Taxes & Spending

Is Reconciliation the GOP’s Waterloo?

Having grown increasingly frustrated by years of overspending in Washington and with their pleas for everything from simple budgetary rules to permanent repeal of the death tax frustrated, fiscal conservatives eagerly awaited the reconciliation process and its promise of significant reductions in future mandatory spending.

Unfortunately, unless Congressional leaders rally the troops quickly, reconciliation may end up as just another failure of Republicans to differentiate themselves from their bigger-spending, higher-taxing counterparts across the aisle.

Republicans’ dreams of moving to restore fiscal responsibility came to a screeching halt last week in the House—even after attempts to appease party moderates by eliminating provisions on drilling in ANWR and on the continental shelf were made. The House failed to generate enough support to move forward on $50 billion in spending restraint over the next five years. Worse, the Senate, having passed its own mediocre version of budget reconciliation the week before, couldn’t agree on something that used to be a bread-and-butter Republican issue: tax cuts.

Although it would only result in spending reductions of just over a third of a percent from the federal budget over the next five years (based on currently estimated spending levels), there is no doubt that pushing ahead with spending and tax cuts through the reconciliation process is a “must win” for the GOP. From a party perspective, the vote was, in the words of Rep. Jack Kingston (R.-Ga.), conference vice chairman, “a Republican Conference litmus test.”

Before the process even got underway, however, it became clear that the reconciliation process was not simply about cutting spending and preserving tax cuts. Instead, some Republicans saw the legislation as yet another vehicle for bigger government. Among other things, the Senate-passed bill would:

• Extend the Dairy Market Loss Payments at a cost of nearly one billion over five years;

• Offer $3 billion in subsidies to induce the 15 percent or so of TV viewers with analog programming to make the switch to digital service;

• Provide $15 million in additional annual subsidies for “essential air service;” and

• Rely on spectrum sales and a wide variety of fees and royalty payments – instead of actual spending cuts—to provide more than 50 percent of the “savings” in the bill.

Overall, the House should be credited for offering a bill that cuts more spending and relies on somewhat fewer gimmicks, but the elimination of ANWR and continental shelf drilling from the bill, without an assurance of support from moderates, is a clear indication of the leftward drift of the Republican Party on spending.

This is borne out by the fact that adjusting for inflation; the 1995 reconciliation package cut $325 billion and the 1997 package cut $133 billion (as compared to the $50 billion in budget savings Congress is now attempting to achieve). These bills are all the more admirable compared to the modern version because the federal budget was far smaller in those halcyon days and because they relied less on gimmicks. One can only wonder what other sacrifices and revenue-raising charades conservatives will be forced to witness in order to push this modest fiscal restraint package through the House.

Even then, there is no doubt that Leadership will have to work miracles in the Conference Committee to craft a bill that is palatable to both Houses.

Even more troubling, perhaps, than the weakening of the House’s position, is the Senate Finance Committee’s struggle to bring its tax cut reconciliation package to the floor. Although Maine’s Olympia Snowe was more than willing to go along with another year of “patching” the Alternative Minimum Tax and a variety of tax cuts that are popular among Democrats, when push came to shove on the pro-growth policies of extending the capital gains and dividends tax cuts, she stopped the tax cut train from moving forward. Sure, it is only one Senator that is now causing this mischief, but the lack of party discipline on something as basic as passing pro-growth tax cuts is a sign of serious decay.

If Republicans don’t rally to pass these spending restraint and tax cut packages by year-end, moderates will have won the day. The Republicans and Democrats will be one and the same in most Americans’ eyes.


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