constitutional balanced budget amendment, which ratified by the states, would be relatively impossible for Congress to alter, boycott or delay.

Ultimately, it was the enforcement mechanism which led to the defeat of the constitutional balanced budget amendment. The same legislators who could not agree on spending reductions through previous years are now at odds regarding any, and all, enforcement mechanisms. Opponents argue against the need for a constitutional amendment, or any balanced budget amendment for that matter, stating that the legislative system already harbors deficit reduction mechanisms. Proponents contend that though legislative processes continue to fall, deficit reduction action must be taken.

Still others expressed concern that passage of a balanced budget amendment would alter the balance of political power within the federal government, believing that the amendment would give the U.S. Supreme Court a new role in determining fiscal policy-making process, defining budgetary terms and determining the constitutional prerogatives of the players in the process. Congressional power would decrease, while presidential power would increase through the use of either delegated of inherent impoundment.

Unresolved questions included: * Will the deficit be eliminated on

a primary or inflation-adjusted

basis? * Will it include or exclude items

currently considered off budget,

such as the Social Security trust

fund, the savings and loan bailout

and receipts from allies for

Operation Desert Storm.?

Both the House and Senate rejected constitutional and statutory balanced budget amendments.

No Action

The Government Accounting Office (GAO) reports that the Federal deficit as a percentage of Gross Domestic Product (GDP) will grow dramatically over the next thirty years in the absence of decisive action. Without broad changes in the nations budget policy, economic growth will be severely impeded.

A continuation of the nation's current taxing and spending policies would, if sustained, slow economic growth, drive the deficit to 20.6% of GNP and lead to the day in which the Federal government pays rapidly increasing interest bills, rapidly increasing health care costs and momentous retirement bills.

Employing an economic model developed by the Federal Reserve Bank of New York, the GAO predicts that, if no action is taken to alleviate the U.S. deficit burden, real per capita GDP in 2010 would hold steady at about $24,000. Should the nation adopt a "muddling through" approach, limiting the shortfall to 3% of GDP, real per capita GDP would rise to $30,374.

But if policy-makers adopted an approach that balanced the budget and maintained that balance by 2001, real per capita GDP would rise to $32,555; and if a 2% surplus were attained by 2005 and maintained until 2010, real per capita GDP would rise to $33,353.

GAO data indicates that debt held by the public in 2020 would decrease from $45,816 a person (with no action taken) to $4,665 a person (under a balanced budget system) and only $219 a person if a surplus approach were taken.

Action in 1993?

While it is certain that Congress will address some aspects of the looming federal budget deficit in 1993, it is difficult to say what form it will take. One thing is almost certain, a balanced budget amendment with enforcement mechanisms will require your letters and phone calls.
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Title Annotation:Capitol Corridors; 1992 US budget deficit
Author:Barr, Dorothea
Publication:The National Public Accountant
Date:Aug 1, 1992
Words:1290
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