Wall Street always says that it is deeply concerned about what is happening with the federal budget. Yet there was virtually no word from the financial markets as Congress and the president agreed to an emergency supplemental appropriation that reduced the fiscal 1999 surplus. This is the precise issue -- the level of federal borrowing -- that supposedly is so important to the bond market.
To be fair, the $20 billion or so in additional spending authority provided in the bill is only expected to translate into $10 to $15 billion in actual outlays in fiscal 1999 -- an amount hardly worth Wall Street's time these days. (As a percentage of total federal spending, this is little more than a rounding error.) Given other economic events and rumors going on around the world, it is not hard to see how this might have received little attention from traders.
But Wall Street missed an opportunity to reinsert itself into the budget debate by failing to condemn the misuse of emergency designations for additional spending. In the first few years of the Clinton Administration, the bond market and its implied threat of higher interest rates was a clear and often-stated reason for continued attention to deficit reduction. Now it seems that Wall Street either does not care as much as it used to or has set some minimum level of deficit increase/surplus reduction before it will get excited. Either way, being so passive this year may convince Congress and the president that they have less to worry about from the financial markets in the future.
Did Gingrich And Kasich Hurt Their Presidential Prospects?
The fiscal 1999 budget debate ended with Speaker Newt Gingrich, R-Ga., on the House floor angering GOP fiscal conservatives -- referring to them as members of the "perfectionist caucus" who would be better off voting for the additional spending in the omnibus appropriations bill. In the meantime, House Budget Committee Chairman John Kasich, R-Ohio, who had championed the cause of his party's more conservative wing earlier in the year by pushing a tax cut and the elimination of several cabinet departments, was nowhere to be seen.
The question is whether Gingrich and Kasich, both of whom have serious presidential ambitions, have hurt themselves irreparably as far as the 2000 Republican nomination is concerned. In the wake of the budget debate, some conservative leaders have started to call for Gingrich's ouster as speaker next session if the Republicans retain control of the House.
Even if he does stay as speaker, there is now a real question as to how much support Gingrich will get from conservatives -- who are the Republicans most active in presidential primaries. For that matter, it is not clear at this point whether conservative unhappiness with Gingrich is so high that it will reduce the turnout in the 1998 elections and hurt House and Senate Republican incumbents.
The Kasich situation is similar in that conservatives seem to hold him at least partially responsible for what they consider to be a budget debacle. In his case, however, it is more of a sin of omission. The conservative wing rejoiced earlier in the year when, in spite of Gingrich's insistence that the House Budget Committee produce a budget resolution that merely reinforced the 1997 deal with the White House, Kasich succeeded in getting the full House to approve a more ambitious plan that included a big tax cut. But, by the time the deal fell apart and the leadership was capitulating to what the conservatives felt was every White House whim, Kasich no longer seemed to be a player and was virtually silent during the floor debate.
Is "Reconciliation" Out And "Omnibus Emergency" In?
One of the little-known parts of the Budget Enforcement Act is that there is not only an emergency exception to discretionary spending caps, but a similar exception to the pay-as-you-go rules for revenues and mandatory spending as well. If Congress and the president agree "emergency" measures are in order, an increase in appropriations and entitlements and a decrease in taxes can be adopted without regard for the offsets that would otherwise be needed.
In light of this year's bipartisan abuse of the emergency exception to the caps, you have to wonder how long it will take for someone to figure out that a far more encompassing deal can be concocted next year if all variations of the emergency escape clause are used at the same time.
This would all but eliminate the need for reconciliation, the procedure that Congress has been using since the last days of the Carter Administration to implement budget deals. It would also be the easiest way for Congress and the president to get around all of the Budget Enforcement Act restrictions and use the surplus for some purpose other than the only thing it is now supposed to do -- reduce the national debt.
The biggest benefit of reconciliation is that it cannot be filibustered and so only needs a simple majority to be adopted; every other bill needs 60 votes to pass in the Senate. But does anyone think that, barring some very unexpected election results, a tax cut/spending increase that does not break the budget rules will have any problem getting that much support?
Question Of The Week
Still Waiting... The Treasury has not yet announced the official final numbers for fiscal 1998, so everyone will have to wait until the next Budget Battles to see who got the answer to the question from two weeks ago ("What was the actual fiscal 1998 surplus) right.
Last Week's Question. By far the most popular response to the question of how best to prevent continuing resolutions was to stop paying the salaries for representatives, senators and their staffs if the regular appropriations are not adopted by the Oct. 1 deadline. However, the winner was Andrew Brecher of the Concord Coalition, who suggested that the best way to avoid continuing resolutions each year was to do two-year appropriations so that the problem would only occur every other year. For his answer, Andrew will get half of an "I Won A Budget Battle" T-shirt.
This Week's Question. Here's your chance to write part of a Budget Battles column and be part of the budget in-crowd with your very own "I Won A Budget Battle" T-shirt. The question: "What federal budget-related question should Budget Battles ask next week?" Send your response to scollender@njdc.com.
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