Masonry Magazine April 1986 Page. 43
theWASHINGTONire...
There'll be substantial reductions in the budget deficit this year, despite the uncertainty that clouds the constitutionality of Gramm-Rudman. The President and Congress will be facing great obstacles in their efforts to bring Federal spending closer to revenue. There is no doubt about that. The White House's priorities differ so markedly from those on Capitol Hill that at times it seems as if nothing short of a miracle can bridge the gap. The drive to trim down the deficit has acquired a lot of momentum, though. The public is for it-though not always for the specific cuts on the table. That puts the heat on lawmakers up for reelection this fall to take action.
The shrinkage in red ink will not be as great as Gramm-Rudman mandates, but it will have considerable economic repercussions, and not all of them will turn out pluses.
THE LEGALITY OF THE GRAMM-RUDMAN LAW may not be clear before summer. That's when the Supreme Court should rule on whether the law's key section violates the important separation-of-powers provision of the Constitution. (Gramm-Rudman authorizes the Controller General an employee of Congress... to make specific cuts, but some argue this power is the President's only.)
No one can predict at this time how the Supreme Court will vote in deciding the issue. But budget specialists do not believe that the decision will make very much difference.
NATURAL FORCES ARE ALREADY PARING the deficit in little-noted ways. The brisker economy is boosting tax revenues and cutting jobless-pay costs. The dip in interest rates from less inflation has cut the debt-service load. And defense spending has been leveling despite White House demands for more.
The unhappiness with deficits that brought Gramm-Rudman will force Congress and the President to contribute some reductions. The will to cut appears to be there, a new element that has not been clearly discernible until now.
BOTH THE PRESIDENT AND CONGRESSIONAL DEMOCRATS will have to give up on much-cherished programs. This is the essence of the ultimate compromise that seems likely to emerge under the popular pressure of an election year. No one is willing to concede that this early in the Congressional session. There is still a lot of maneuvering... jockeying for advantage... to be done. But, as time runs out and the deadline nears, the deals will be worked out.
The President will have to settle for little more than he was able to get in 1985 for defense-plus allowances for inflation. His extra 3%-5% is out of the question.
The Democrats in the House will have to give on social programs. Only a few will be totally abolished, as the President ardently wants, but many may still be shrunk.
NET, THERE WILL BE SOLID PROGRESS toward the target of $144 billion in red ink set by the Gramm-Rudman law for the fiscal year opening Oct. 1. That or something near it will be the figure, even if the Supreme Court upholds the lower tribunal. In part, it will reflect some phony numbers, especially unduly optimistic economic .. and therefore... revenue forecasts. But the total of real deficit cuts will still be impressive by any measure.
A BYPRODUCT OF A DEFICIT CUT could be another dip in interest rates-one that's a little way down the road to come once deficit cuts are sure. Given the performance of the economy, the credit-controlling Federal Reserve is not anxious to boost business right now with another dose of easy money. Since Chairman Paul Volcker has insisted that large deficits were a barrier to easing, once there's progress on that front he has to react accordingly. Rates could fall a full point-but less if the economy remains fairly brisk.
On the negative side, less red ink will pare the budget's stimulus. Instead, there'll be some fiscal drag-and... if there is other weakness, a nudge toward a recession. But any softening tendency will only be temporary. Long run, lower interest rates will mean a healthier economy.
PRESSURE FOR HIGHER STATE/LOCAL TAXES will rise as U.S. outlays drop. It's not a prospect that the nation's mayors and governors care to consider. But many will have no choice. They have shrunk their programs to a minimum; any new losses of federal funds will have to be made up from local sources. The alternative would be big slashes in the redevelopment of blighted areas and in job training, both considered necessary to attract more new industry. The oil-producing states, dependent on oil-related taxes, are very hard hit.
State legislators do not want to increase taxes any more than the President... not with so many up for reelection. So any action will be slow in coming... mostly next year.
THE TREASURY AIMS TO EASE anti-business parts of the tax-reform bill passed by the House before adjourning in 1985 and now pending in the Senate. Among other changes, the Reagan Administration wants to adjust the writeoffs for depreciation by the full extent of inflation-not just 50% of the amount by which inflation exceeds 5% (which is all that the House bill would allow). The House might go along if the revenue lost is replaced from other sources.
MASONRY-MARCH/APRIL, 1986 43