Fiscal Collision Course
AN inevitable collision occurred last week in the House of Representatives as Republican spending cuts clanged into another GOP legislative express -- the Contract With America's promised tax cuts.
Millions of Americans might not object to larger deductions for their children or lower taxes on the profits from selling their homes.
But opinion surveys indicate many of these same people give a balanced federal budget top priority -- a political directive that set the legislative collision course.
A number of fiscally conservative Democrats in the House, often allied with the GOP Contract, nearly bolted from that alliance as $17.3 billion in cuts during the current fiscal year came up for consideration. They strenuously objected to having these spending cuts -- or these kinds of cuts, looking beyond 1995 -- used to offset the nearly $200 billion in tax reductions the House Republican leadership has in mind.
That objection was heeded, and an amendment specifying that the cuts would go only to deficit reduction was inserted. Some scoff at this as mostly semantics -- that as Congress this spring takes up the hundreds of billions that will have to be sliced from future federal spending to arrive at a balanced budget by the target date of 2002, questions of whether the savings are reducing the deficit or underwriting prospective tax cuts will become very foggy.
Nonetheless, the principle championed by the House's Democratic conservatives is anything but foggy. You don't make fiscal restraint your theme and then embark on the fiscally risky path of a huge tax cut, which would shrink revenues and make conquering the deficit even more difficult.
Many economists believe the immediate impact of large federal tax cuts would be inflationary pressures, followed by Federal Reserve action to boost interest rates. That scenario would dim any lingering glow tax cuts may have for middle-class Americans.
Many senators -- Republicans included -- are likely to echo the concerns of conservative House Democrats when the spending-cut legislation lands on their desks. Sen. Robert Packwood, Republican chair of the Finance Committee, has already put on record his doubts about the wisdom of pushing for tax cuts. This could be another instance of the slow-moving Senate providing some time for needed second thoughts.