Masonry Magazine April 1992 Page. 42
THE WASHINGTON WIRE
Economic Rescue Package
All But A Certainty
Only the details of an economic rescue package must be worked out by Congress. Clear cut favorite of the politicians is some tax reductions for the middle class.
TAXES AND POLITICS WILL HIGHLIGHT the second session of the Congress. The lawmakers will focus initially on reviewing the staggering U.S. Economy, with Democrats and Republicans blaming each other for the poor performance. After all, 1992 is a presidential election year with politics in full swing. Political pressure for tax cut action has become much too strong to ignore. President Bush will push for his economic stimulus initiative in congress. The Democratic majority will not be endorsing many administration proposals, feeling that Bush's shrunken popularity gives it a chance to call the tune.
Other legislative issues will take a back seat to taxes early in '92, but they'll surface later after a tax bill is passed.
THE 102ND CONGRESS left unfinished business after its first session, though it did enact more in the way of far reaching laws than many realize. It approved legislation to authorize Bush to go to war in the Persian Gulf, provide up to twenty weeks of added benefits to those unemployed for twenty-six weeks, reached agreement with the Administration and passed a civil rights measure, agreed to a compromise transportation bill, okayed $95-billion to cover the costs of failed banks and S&Ls, and approved "fast track" trade agreements.
But Congress failed to enact a crime bill which Bush promised to veto, refused to allow production of the B-2 stealth bomber, and put off China's favored trade status and an energy bill.
THE MAJOR PIECE OF UNFINISHED business is action to spur the economy. It was the center of lawmakers' attention last year and will be again this. But what can the government do? Its options aren't all that clear cut now. Major tools for combating recessions are far less potent than once thought. There's also a key timing problem. The recession began some seventeen months ago; effective fiscal stimulus should have gotten under way shortly after that. Now even under the best timetable-a bill won't be passed until the spring. That means any boost to the economy will be delayed until the second half. By that time, it's possible that monetary ease may be boosting the economy.
Then, Congress must face the question about specifics of a tax package. The challenge is to fashion a plan to help the economy over the near term, but without harming it over the long run in the form of more budget red ink. Big deficits soak up scarce savings that provide funds for investment.
BUT AN ECONOMIC RESCUE PACKAGE now seems all but a certainty in '92. It is only the details of the package that must be worked out by Congress. The politicians' clear favorite is some tax reduction for the middle class. A permanent cut could increase consumer spending and spur business activity. But because the middle class is so large, the cost of tax relief is immense.
To cut cost, Congress may make this tax reduction temporary. But temporary cuts lead to people saving more, spending less.
SOME WOULD FINANCE MIDDLE CLASS cuts by hiking taxes on the wealthy. But, since it simply shifts income from the wealthy to middle class payers, it may do little to stimulate, except for slightly higher consumer outlays. In this election year, politics will be a larger force than pure economics. A White House and Congressional plan will focus on middle class tax relief.
THERE MAY WELL BE SOME TAX incentives for business in a final bill. Politicians are showing interest in reinstating the investment tax credit. In the past, the credit provided a short term boost to equipment spending. This tax break is even more potent if it's put in place only temporarily. If firms know the credit will expire, they will speed up investment outlays. The major drawback: it costs the Treasury some $25-billion in lost revenue. But the costs can be trimmed if the investment credit is limited in scope.
A capital gains tax cut would provide investment incentive at a nominal cost. Indeed, a tax rate reduction actually raises money in the first few years. The lower rate will result in more asset sales and added tax revenues. The main argument against the cut is that the wealthy get the greatest benefit.
CONGRESS ALSO FACES THE ISSUE of how to pay for those tax reductions. Clearly, the budget agreement is a big constraint on the tax deliberations, and it's likely to be an area of controversy between Democrats and the GOP. The President insists on saving some money by reducing government benefits, But instead of devoting the savings to reducing the Federal budget deficit, Bush wants to use the money for middle class tax cuts and more investment.
The deficit reduction law forbids tax cuts that reduce revenue to the government unless they are matched dollar-for-dollar by savings from other programs. It also prohibits using savings from one area of the budget-like defense to finance another.
BUT DEMOCRATS WANT TO EITHER KILL or amend the deficit reduction law, fretting that tax cuts offset by spending cuts won't stimulate the economy. They want to make