Congress Responds to National Tragedy
The intense partisan budget battle that was brewing on Capitol Hill has been significantly altered by the horrific terrorist attacks on the World Trade Center and Pentagon September 11. By Friday, September 14, Congress had passed an emergency appropriations bill to help the president respond to this tragedy, abandoning earlier pledges not to dip into the Social Security fund to finance government operations – pledges that now seem trivial to most lawmakers.

After late-night negotiations about how open-ended President Bush’s authority will be to spend the emergency funds, Congress approved a $40 billion supplemental measure that will be divided equally between relief assistance and defense operations. In general, the package will fund rescue, clean up and repair efforts at the Pentagon and World Trade Center site; terrorism investigations and intelligence operations; national security; and transit security. Under the aid package, twice the amount originally proposed, half the funds will be available immediately while the rest will be distributed through the fiscal year 2002 appropriations process.

Prior to the September 11 attacks, Democrats and Republicans were headed for a fight over spending priorities being shaped by new budget estimates. In late August, the Congressional Budget Office (CBO) released new figures showing a budget surplus that has greatly diminished from earlier projections. The constrained budget picture had rendered funding levels for programs vital to low-income and vulnerable populations more uncertain than ever.

According to CBO, the $125 billion non-Social Security surplus projected in the Spring for fiscal year 2001 has essentially disappeared. Current estimates show a total budget surplus, including Social Security, of $3.4 trillion for 2002-2011, which is $2.2 trillion less than projected in May. While the White House Office of Management and Budget (OMB) released its own, slightly more optimistic estimates in August, the Center on Budget and Policy Priorities (CBPP) has warned that the budget situation is actually more constrained than CBO suggests.

As CBPP analysts point out, CBO estimates do not account for items favored by the White House and agreed to in the fiscal year 2002 budget resolution such as a Medicare prescription drug benefit, expanded health coverage for the uninsured, increased spending for defense and education, and a new farm bill. Although action on many of these measures will now likely be postponed, CBO estimates also fail to take into consideration federal spending growth based on inflation.

Analysts attribute the dwindling surplus to a variety of factors, the most significant being the $1.35 trillion tax cut enacted in June, which has reduced current-year revenues by $74 billion. Other contributing factors include the $6.5 billion in supplemental appropriations approved by Congress and the President earlier this year, and the slowing economy – which is not conforming to the rosier economic projections used to predict the surplus last Spring.

While Congress is necessarily directing its full attention to responding to the terrorist attacks, it must still pass all 13 appropriations bills before adjourning for the year. The Labor, Health and Human Services, and Education bill – which provides the bulk of federal funds for programs that serve low-income Americans and is also one of the most expensive and contentious annual spending bills – is scheduled for mark up by a House Appropriations subcommittee on September 20.

It is, however, likely that programs benefiting needy Americans will not be funded adequately. Prior to the evacuation of the Capitol complex on Tuesday, the House Budget Committee was preparing to mark up legislation to enact across-the-board cuts in fiscal year 2002 spending. House leaders are now contemplating passing a continuing resolution that would keep the government running past September 30, the end of the fiscal year, buying time to complete work on the appropriations bills. Other lawmakers have suggested rolling all 13 bills into an omnibus measure and passing it as quickly as possible.

Tuesday’s attacks have serious economic implications, and some Republican lawmakers have now intensified their push for a capital gains tax cut as a way to remedy the slumping economy. House Ways and Means Committee Chairman Bill Thomas (R-CA) is proposing a tax package that includes, in addition to a capital gains cut, small business expense deductions and investment tax credits. Democratic leaders are cautioning against rushing through another tax package this year without identifying ways to pay for it.

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