Protect the promise of the new fiscal policies

Nation's Business, Oct, 1997

Many key aspects of the new balanced-budget and tax-relief laws will be implemented over several years.

As those laws take effect, it will become increasingly obvious that the significance of the legislation lies not only in its specifics but also in its basic message.

Those specifics are highly impressive: a budget surplus to be achieved by 2002 through the sale of some government assets to the private sector and through cost-cutting steps affecting Medicare, Medicaid, housing, veterans affairs, student loans, and federal retirement programs.

The-relief provisions include reductions m the capital-gains tax; a phased-in increase in the health-insurance deduction for the self-employed to 100 percent from the current 40 percent; reductions in the alternative minimum tax; and a phased-in boost in the estate-tax exemption to $1 million, with family-business owners in certain situations receiving an immediate increase to $1.3 million. (See "Business Just Got Less Taxing," Page 24.)

Business worked for and has welcomed the combined approach of spending cuts and tax relief. The U.S. Chamber of Commerce, long in the forefront of the sustained drive for the key fiscal goals that have been achieved this year, says the changes "will raise long-term economic growth and improve the climate for businesses and entrepreneurs to compete, grow, and create jobs."

In addition to outlining the details of tax and spending changes, the new laws send a powerful message that American enterprise has awaited for decades: The era of massive budget deficits is over, and the tax system should reward private savings and investment in both human and financial capital.

But business also has a message for Congress: If the promise of these changes is to be realized, you must follow through by protecting what you have already achieved from attempts to diminish cuts in spending or taxes and by taking the additional fiscal-policy steps critical to sustained economic health.

If, for example, the economy falters during the five-year implementation period for the balanced-budget plan, Congress must be willing to impose further spending cuts to offset revenue losses caused by reduced business activity.

Over the same period and beyond, Congress will pass annual funding bills for government operations. Lawmakers must resist any temptation to use those bills to restore spending cuts approved in the 1997 act -- no matter how politically rewarding such restorations might be.

The recently enacted plan for deficit reduction calls for appointment of a bipartisan commission to recommend ways to deal with the demands that the retirement of the baby-boom generation will place on Medicare, and Congress must be willing to act not only in this area but also on the broad spectrum of entitlements that pose the greatest threat to budget stability.

The challenge on the tax-relief side of the fiscal-policy changes may be even more difficult than it is on the spending side. Here, the need is not only for protection of tax-relief provisions in the new law but also for additional action to free the economy from the deadening impact of excessive taxation.

The tax and spending policies adopted by Congress this year are among the most important of these closing years of the century If their implementation schedule is maintained and the additional actions needed to protect and enhance them are taken, those policies can carry the U.S. economy into an era of economic growth fueled by entrepreneurial investment that is not possible when government assumes it has first claim on such resources.

Providing the legislative infrastructure to bring about such an era should not be difficult for a Congress that, as the U.S. Chamber points out, has changed fiscal policy so fast that "we have moved from the largest tax increase in history in 1993 to the largest decrease in spending in 1997."