House panel endorses tax plan

Blueprint approved on party-line vote despite surplus fears

March 22, 2001|By Karen Hosler | Karen Hosler,SUN NATIONAL STAFF

WASHINGTON - The House Budget Committee last night endorsed President Bush's blueprint for spending and tax cuts that relies on projections of huge budget surpluses from a booming economy, despite growing warnings on Wall Street that those surpluses might not materialize.

The vote was 23-19 and followed party lines.

Several of the majority Republicans on the committee argued that concerns about a weakening economy made it even more important to move quickly on the tax cuts.

"We are clearly in the midst of an economic slowdown, but that doesn't mean we have to be a helpless victim," said Rep. Pat Toomey, a Pennsylvania Republican.

But Rep. John M. Spratt Jr. of South Carolina, the senior Democrat on the committee, argued that relying on "frothy blue-sky" surplus projections for a budget that includes a huge tax cut risked sending the government back into deficit.

Separately, in a departure from Bush's budget plan, the committee sidestepped a battle over the president's plan to open the Arctic National Wildlife Refuge in Alaska to oil drilling, a key element of Bush's strategy to make America less dependent on foreign fuel supplies.

The drilling proposal probably would have been able to overcome Democratic objections on the panel. But Republicans say it lacks the votes at this point to pass the Senate and might not even pass the full House.

"That's a dispute that doesn't have to be fought in the budget," said Rep. Jim Nussle, the Iowa Republican who is chairman of the House Budget Committee.

The committee was launching the first official step in what will be a months-long process of reviewing Bush's tax-cut and spending proposals.

The House, narrowly controlled by Republicans, is likely to pass the budget blueprint next week. The evenly divided Senate, where even some Republicans have raised doubts about the size of Bush's tax-cut plan, is expected to take it up next month.

The House acted earlier this month to approve the centerpiece of Bush's 10-year, $1.6 trillion tax cut: a broad reduction in income-tax rates that would total nearly $1 trillion. Another House committee is scheduled to begin action today on a measure to reduce the "marriage penalty" that raises the taxes of many dual-income households.

The blueprint approved yesterday provides a general guide for the tax and spending proposals to show how they could be financed by federal revenue, projected at $5.6 trillion over the next 10 years. The non-binding blueprint sets only broad targets for spending and taxes; separate bills later in the year will establish the details and enact them into law.

The slowing economy and stock market slide have led private economists to revise downward their forecasts for budget surpluses. The average surpluses projected by Wall Street economists now fall below the estimates of the Congressional Budget Office.

For example, Merrill Lynch & Co. recently estimated that the fiscal 2001 surplus would be $250 billion, down from its earlier estimate of $285 billion and down from the $281 billion projected in January by the CBO.

Merrill Lynch's estimate of the fiscal 2002 surplus was adjusted downward to $225 billion, from its earlier projection of $295 billion. The CBO's current estimate of the 2002 surplus is $313 billion.

"We think there's still going to be a big surplus, but the picture isn't as rosy as it was before," said Stan Shipley, a senior economist at Merrill Lynch.

Democrats argued that Bush and his Republican allies on Capitol Hill had left themselves no margin for error in case the CBO estimates prove too optimistic. After tax cuts and spending proposals are subtracted from the non-Social Security surplus for 2001, said Spratt, the South Carolina Democrat, only $20 billion is left. "That could be gone in the blink of an economist's eye," he said.

Projected spending for succeeding years cuts the margin even closer, Spratt warned.

Spratt recalled the nearly two decades of deficit-cutting efforts by Congress and several presidents that were required to finally bring the federal budget into balance. "That's how long it takes to turn this battleship of an economy around," he said. "We don't want to backslide into that hole we just dug out of."

Democrats also contended that, given the prospect of smaller surpluses, Bush's $1.6 trillion tax cut would shortchange other pressing needs, such as improving education, shoring up Social Security and Medicare, and paying down the national debt.

But Nussle said he was confident that the CBO surplus estimates are sound. "They've been more accurate than Wall Street in the past," he said.

He, Bush and other Republicans argue that tremors in the economy signal even greater urgency for tax cuts that could boost consumer confidence and stimulate greater spending and investment.

"We know that every time we've cut taxes, the economy has gotten a boost," Toomey said.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.