The budget, taxation, and regulation - what's the outlook?

• Author: Deitsch, Mimi
• Position: Financial Executive Institute and The Heritage Foundation discuss the effect of legislation and regulation on the US economy - From FEI

FEI's Committees on Government Liaison and Taxation joined with The Heritage Foundation on June 10 and 11 in Washington to discuss the intricacies of the federal budget, taxation, and regulation. Keynote speaker Lawrence Lindsey, a member of the Board of Governors of the Federal Reserve System, opened the meeting with an overview of the U.S. economy.

Listing what he terms "bottle-necks" that affect the economy, Lindsey declared that, "I am not surprised that we had a recession, but that we had a mild one." And he believes that the economy is more resilient than anyone thought. One bottleneck, in his opinion, is that the world banking system has torn up old ways of regulation, while a new system is still in transition.

Other bottlenecks Lindsey listed include a reduction in money growth aimed at bringing down the underlying rate of inflation, the Deficit Reduction Act of 1990, and the invasion of Kuwait. The war, said Lindsey, "had an adverse effect on world capital markets" and the U.S. had to "take large numbers of reservists out of their civilian jobs."

Budget panel chairman Scott A. Hodge of The Heritage Foundation declared that, "While business has been cutting dramatically, the federal government has increased staffing and spending. If business can survive the scalpel, so can government."

A rational allocation of resources

CGL member Robert F. Hogan, Jr., treasurer of Associated Materials, outlined CGL's ideas dealing with the budget process. The committee believes its approach would accomplish a "rational allocation of spending on government programs that would allow the U.S. to reach some of the long-range goals, such as affordable housing, retirement security, and health care, that the country should be setting."

Hogan thinks the federal Chief Financial Officers Act will have an impact, because if "we get qualified CFOs and financial systems, it might tell us what we're actually spending." CGL's subcommittee on federal budgetary and fiscal matters supports either a full line item veto or a modified rescission line item veto that would require separate voting on selected appropriations. Both of these measures would deter attaching spending bills to unrelated issues. Hogan pointed out that most states have a line item veto and it works.

Hogan believes FEI members would approve of a spending freeze and the establishment of a program review committee. This committee would review federal programs and put together a package of deletions on which Congress could vote. "This would give Congress some protection as in the defense base closing bill," he says.

CGL endorses the use of dynamic accounting models for revenue estimation or for spending cuts. "Both the Administration and Congress now whichever model suits their purpose," Hogan stated, pointing to the luxury tax as an example of how the use of static models gave the wrong impression on how much revenue the tax would generate. The tax generated far less revenue than had been expected and severely damaged the industries...