Will There Be a Budget? Jude Wanniski December 4, 1995

Will we get a budget this year? We still think so, and the financial markets obviously do too. We must warn you, though, that there is now a widening gap between the leadership level and the staff level in guessing the answer to this critical question. At the staff level, there is very little optimism about getting a budget reconciliation this year, which would mean the tax cuts go down the drain. This is because there has been zero movement toward reconciliation inside the closed meetings and the clock is ticking away. Veteran budget staffers on Capitol Hill say they cannot remember anything comparable to the problem they face in getting the enormous amount of work done on the mammoth budget bill in the little time remaining. On the other hand, there remains a cheerful spirit of optimism at the leadership level, with a sense that once the chemistry comes together on the central principles, the rest is all mechanics and can be easily worked out. David Rosenbaum of The New York Times had an arresting metaphor in his Saturday analysis: “Making a budget is not like building a house, where one brick is laid after another until the structure is complete. It is more like the creation of a universe, where one moment there was a mass of swirling gases and then there was a big bang and a Sun and nine planets.”

As long as Senate Majority Leader Bob Dole, House Speaker Newt Gingrich and President Bill Clinton all want a budget by Christmas, there will be one. At the moment, Dole and Gingrich clearly want a budget and they obviously believe the President also wants one -- even though his negotiators appear to be dug in for the winter. Dole even offered public assurances on Friday that there would be no government shutdown before Christmas, a position from which he has since retreated. Now that Dole has given his support on Bosnia, he believes the President is going to be malleable on the budget. We’re told Dole’s staff, on the other hand, is not nearly so optimistic. If there is one big reason to be optimistic, it is the leadership, enthusiasm and vision of House Budget Director John Kasich. Of all the players, Kasich is the one who clearly has no ax to grind other than the national interest. He is passionate in making the case to the other boys that they put their narrow interests aside. On Meet the Press Sunday, Kasich first swept aside the question by Tim Russert on why can’t the tax cut be dropped in order to balance the budget: “Well, Tim, first of all, it’s part of a comprehensive plan. We have a reduction in the capital gains tax. Why? Because we want the economy to grow. Let me suggest that the Democrats at the end of the day will be for a capital gains tax cut. It’s like a business that is in trouble. You don’t just reduce overhead. You want to increase sales. So the capital gains is designed for investment, more jobs, more revenue, it helps you to balance the budget.” Later, in a peroration, Kasich said:

I don’t know that it will be by December 15, but it’s going to get done for this reason: If we don’t do it, the economy goes in the gutter. And this will very badly hurt the president. And they know that. Secondly, look, folks, we have to do this. This, in my judgment, is the last best chance we have to balance the budget before we hit a real crisis in this country. If we balance the budget, it’s going to benefit this entire country. And the children of the next generation are going to be saved. And I’m going to suggest to you that if we don’t get it done, America’s finest hours will be behind it. If we balance the budget and move on to fix the rest of the problems with values in our country, our best days will be ahead. I think we’ll get it done at the end of the day.

What will bridge the gap between leadership and staff? It all comes down to the last-minute calculations in the Congressional Budget Office, which will be supplying new numbers late tomorrow afternoon on the economic assumptions that underpin the budget. Once the new numbers are out, the White House will have a better idea on how to slice the negotiations over taxes and spending. With both the stock market and the bond market booming in anticipation of a budget that includes retroactive capgains, the CBO’s demand-driven model is obviously behind the curve in its feeble growth estimates. We have to assume that Kasich, who is the CBO’s boss, is behind the scenes kicking the hell out of the computers, trying to get them to a more realistic level. Always in the past, partisan interests were rooting for the CBO numbers to go in different directions. Now, almost all Democrats and Republicans have their fingers crossed that the number will be significantly higher. Every extra dollar makes a deal easier. Here we have Kasich saying the capgains provisions will increase revenues, for example, while the computers clunk along in reverse. 

There are at least a few liberal House Democrats who are rooting against a deal, preferring to take their case of Republican austerity to the voters next year. They are hardened to arguments that the economy would “go into the gutter” and are pleading their case to the President. There should be no mistake: House Minority Whip David Bonior has as his highest priority the detonation of the capital gains provision, which he has always viewed as the defining issue between the two parties. The liberals are making the case at the White House that the electorate now realizes it made a mistake in booting out the Democrats last November. If the President digs in his heels, runs the argument, he will be re-elected next year and the voters will give the House back to the Democrats, just to get rid of Gingrich as speaker! Gingrich, wisely observing that his presence up front was playing into this hand, late last week told the House GOP conference that he was benching himself as QB and sending Kasich in to call the plays. Kasich, in any event, is correct in saying the President wants a budget. Clinton would go into a tailspin at this point if he dug in his heels, especially when set against Kasich’s earnest patriotism instead of Newt’s dark side.

How will it play out? Once the new CBO numbers are out, the White House will present its demands and the salami slicing will begin. In the background are further reserves, the $147 billion over seven years if the two sides agree to a smaller cost-of-living adjustment in the consumer price index. Because this is such a hot potato, Kasich has indicated it is only available if the President reaches for it first. He has to worry that as soon as he were to throw it on the table, the Democrats would accuse him of using Social Security benefits to pay for tax cuts for the rich! In a closed meeting, without hidden microphones, Kasich promises not to tell who reached first. If the Democrats wish to make that trade-off with Medicare, they can be his guest. 

There is plenty of room for maneuver. There is no reason why we should not at least know conclusively before December 15 that there has been a firm deal. This would give the nation’s retailers 10 days of Christmas shopping out from under this cloud. Remember, the financial markets are discounting the future beyond January 1 and have almost no real impact on the economy under our feet. If there is no budget, the future will crash and both stocks and bonds will discount accordingly. If our politicians can nail down the future by December 15, the economy under our feet can start catching up with the financial markets as the American people breathe a huge sigh of relief.