- The Washington Times - Thursday, March 29, 2001

Two big shifts in fiscal policy occurred last week that will help spur future economic growth: Congress began work on a budget that will slow federal spending, and congressional leaders decided to give back $60 billion in surpluses to the taxpayers this year.
In what is shaping up to be a dramatic change in fiscal policy, Sen. Pete Domenici, New Mexico Republican and Senate Budget Committee chairman, has drafted a budget plan that will cut annual discretionary spending increases to 4 percent the rate President Bush recommended in his February budget proposals.
Government spending has been growing by more than 6 percent a year. Over the last three years, spending has increased 20 percent as Congress, flush with cash, has gone on a pork-barrel spending spree. Mr. Bush wants that rate to come down, and it looks as though he is going to get his way.
House Republican leaders have also set the slower 4 percent spending rate in their budget. It will not only gently apply the brakes to the growth of government but will also make room for the $1.6 trillion in tax cuts that the president has proposed.
To put the slower rate of spending growth into sharper perspective, if the higher 6 percent rate of spending were allowed to continue, it would add $1.4 trillion to the budget over the next 10 years. In other words, the projected savings alone would offset most of the Bush tax cut.
Bear in mind that this lower spending rate, which is just above the rate of inflation, would allow for increases in education, defense, health care and other social priorities, provided that judicious reductions are made elsewhere in the budget.
White House budget director Mitch Daniels told me Mr. Bush will do whatever it takes to make the spending ceilings stick. The president, he said, is "willing to be flexible on spending up to a point." But he warned that Mr. Bush will use his veto if the appropriations process exceeds the 4 percent level or if Congress resumes its record-breaking pork-barrel spending abuses of previous years.
"Of course the veto is an option, but we hope it wont be necessary," Mr. Daniels said, adding that Mr. Bush will "step in and impose limits where he has to."
The budget resolution setting the spending limits will be taken up by Congress in early April, and Mr. Domenici has carved out $60 billion for front-loaded tax cuts this year. The non-Social Security surplus this year is forecast at about $90 billion, most of which is in the bank. Republican leaders, with Mr. Bushs approval, have decided to return the bulk of it this year to taxpayers by lowering payroll withholding rates.
It will be the first step in the administrations across-the-board tax-cut strategy, injecting badly needed liquidity into the economy at a time when it needs it most. Moving faster than Republican leaders had planned on the tax-cut front, Sen. Charles Grassley, Iowa Republican and chairman of the Senate Finance Committee, expects to bring a tax-cut bill to the Senate floor by early May (if not sooner), and to have a final bill on Mr. Bushs desk by Memorial Day.
In an interview last week, Mr. Grassley told me that, although he sees this years tax cut as separate from the 10-year rate reduction plan, he will bring them to the Senate as a single bill. The idea is to bring the withholding rates down as quickly as possible to stimulate the economy and to get the bulk of this years surplus off the table before it is spent.
But to do this quickly, Senate Majority Leader Trent Lott, Mississippi Republican, is going to need to keep most of his 50 members in line. Hell also have to win over a few Democrats, who want some kind of mechanism to ensure that the surpluses will be there when the bigger tax-rate cuts kick in.
Mr. Bush and most Republicans oppose the idea of an automatic trigger and wont agree to it. But Sen. Phil Gramm, Texas Republican, has drafted language that might appeal to all sides. His provision sets a date for a midcourse correction, at which time Congress will review the surplus numbers to decide if the tax cuts need to be adjusted as a result of changing revenues.
Mr. Gramms sensible approach would put Congress in charge of re-examining its balance sheet and making changes accordingly. As a result, the tax cuts could be accelerated if the surpluses turn out to be larger than forecast (which Mr. Daniels thinks is more than likely).
So what we have shaping up here is a pro-growth fiscal policy that curbs the rate of increase of government spending and gives back large amounts of the budget surpluses to the taxpayers for future economic expansion.
Throw in the Feds looser monetary policy, and you have a one-two-three punch that is going to get this economy moving again. Of course, it would not hurt to double the tax-cut stimulus in the first year.

Donald Lambro, chief political correspondent for The Washington Times, is a nationally syndicated columnist.


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