Congress cuts taxes to cheers, but act carries big price Sleight-of-hand budget could strain retirees in early 21st Century

July 02, 1998|By Jonathan Weisman | Jonathan Weisman,SUN NATIONAL STAFF

WASHINGTON -- Congress has found a way to cut taxes, to help citizens battle the Internal Revenue Service, and to cover the cost of all this generosity through yet another tax cut.

Sounds too good to be true? It probably is.

The $13 billion IRS reform bill will pass Congress this month with resounding cheers from both parties and the American people. But to budget hawks, the bill is part of a disturbing trend that has re-emerged in Congress after a brief hiatus of tight-fistedness: using budget gimmicks to pay for popular programs with money the government doesn't yet have and may not get.

Since last summer, Congress has passed tax cuts that balloon over time, approved future spending reductions with no guarantees they will ever be made and crafted a transportation bill loaded with expensive pet projects.

Though congressional myopia is nothing new, the cost of this latest round could be particularly high. The bill for these gimmicks will come due about the end of the next decade -- just when aging baby boomers start draining the current Social Security surplus and escalating the demands on Medicare.

"As far as we're concerned, life ends 10 years from now," admitted Sen. Bob Kerrey, a Nebraska Democrat who helped write the IRS bill. "We're like the lookouts on the Titanic that didn't see the iceberg because they didn't have binoculars. We don't have any binoculars."

But even some of the most fiscally conservative Republicans say it's foolish to worry about what might happen 10 years off while the economy continues to roar away at a record rate.

"Just look at the revenue coming in," said Rep. Mark W. Neumann, a Wisconsin Republican, who used to wring his hands at Congress' failure to rein in spending. "The economy is going strong. I'm very optimistic the money will be there."

When Republicans took over Congress in 1995, they swore off spendthrift practices of the past. Real cuts were made to federal programs, not just in their potential future growth. New programs or tax cuts had to be paid for by present-day savings somewhere else in the budget.

Finally, with the help of a booming economy that brought in a flood of unexpected tax money, Republicans joined forces with President Clinton to bring the budget into balance.

But passage of the IRS bill marks a clear return to avoiding tough choices in favor of bookkeeping sleights of hand. Congress is financing tax breaks for investors through a tax break for other investors, who are expected to pay extra taxes in the short run in return for higher benefits later.

"There's no question about it," said Ronald Utt, the conservative Heritage Foundation's federal budget expert. "This particular Congress is not materially different from past congresses. When there's no compelling national or international issues to engage their attention or let them define themselves to their constituents, it just becomes a big pork fest."

The IRS bill is only the most recent example of popular legislation that includes a financial time-bomb. Other examples abound:

The cost of tax cuts included in last year's balanced budget package escalates from $9.5 billion this fiscal year to $35 billion in 2003, and then to $41.6 billion in 2007 -- just when the vanguard of the baby boom begins to retire.

Last month, Congress passed a $216 billion transportation bill, the largest public works measure in history; it shattered records for the number of legislators' pet projects, 1,850. Congress and the president insist the projects are paid for, but one of the main sources of funds -- a cut in health benefits for veterans who smoke -- may soon be reinstated due to pressure from veteran groups.

The House-passed budget blueprint for fiscal year 1999 calls for more than $100 billion in additional tax cuts over the next five years -- but leaves open the question of how they would be paid for because Republicans couldn't agree.

House Speaker Newt Gingrich proposed an across-the-board cut the tax rate paid on investments, claiming the tax cuts would pay for themselves through increased investment and savings.

Meanwhile, Republican leaders have begun to attack the Congressional Budget Office, run by people they hired, for being too conservative in its predictions of future revenue.

And a House GOP budget task force has proposed scrapping rules that force Congress to at least make some provision to pay for tax cuts. Instead, under new rules, lawmakers could finance tax cuts with projected cuts in spending that would have to be enacted by future congresses.

"The trend is, 'Let's cut taxes, assume discretionary spending cuts in the future, and all have a good time,' " said Robert Bixby, policy director for the Concord Coalition, a group dedicated to balanced budgets. "It's all part of a disturbing pattern."

The IRS bill is a strong case in point, critics contend. The original version, passed overwhelmingly by the House in the fall, cost very little. It simply reshaped IRS operations and management.

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