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Businessweek Archives

The Budget: How Washington Painted Itself Into A Corner

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When the Bush Administration agreed to new budget rules as part of last year's deficit-cutting deal with Congress, a key White House goal was to keep Democrats from raising taxes to fund higher spending. Bush might have been more skeptical if he had realized how hard it would be to cut taxes--even in order to spur economic recovery.

The rules create a set of five budgetary "boxes"--for military spending, foreign aid, entitlements such as medicare and farm supports, one more for all other domestic outlays, and, finally, one for taxes.

Under the rules, Congress can shift money among programs within each box. It can spend less than an agreed-upon lid for the box. But it may not move money from one box to another. The only exception: Taxes may be raised to expand entitlement programs. That provision was backed by House Ways & Means Committee Chairman Dan Rostenkowski (D-Ill.), whose panel rules over both revenue bills and most entitlements.

PAINFUL SUBJECT. Lawmakers now are talking about using the proceeds from cuts in military spending to finance tax reduction. This sounds great, but there are three technical problems. The plan violates the rule against revenue shifting. Sharp cuts in defense outlays were already assumed when the deficit-reduction targets were set last year. And lawmakers are proposing to cut taxes now, though the savings from further military cuts wouldn't be realized for several years.

So what can Congress do? It could rewrite the budget deal, but both Democrats and Republicans are reluctant until after the 1992 elections. More likely, Congress and the White House will conspire in a big budgetary wink. If President Bush and three-fifths of each house agree, they can simply ignore the rules and cut taxes.

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