Don't Start Spending Tax Cut Money Yet
The House Republicans' "Contract With America" promises wide-ranging tax reductions. The list includes a lower capital gains tax on investment profits; a $500-per-child tax credit for parents; reductions for higher-income Social Security recipients; larger Social Security payments to people who are semi-retired; exempting $750,000 in wealth from federal estate taxes, up from $600,000 today; cuts for many two-earner married couples; faster depreciation on business equipment; and expanded individual retirement accounts.</br></br>But just as President Clinton's election-year tax-cutting and investment plans crashed into Washington's budget wall, so may these GOP dreams.</br></br>The rules have changed since President Reagan cut taxes, trimmed social spending, increased spending on defense (all part of the new Republican agenda) and let the deficit balloon. The budget law that passed last year included two types of spending caps: + Any tax cuts or entitlement spending increases have to be revenue neutral over the next five years. To pay for them, Congress must raise other taxes or cut spending on other entitlements, including Social Security, Medicare, Medicaid, veterans benefits, federal pensions, agricultural price supports and certain welfare programs - food stamps, aid to dependent children, Supplemental Security Income for low-income elderly.</br></br>+ Tight dollar ceilings exist for total discretionary spending. Discretionary spending includes defense, federal salaries, education, highway grants to states and myriad other government programs.</br></br>Few Americans are aware of these budget laws. Yet they are many times more effective than the well-known 1982 Gramm-Rudman law, which was supposed to have balanced the budget by 1990.