Finally! a budget

Finally! a budget – Bill Clinton’s economic policy

Matthew S. Scott

Is President Clinton’s recently approved budget plan as big a victory for African-Americans as it is for his Administration? While the budget agreement can be seen as a presidency-salvaging win for Clinton, its biggest value for African-Americans may not be in what a gives – but in what it doesn’t take away.

The budget, which aims to reduce the federal deficit by $496 billion over five years, was approved in early August after a bitter battle on Capitol Hill. The measure passed by a 218-216 vote in the House of Representatives, one of the narrowest margins in American legislative history. Vice President Al Gore cast the tie-breaking vote to nudge it through the 100-member Senate.

Ironically, African-Americans owe some thanks to uncooperative congressional Republicans for a budget package that could have been far more economically damaging. By refusing to support the Clinton budget and failing to offer an alternative, the GOP effectively left the game in the hands of the President’s party. While pulling together a consensus from his fellow Democrats was no easy task, the President was, at least, spared having to negotiate a bipartisan budget with Senate Minority Leader Robert Dole. A joint Republican-Democratic plan would certainly have produced taxes and budget cuts far more damaging to the economic condition of most African-Americans. Also, the need for every Democratic congressmember’s vote increased the leverage of the Congressional Black Caucus (see “Who Is The Black Caucus?” Washington Page, this issue), which effectively used its clout to protect African-American economic interests.

Although analysts argue whether the economic plan will strengthen the country or throw it back into a deeper recession, they all agree that the budget signals a change from the “trickle-down” economics of the Reagan-Bush era. in general, African-Americans should be pleased with the Clinton budget, which includes the most progressive tax plan in decades.

Tax Hit Will Be Light

About half of the deficit reduction will be covered by revenue and tax increases. In particular, the agreement raises income-tax rates from 31% to 36% on individuals earning $115,000 to $250,000 and couples earning $140,000 to $250,000. In addition, the new budget taxes incomes higher than $250,000 at the rate of 39.6%; raises the gasoline tax by 4.3 cents per gallon; increases the corporate income tax from 34% to 35%; increases the earned-income tax credit for low-income workers; eliminates several tax breaks for corporations; and adds several tax breaks for small businesses and real estate investors.

As Black Enterprise Board of Economists member Margaret Simms notes, blacks are largely unaffected by the tax increases, which are targeted mainly at families with incomes higher than $100,000. Half of all black families have incomes of less than $21,500, and 70% earn less than $35,000. A substantial portion of these black families will receive the “double benefit” of not being taxed while also qualifying for a $20 billion earned-income tax credit, distributed over five years. “This won’t relieve the entire problem, but it will reduce the gap separating the working poor and the poverty line,” says Simms, director of research programs at the Joint Center for Political and Economic Studies in Washington, D.C.

The plan includes only $3.6 billion in spending increases over five years, but these too benefit struggling African-Americans: a $2.7 billion food stamp appropriation and $900 million for support services for families on welfare.

The only significant increase for the middle class is the 4.3 cents per gallon tax increase on transportation fuels, including gasoline and diesel. (Commercial airline fuel is exempt until 1995.)

The negative impact of the $182 billion in spending cuts should be minimal. The reductions are mainly in discretionary (largely defense cuts) and medical spending. A $4.3 billion cut in student loan expenditures is derived from a plan to shift at least 60% of student aid to direct government loans while imposing fees on banks and other loan-granting institutions.

Potential For Black Business

Finding the budget’s positive effects on black businesses is a tougher task. The BE 100s will be affected by an increase to 35% from 34% in the top corporate tax rate covering taxable income above $10 million, as well as by the lowering from 80% to 50% of the deductible portion of business and entertainment expenses.

However, the plan also includes nearly $42 billion in tax cuts, most of which are good news for black-owned businesses. These include: investment incentives (including a maximum $17,500 capital spending write-off for small businesses); a 50% exclusion for certain small-business capital gains on certain investments held at least five years; and $3.5 billion in tax incentives and direct grants for businesses operating in urban aid zones.

Carlton L. Guthrie, President and CEO of Trumark Inc., a Lansing, Mich.-based auto-parts supplier (No. 42 on the BE Industrial-Service 100), says the key to the budget’s effectiveness lies in its effect on consumer confidence and interest rates. He argues that consumer confidence will be negatively affected by the increased taxes, while Clinton’s emphasis on keeping long-term interest rates low may lead to an increase in short-term rates, which can hurt heavily leveraged small businesses. “If short-term interest rates rise,” he warns, “you’ll see an immediate increase in cash outflows that will further hamper the development and investment profiles of minority businesses.”

Henry F. Henderson Jr., CEO of West Caldwell, N.J.-based H.F. Henderson Industries Inc. (ranked No. 69 on the BE Industrial/ Service 100), agrees with Clinton’s emphasis on long-term rates, noting that “the interest small businesses save will be a major help in the long run.” The interest savings will offset the higher corporate income tax rates, he believes, adding that the tax credits and the provisions for enterprise zones in the package help make it more acceptable.

But perhaps the biggest gain from the new budget agreement may be what it means for the future. It is an important first step toward halting a growing deficit that at its current rate – faster than the gross domestic product in recent years – could overwhelm not only our present-day economy, but that of future generations as well. The momentum the Clinton Administration gains from the victory should, according to Simms, “provide a better environment to push forward other programs that will be beneficial to blacks.”

We’ll wait and see.

COPYRIGHT 1993 Earl G. Graves Publishing Co., Inc.

COPYRIGHT 2004 Gale Group