Budget, Congressional Leaders Announce Budget Agreement
Apr. 14, 1989
WASHINGTON (AP) _ President Bush and congressional leaders announced today a nearly $28 billion deficit-reduction plan that Bush said would be ''a first, manageable step'' toward stemming the tide of red ink.
The agreement, thrashed out in more than a month of talks that concluded late Thursday night, minimally meets next year's goal of reducing the deficit to $100 billion, while putting off the tough choices until later.
It allows the president to claim he won't violate his campaign pledge against new taxes, and he agreed to lower his defense spending plans so that Congress could avert a squeeze on popular domestic programs.
''The budget agreement does not complete the whole deficit-reduction job ... but I am convinced that we will only be able to complete that job if we tackle it in manageable steps on an orderly basis in a constructive bipartisan spirit,'' Bush said. ''And this is a first manageable step.''
''This is not an heroic agreement,'' said House Speaker Jim Wright, D- Texas. ''If we begin with the assumption that there can be no significant major increase in revenue, this agreement is about as good as we could do.''
''No one should be deluded into thinking that this is the end of the process,'' said Senate Majority Leader George Mitchell, D-Maine. ''Much sterner measures will be required in the future.''
Bush and the House and Senate leadership sealed the deal in a morning meeting in the Cabinet Room, and then announced it at a Rose Garden ceremony.
Sen. Lloyd Bentsen, D-Texas, the chairman of the Senate Finance Committee, attended the meeting with the president but refused to join in the announcement.
''He declined to go out in the Rose Garden and have his picture taken because he doesn't like the agreement,'' said Jack Devore, Bentsen's spokesman.
The senator told the president ''that he thought the budget was marginal, that he's concerned that it depends on wildly optimistic economic assumptions and there remains a great gulf between the Congress and the administration on how you raise the $5.3 billion in new taxes Bush is calling for,'' Devore said.
The plan claims to reduce the fiscal 1990 deficit to about $99.4 billion, meeting the goal of the Gramm-Rudman law of a deficit no larger than $100 billion in the year beginning Oct. 1.
The deficit next year would be about $126.6 billion under current government policies, compared with about $163 billion this fiscal year, according to administration estimates.
About half of the deficit reduction, $14.2 billion, would come from a combination of increased revenues including $5.8 billion in taxes, $2.7 billion in fees for government services and $5.7 billion from selling government assets, according to sources familiar with the package.
Details of the revenue sources were left unspecified, to be worked out later as Congress and its committees draft the legislation to implement the pact. The budget agreement itself does not have the force of law, but it will provide a framework for the actual spending bills passed later.
The tax figure includes $500 million through increased enforcement of the tax code, but achieving the other $5.3 billion will either mean finding taxes that Bush doesn't believe violate his campaign pledges, or Congress acceding to Bush's claim that cutting the capital gains tax rate will bring in more revenue, not less.
Bush wants a lower capital gains tax and says it would actually increase revenue in fiscal 1990 because of an increase in that type of financial activity. Democrats argue that the plan is a big revenue loser in the long run, with the wealthy sopping up most of the benefits.
On the spending side, the plan would restrain overall growth for fiscal 1990 in both domestic and military programs to below the rate of inflation.
The Pentagon would be held to about $299 billion in outlays, virtually the same as this year. Military spending authority, which includes commitments that span more than one fiscal year, would be about $305.5 billion.
Current cost controls in the Medicare health plan would be extended and other restraints would be imposed on that fast-growing entitlement, without cutting benefits. Overall spending by government agencies would be increased with the rate of inflation, although the Congress and Bush would presumably cut some programs to make room for additional spending in others.
Even before the agreement was announced, negotiators were saying that more needed to be done, especially if the deficit path is to continue downward and reach the $64 billion goal for fiscal 1991. Deep spending cuts or significant tax increases would be needed to meet that goal, the negotiators concluded, and they decided against tackling it in the current round of talks.
Rep. Bill Frenzel of Minnesota, senior Republican on the House Budget Committee, called the result ''something of a disappointment.''
''It does not make substantial reductions in our spending'' although it slows the upward trend. ''It isn't what I had hoped for,'' he said.
''It's going to make the work for next year very difficult,'' he said.
A big chunk of the deficit plan is made up of one-shot savings and accounting gimmicks that don't lessen the long-term deficit problem.
Sales of government assets, which are frequently loan portfolios, often cost the Treasury in the long run.
The plan lists $1.9 billion in savings from reduced payments to farmers, but more than half of that would be by paying farmers early so the checks are written this fiscal year instead of next. More than $3 billion of the other ''savings'' in the plan come from accounting changes, such as moving the postal service ''off budget.''
The plan also claims that by rejecting its pay raise earlier this year, Congress saved $100 million.
More than $1 billion of the deficit reduction is calculated because the government would pay less interest because of the savings in the rest of the plan.
Although the plan claims to reduce the deficit to slightly below the $100 billion Gramm-Rudman ceiling, the law does not count the $5.7 billion in asset sales toward that target.
The plan also relies on administration economic assumptions which are widely regarded as too optimistic. If the economy does not meet those expectations of strong growth and low interest rates, the real deficit will exceed the one calculated in advance for the purposes of the Gramm-Rudman law.
If Congress and the president fail to enact spending and tax bills that, at least on paper, bring the deficit to within $10 billion of Gramm-Rudman's $100 billion target, the law requires the administration to cut military and domestic spending across the board. Only Social Security and welfare programs are exempt from such cuts.