Statement of Administration Policy: H.R. 4210 - Economic Growth Acceleration Act of 1992

(House Rules)
(Gephardt (D) MO)

The House will shortly be considering legislation designed to enhance economic growth. The Administration strongly supports enactment bv March 20th of the House Republican substitute (H.R. 4200). It will get the economy moving again and create jobs in a manner that is fully paid for under the "pay-as-you-go" terms of the Omnibus Budget Reconciliation Act of 1990 (OBRA).

H.R. 4287, the Democratic alternative, would permanently raise income tax rates for millions of Americans. Further, it contains a prevision which abandons budget discipline by simply waiving the requirement that the bill's deficit effects be recorded under the provisions of existing law. The President has said that he will veto H.R. 4287 if it is passed in its current form.

The Administration urges the Rules Committee to allow Republicans a fair and equal opportunity to amend and debate this bill on the House floor.

Republican Alternative — H.R. 4200

The Administration strongly supports enactment by March 20th of H.R. 4200 to accelerate economic growth in the short term and lay the foundation for sustained long-term growth. H.R. 4200 addresses the immediate challenges facing the economy: it will create jobs, increase the value of real estate and small businesses, and stimulate savings and investment. It is fully paid for with entitlement reforms and satisfies OBRA's pay-as- you-go requirement.

Democratic Alternative — H.R. 4287

The President will veto H.R. 4287 if it is presented to him in its current form. The Democratic alternative:

—   Raises income tax rates substantially and permanently for individuals, and makes future increases a near certainty if the temporary (2-year) tax cut of less than $1 a day is made permanent. Making this tax cut permanent could require extending the bill's tax increases to individuals making $35,000 per year and families making $70,000.

—   Increases taxes by more than $100 billion. Almost two- thirds of all taxpayers facing tax increases will be the small businessmen and women and entrepreneurs who are the primary source of new jobs.

—   Abandons a fundamental part of the Bipartisan Budget Agreement by exempting the bill's deficit increases from OBRA's pay-as-you-go requirement. This exemption is an irresponsible breakdown of budget discipline and sets an extremely adverse precedent. This could have a destabilizing effect on capital markets, driving up interest rates and hampering economic recovery.

—   Increases the deficit in FYs 1992 and 1993 by a total of over $22 billion, and presents the risk of further deficit increases if the temporary tax cuts are made permanent.

—   Absent the unprecedented exemption from the pay-as-you- go law described above, causes a sequester of over $22 billion. (The effects of such a sequester would include virtual elimination in 1993 of crop support payments, Social Services Block Grants, certain extended benefits for the unemployed, Family Support Payments to States, the Veterans' Housing Loan Program, and many other important programs. In addition, interest rates for guaranteed student loans would be increased and Medicare payments to physicians and hospitals would be reduced by nearly $4 billion.)

—   Does not provide adequate incentives for short-term job creation and does not generate investment incentives necessary for long-term growth. For example, the bill does not include the President's proposed $5,000 credit for first-time homebuyers, and its capital gains incentives are inferior to those in H.R. 4200, and would generate far fewer jobs.

The Administration's objections to specific provisions of the Democratic alternative include the following:

—   The refundable tax credit based on certain payroll taxes is temporary and does not provide long-term benefits to families. The President has proposed and the Administration has provided to Congress legislation which would provide for a permanent increase in the personal exemption of $500 per child.

—   The capital gains indexation provision is inferior to the capital gains exclusion contained in H.R. 4200. It continues the incentive to hold assets rather than make funds available for new productive investment. It also continues to tax inflationary gains on all existing assets (including personal residences, family farms, small businesses, and the lifetime savings of senior citizens).

— The capital gains exclusion for small business stocks is far too narrowly targeted and does not provide adequate incentives for broad-based capital formation and job creation.

—   Lengthening the depreciable life of real estate would further damage the real estate market.

H.R. 4210 as Introduced

The Administration opposes enactment of H.R. 4210, as introduced by Rep. Gephardt, because it does not satisfy OBRA's pay-as-you- go requirement. H.R. 4210 is a version of H.R. 4150, the President's comprehensive plan for short- and long-term growth, that has been amended to strike the reforms proposed by the Administration to pay for its package. H.R. 4210 represents a selection by the House Majority Leader that not only violates pay-as-you-go, but also fails to address many elements of the Administration's long-term growth agenda.

Pay-As-You-Go Scoring

— Democratic Alternative — H.R. 4287

H.R. 4287 would reduce receipts; therefore, it is subject to OBRA's pay-as-you-go requirement. A budget point of order should apply against any bill that is not fully offset in each year.

OMB's preliminary scoring estimates of this bill are presented in the table below. Final scoring of this legislation may deviate from these estimates. If H.R. 4287 were enacted, final OMB scoring estimates would be published within five days of enactment, as required by OBRA.

ESTIMATES FOR PAY-AS-YOU-GO*
($ in billions)

The above estimates do not include the potential impact on revenues that the Taxpayer Bill of Rights provisions may have. The Department of the Treasury estimates preliminarily that these provisions could reduce revenues by as much as $1.4 billion in 1993 and $13.4 billion between 1993 and 1997 because of their impact on IRS operations. These costs have not been scored against this bill at this time, however, because of remaining technical and legal uncertainties still under review.

— Republican Alternative — H.R. 4200

As discussed above, H.R. 4200 satisfies OBRA's pay-as-you-go requirement. OMB's preliminary scoring estimates of H.R. 4200 are presented in the table below.

ESTIMATES FOR PAY-AS-YOU-GO*
($ in billions)