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Press Release

GOP Fractures Over Budget Resolution


Medical dictionaries define a fracture as "…an injury, a break in a bone that develops because of repeated or prolonged forces against the bone."

Fractures can occur in politics, too. In Washington, the steady injurious force is the Senate's desire to spend ever more money, and the result is a new break between House and Senate Republicans. When GOP leaders return to Washington they may face a difficult time repairing damaged relationships resulting from Senate Republicans' new budget deal.

The fight between the House and Senate GOP is over the size of the tax cut in the budget for fiscal year 2004. This number is all-important, because it drives the size of the tax relief bill that the House Ways and Means and Senate Finance Committees can produce. The House passed a budget with a $726 billion tax cut over 11 years, which is what the President requested. This number will allow for repeal of the dividend tax, the acceleration of the income rate tax cuts, elimination of the marriage penalty, and expansion of the child tax credit.

The Senate, however, engaged in a fratricidal battle over the size of the tax cut. After narrowly defeating an amendment that would reduce the size of the tax cut several weeks ago, the Senate changed its mind after the first weekend of war in Iraq and sliced the tax cut number to $350 billion. That's less than half of President Bush's request. Tax cutters hoped that when the House and Senate met this week to work out a compromise, the number would bounce back up to $550 billion or so.

But that was not to be, for a backroom deal late Friday afternoon last week rolled House Republicans. Senator Charles Grassley (R-IA) the chairman of the Senate Finance Committee, announced on the Senate floor that he had reached a deal with GOP moderates, and that his committee would not produce a bill larger than $350 billion.
Perhaps worst of all, when Senator Grassley went to the Senate floor to announce the deal, he used language derived from the legendary Senator Barry Goldwater, who was a great champion of tax cuts and limited government.

"When I was thinking about the budget, Former Senator Barry Goldwater's words came to mind. Among legislators, you will find purveyors of perfection and those who practice the art of compromise. Reflecting on Senator Goldwater's words, I came up with a new version of Senator Goldwater's famous statement.

With a little bit of poetic license, here's the version that I think sums up where we're at: "Let me remind you that extremism in tax policy at the expense of no budget resolution is a vice. Moderation in tax policy in pursuit of a budget resolution is a virtue. Fiscal conservatism is a virtue. No budget equals no spending ceilings and that equals a vice against taxpayers.""

An additional $350 billion in tax cuts spread over 10 years is hardly "extremism." Consider that over the same period, the U.S. economy will produce about $155 trillion dollars in economic activity. Indeed, Grassley's route of "moderation" actually leaves us with the tax cut that will be too small to provide a badly needed economic stimulus.

Senate Republicans painted themselves into a box because they were so critical of Tom Daschle's inability to produce a budget resolution last year. They have a good point; the obscene Omnibus Appropriation bill passed earlier this year was the result of a breakdown in the budget process for fiscal year 2003. The four Senate Republicans who denied the President are Olympia Snowe (Maine), George Voinovich (Ohio), Lincoln Chafee (Rhode Island) and the maverick John McCain (Arizona).

Their action begs the question: why don’t most Senate Republicans ever fight like this to stop increased spending? The new Senate budget spends $791 billion, about $16 billion more than House budget. The compromise conference report will spend $784 billion, still about $9 billion over the House number. House negotiators faired poorly, losing to the Senate both on taxes and on spending. At its heart, a lot of this debate is about the Senate choosing increased social welfare spending over expanded tax relief.

There is a tough road ahead. Unlike 2001, President Bush will not get any help from Senate Democrats, with the noble exception of Zell Miller (D- Georgia). Democrats may be complaining about the deficit, but some insiders believe they are holding ranks with such discipline in anticipation of the 2004 Presidential election. I wouldn't go as far as suggesting that Democrats would deliberately try to hurt the economy in order to damage President Bush politically, but they're certainly unwilling to give him the tax package he needs to get the economy moving again.

On the positive side, with the war appearing to be wrapping up successfully of in Iraq, President Bush should have increased standing as the nation's attention returns to domestic issues and the state of the economy. Hopefully then, the handful of die-hard moderate GOP Senators who are derailing fundamental tax reform will be persuaded to change their minds. Otherwise, the GOP's new tax cut fracture will only damage the economy, the president, and their own party in 2004.