'Fiscal discipline' curtailed, not forgotten, in Congress

Behind the bitter and protracted fight over how to stimulate the economy lies a deeper question: whether Congress can recover the fiscal discipline that was its defining quality at the beginning of this session.

Both sides of the aisle still pay lip service to the idea that fiscal restraint helped produce the economic growth of the 1990s - and that paying down the debt and preserving low long-term interest rates is still a key to prosperity.

But the events of Sept. 11 opened the door to a wide range of new spending priorities, all claiming to be urgent.

Rifts are growing between parties - and within them - over how seriously to take these claims.

In large measure, each spending issue is being weighed on its merits - with easy ones like assistance for hard-hit airlines going out the door first. But lawmakers are also tussling over the role that fiscal discipline should play in the new environment. And the debate is likely to grow.

"Regardless of what people thought, we can afford a lot less now, because we need to fight the war on terrorism," says William Gale, senior fellow at the Brookings Institution. "We have used up $3 trillion in projected [10-year] surpluses since May."

Half the surplus went to President Bush's broad-based tax cut, one-quarter disappeared as economic growth was revised downward, and the rest is being spent to fight terrorism, he says.

In addition, state governors are facing an unexpected revenue shortfall of $10 billion and counting. As a result, both GOP and Democratic governors are clamoring for Congress to shift significant new resources in their direction to help forestall more deep cuts in services.

Early on, President Bush tried to limit these new demands by signing off on a $40 billion emergency spending plan to respond to the new terrorist threat. In an Oct. 4 agreement, top leaders in both parties agreed to limit spending in fiscal year 2002 to $686 billion, plus the $40 billion emergency supplemental measure. Bush later pledged to veto anything beyond the limits.

Still, it didn't take long for that agreement to show strains. Effort to stimulate the economy have been a case in point.

The GOP-controlled House pushed through a $100 billion stimulus plan that targeted nearly two-thirds of its funding to business tax breaks. Senate Democrats responded with a $66 billion plan that focused on extending health and unemployment benefits, and tax breaks to low-income workers. Both plans were larded with revived special-interest items that had been nixed by the White House early in the year.

Nor are the fissures only between the two parties. Last week Vice President Dick Cheney met with GOP members from New York to head off their support for a Democratic plan to add $10 billion to help Manhattan recover.

New York delegates in both parties were angry that the White House was not going to honor a promise to allocate half of the $40 billion emergency spending package to help New York. Late last week, House Speaker Dennis Hastert promised to find funds for the full $20 billion commitment.

As lawmakers return to their home districts for Thanksgiving recess this week, they are also taking stock of the toll of the war on terrorism and an economic downturn on their constituents. In the past few months, many have cut household spending, lost jobs, or lost some of their confidence in the future. On top of this are the deficits and budget cuts that loom for state and local governments. It's putting lawmakers in a bind that no one expected when a historic tax cut and budget deal passed last spring.

Governors complain that the House stimulus bill, if enacted, would reduce state revenues by $5 billion or more annually. In addition, "unprecedented state responsibilities for homeland security are exacerbating serious fiscal conditions," Gov. John Engler (R) of Michigan, chair of the National Governors Association, wrote Senate leaders.

Unlike the federal government, most states are required by their constitutions to balance their budgets. Many are preparing to raise taxes or cut spending, which could offset the effects of a federal stimulus, economists say. The issue could loom large in congressional elections in 2002 - and affect next year's federal budget.

"This is going to increase pressure on Washington to provide a safety net for the states," says Marshall Wittmann, a political analyst at the Hudson Institute.