Bush Tax Cut Provides Millions of American Taxpayers with Tangible Tax Relief. It is too early to determine if the tax refund checks that started going out late this summer will have the desired effects, but current presidential polls seem to bear out the effectiveness of the strategy Bush has followed. Only those who timely filed their returns without obtaining extensions will receive checks labeled "Tax Relief for America’s Workers," although all who ultimately file who have paid sufficient taxes will benefit to the tune of $300 or $600, at least by the time their 2001 tax returns must be submitted. Cash in the hand, however, is more likely to deliver the instant gratification sought by the tactic of mailing out checks. Many charities have been competing for taxpayer contributions from this windfall, not a bad idea given that the cash donations will be deductible as well. Even the President has announced he will take advantage of that opportunity.

No Impact from Tax Refunds Yet Apparent on the Economy. Whether the current favorable Bush ratings will persevere is another question. The continued worsening of the economy is starting to overwhelm the benefits perceived from the tax cut that was the centerpiece of the Administration’s political strategy. The tax cuts were justified, in part, as a counter to the downturn by stimulating consumer spending, but in this regard they have not yet had an impact. The most recent Federal Reserve 0.25 point reduction on August 22 in borrowing rates came with a statement from the Board that further interest reductions may still be needed. Most recognize that this reflects the widespread perception that the economy has not yet turned around. Rather, layoffs are giving clear testimony that businesses believe it may be quite a while before conditions improve. Bush may still be vindicated if the "leading economic indicators," which identify future economic trends, are validated. They have risen somewhat more than anticipated over the last three months through July. Further, despite the emphasis on layoffs, they seem to be roughly in equilibrium with new hirings; workers average finding new jobs in 6.7 weeks. The rise in the number of unemployed in August, however, may signal otherwise.

The Vanishing Budget Surplus. While the current year’s surplus is the second highest ever, almost all of it is a result of increased payments of Social Security and Medicare taxes that go into the respective Trust Funds. The original overly rosy ten-year budget surplus in the trillions of dollars has now disappeared as many predicted. Estimates are that two-thirds of the reduced revenues anticipated are a result of Bush’s tax cut. This situation presents a real dilemma for the Administration. New estimates from OMB for the White House have reduced the anticipated ten-year surplus from April’s $2.5 trillion to $38 billion by August, assuming the Medicare and Social Security Trust Funds are indeed placed in a "lockbox." Later Congressional Budget Office (CBO) estimates were even lower, making incursions into the Trust Funds to borrow money for current government operations almost inevitable. Thus, aside from Trust Fund revenues, unless Bush invades the Trust Funds (admittedly the lockbox concept was an arbitrary restriction since the Treasury normally borrows from those sources to avoid going out to the market for additional borrowing), the revised estimates mean there may be a deficit of as much as $30 billion (depending upon who is doing the counting). A consequence of the loss of the surplus means that using these funds to make extra payments on the national debt, the Democrats’ alternative to the tax cut, will not happen.

Democrats have charged it was only by gimmicks that the White House was even able to claim a deficit has not yet occurred and will not occur in FY2002. Gimmicks cited as contributing to the higher White House estimates were: a revisionist position taken on what actually constituted the Medicare Trust Fund that should be protected, an extension of the payment date on certain corporate taxes moving receipts into 2002, ignoring likely continuation of some tax exemptions, and the use of a very optimistic 3.2 percent growth rate (0.4 percent higher than the rate generally predicted, including by the CBO). The CBO surplus estimates compound the problem and indicate that Republicans will have to dip into both the Medicare and Social Security Trust Funds. While this was a politically risky endeavor before the terrorist attacks in New York and D.C., bipartisan approval of $40 billion in emergency aid effectively removed the issue from the political realm.

One Political Objective of Tax Cut, Taking Resources off the Table, May Have Worked Too Well. One perceived benefit of the tax cut for Republicans was to reduce available funds so a Republican Congress could justify eliminating or reducing programs supported by Democrats. The lower estimates of available funds, therefore, may prevent either party from having new policy initiatives adopted. In fact, it may even be difficult to provide funds for all generally supported existing federal programs without invading the Trust Funds. Doing so is likely to entail dire risks in the 2002 elections to either party seen as doing so on its own.

Without the availability of any non-Trust Fund surplus, all the President’s initiatives were likely to be undercut, including funds for the missile shield, any real prescription drug cost offset for seniors, funds for educational reform, increased payments to farmers, and other initiatives he committed to during the election campaign. While the Defense Department will end up with additional funds to mount a war on terrorism, it is not clear that the wholesale invasion of the Trust Funds will ultimately be acceptable to meet the other Administration initiatives.

The problem arose from the White House strategy to delay other policy initiatives and focus on passing the tax cut. Now there appear to be no funds to implement anything else, without cuts elsewhere. In fact, with Democrats in charge in the Senate, some tough choices and trade-offs lie ahead for both parties in regard to their policy initiatives.

The long-term situation is even worse. Experts predict that the real cost of the announced $1.3 trillion tax cut that was enacted is actually likely to be three times greater over its term, close to $4 trillion. The additional impact on funds available long term for government programs could be catastrophic. In all likelihood, as with Reagan, Republicans will be back to borrow to spend. The reversal of traditional party postures regarding Keynesian economics seems ironic.

Appropriations Conflicts Portend Another Possible Government Shutdown. Looming on the horizon before year end is a showdown over appropriations measures and possible shutdown of the federal government. Most appropriations bills are still pending in Congress, deferred until after Labor Day. While few thought the conflict between White House and Congress that occurred in 1995 and 1996 could happen again, given intensely negative voter reactions at that time to congressional inaction, now the difficulties in achieving agreement seem even more perilous. With Congress split between the parties, and neither house necessarily in sync with the President or even the Republican House leadership, a doomsday scenario can easily be anticipated. Bush has postured himself to "hold down" congressional spending increases, but these were established by the Republican budget resolution before they lost control of the Senate.

Negotiations to agree to appropriations measures will be even more difficult this time because of the triangulation involved, and only a few weeks remain before the new fiscal year starts October 1. Given the split of party control in Congress, the President cannot simply face off against it as Clinton did. The main crunch is likely to come over the Defense and Labor, Health and Human Services appropriations measures. Democrats are threatening to keep them to the last to demonstrate the lack of funds for White House initiatives and Bush in turn is countering by insisting that action on other bills not take place until these major ones are first resolved. Continuing resolutions that maintain expenditures at current levels are likely to be required. The impasse could well last past Congress’ intended year-end holiday break and at some point government operations could become the victim. Stay tuned, it just may happen.

Shades of Big Brother: Tracking Users of Federal Websites. A congressional report has identified that those who log onto many federal government websites are possibly being tracked, although federal privacy guidelines prohibit doing so. The report found that sixty-four federal websites used files that allow tracking of the browsing and buying habits of those accessing the sites. The Departments of Education, Treasury, Energy, Interior, and Transportation, as well as NASA and GSA sites, contain such unauthorized files. So, remember that Uncle Sam could be watching you when you access government sites to obtain information.

A New Twist on Federal Surveillance: Placing Bugs into Suspect’s Computers. The Justice Department has developed a "key logger" system that it used to gather evidence in a gambling and loan sharking investigation. When challenged to reveal its details in the ensuing trial of Nicodemo Scarfo, the government invoked a national security statute to try to avoid revealing how the monitoring technology works. The device, similar to that used by employers to check out employees’ computer use, records specific keystrokes. It had been inserted into his personal computer surreptitiously under a court-authorized search warrant.

In obtaining the warrant, however, the government failed to go through the more stringent standards required by federal statutes to justify inserting phone taps. The effort to obtain the details of the inserted computer device was to show the similarities of the process to authorize the tapping of phones that requires high level Justice Department approvals before taps can be put in place. The objective is to disqualify the evidence at trial. When the federal district court judge ordered the government to provide the information prosecutors invoked the Classified Information Procedure Act to avoid doing so. A ruling on the issues is expected shortly.

G. Gordon Liddy Finally Speaks Out About the Watergate Break-In. Earlier this year, Liddy, the tight-lipped conspirator in the Watergate affair who, as a result of his unwillingness to testify at that time, spent four years in prison (more time than any other of the burglars), finally had to testify after twenty-eight years of relative silence. (More recently, of course, he has been a conservative radio and TV commentator.) He was questioned in a defamation action as a result of his recent statements that he had come to the realization that the break-in was not to obtain political intelligence, but rather, to find evidence of a call girl ring being used by the Democratic campaign committee. He was named in the lawsuit that was brought by the secretary of a committee official who Liddy claimed was the actual target of the break-in. Liddy had identified her desk as one focus of the search for evidence. Can you imagine what the cable network news shows would now do with this scenario.

House Judiciary Election Study Calls for Federal Minimum Standards. A report issued by Democrats on the House Judiciary Committee found that election system flaws constituted "a national epidemic of disappearing votes, through faulty machines, inaccessible polling places, intimidation at the polls and faulty recount procedures." It found that "dozens of states could find themselves unable to determine the victor in a close election. If any of these states were decisive in a presidential election, our nation could once again find its electoral system thrown into chaos and, in turn, public confidence in democracy would once again be seriously undermined." The report notes that in at least four states last election the number of uncounted ballots exceeded the margin of victory for the presidential candidate who carried the state and that thirty-eight states have voting recount procedures that do not appear to meet the constitutional standards set in Bush v. Gore.

Legislation sponsored by the House Judiciary Committee’s Ranking Member, John Conyers, Jr. (D–Mich.) and Christopher J. Dodd (D–Conn.), chair of the Senate Rules Committee, would provide up to $3.5 billion to states to upgrade their election systems while imposing minimum standards for federal elections. States would still be left to determine the particular type of voting machines used. Federal requirements would include provision prior to election day of sample ballots and other educational materials to voters and a procedure for provisional voting so that voters whose names do not appear on registration rolls could vote and it would be counted if their registration was later verified. State and local governments, while recently endorsing federal funding and general standards for elections in a task force report, have resisted federal mandating of how they conduct elections.

Slow Progress in Confirmations. According to the Brookings Institution’s "Presidential Appointee Tracker," seven months into his Administration, Bush still has fewer than half of the Cabinet and sub-Cabinet vacancies filled. The process is unlikely to be completed even as to initial appointees more than one year into the new Administration. When one realizes that the average tenure of these presidential appointees is less than two years in their positions, many will not have much time to make their mark. As of the week of August 31, of the 500 positions subject to advise and consent (not including such positions as ambassadors, U.S. Marshals, U.S. attorneys, and judges), only 227 nominees had been confirmed and thirty-three Clinton appointees were retained. For the remaining 240 positions, fifty-five were awaiting confirmation, forty-one had been announced but not formally nominated, and nominees for 144 had yet to be announced. The Bush record to this point is 13 percent better than for the Reagan Administration.

In regard to judicial nominations, the new chair of the Senate Judiciary Committee, Patrick J. Leahy (D–Vt.), has indicated that without the benefit in advance of the ABA’s assistance in reviewing nominees, a continuing role which the Bush Administration has rejected, review of judicial nominees has been lagging. As of August 13, the Senate had confirmed four judges and forty nominees await action. Of these, fifteen were just nominated before the summer recess.

Shades of the Medicare Reform Controversy, GAO Demands Cheney’s Energy Policy Records. A Demand Letter from the General Accounting Office (GAO), the investigative arm of Congress, for information and documents related to the development of the Bush Administration’s energy policy has been rejected by Vice President Cheney on grounds it interferes with the constitutional functioning of the executive branch. The GAO’s letter is the first step in a process that leads to its filing of a federal action for the documents. Since 1980, GAO has issued thirty-two such letters, twenty-four to the Reagan Administration, two to the first Bush Administration, and five to Clinton’s. This is the first, however, made directly to a president or vice-president.

If Cheney certifies that the documents are part of the deliberative process and release would impair the government from functioning, he can avoid the gaze of the GAO, but Congress could still subpoena the documents. The request actually evolved from investigations by two Ranking Democrats on House Committees. The issue concerns private meetings of the energy task force in which industry representatives participated. Cheney has not disclosed their roles in discussions or how policy positions were developed.

The National Energy Policy Development Group, an interagency task force, met with various interest groups, but conservationists have complained that industry views dominated policy development. While that’s not surprising, Ranking House Democrats, John Dingell (D–Mich.) on Energy and Commerce and Henry Waxman (D–Calif.), on Government Reform, requested GAO to obtain the documents to see what access the Administration was giving to large donors. Many of the issues concerning disclosure of development of government policy were also involved in Hillary Clinton’s health care task force that ultimately caved to similar demands. It’s deja vu all over again, but now the shoe is on the other foot.

Industry Role in Decisions at Interior, Agriculture, and EPA to Rewrite or Cancel Clinton Administration Regulations Also Being Probed. In an unrelated conflict, the White House finally decided to cooperate with a Senate Committee headed by Joseph Lieberman (D– Conn.) (you may remember him from last fall’s election) that threatened to issue subpoenas for information relating to how several sensitive environmental decisions were made. This confrontation reflects the ability of Democrats to set the agenda in the Senate and the importance of which party controls use of subpoena powers. The decisions involve rewriting of Clinton Administration regulations at the Interior and Agriculture Departments and EPA soon after Bush came into office, relating to such matters as permissible levels of arsenic in drinking water, road building in national forests, and clean-up of toxic waste by companies that mine public lands. The question is whether proper procedures were followed in overturning the regulations and whether industry groups had undue influence over the actions taken. Committee staff were given access to documents requested, but not physical possession, and notice was to be provided before information could be "publicly released."

Federal Agencies Threaten to Withdraw From Clean Air Act Litigation. The Bush Administration is considering withdrawing from "New Source Review" litigation under the Clean Air Act. New appointees at the Department of Energy and the EPA would like to give power companies more flexibility in meeting air pollution restrictions. While states have joined in these legal actions, in most instances they do not have standing to pursue them on their own. In addition, few states could duplicate the resources of the EPA and Justice Department that currently handle these cases. The pullout also endangers existing agreements with power companies respecting enforcement of prior commitments. The nomination of an opponent of such suits against power companies to EPA has been held up in the Senate pending final decisions on the federal role in these lawsuits.

While a number of states, such as New York, might still proceed against local emissions that violate federal clean air standards, they lack the multi-state jurisdiction available to the federal government, particularly important in the case of pollution that is not limited locally in its effects. While power plant pollution 400 miles away has been sufficiently documented to justify legal action in affected areas, if the federal government pulls out, more states will have to file legal actions to protect those impacted in their own jurisdictions. EPA previously sued thirty-four power plants and has taken other enforcement action under source review against twenty others. Many plants are fossil fuel burning facilities built pre-1970 that produce up to ten times as much nitrogen oxide and sulfur dioxide as new plants. These emissions contribute heavily to smog and acid rain. According to the New York Times, these power plants produce two-thirds of the nation’s sulfur dioxide emissions and about 30 percent of the nitrogen oxides. Another effect of a federal pullout would be that disparate interpretations of federal law are more likely if federal agencies are no longer involved in the litigation.

Faith-Based Initiative Sputtering. One of the Bush Administration’s six high priority policy initiatives was to increase use of religious groups in delivering social services funded with federal dollars, termed his "faith-based initiative." The ostensible objective was to refashion the way the federal government delivers social services by encouraging religious organizations to participate directly in provision of these governmental services. The idea would incorporate, but not mandate, faith into various programs being undertaken by nonprofit religious and community groups that provide services for the homeless, combat drug addiction, deal with mental illness and domestic violence, and help unemployment and welfare recipients adjust to the workplace.

While the proposal has suffered somewhat from an initial vagueness on details, supporters have claimed that faith-based efforts are more successful, although no empirical data has yet been developed that justifies such assertions. Proponents argue that the faith element is supplied through the religious attitudes of the service providers who live and witness their faith when they deliver the social services. Participants should be encouraged but not forced to participate in faith activities in the programs involved. The lines delimiting the boundaries on the role of faith, however, have not been drawn precisely, leaving the initiative open to challenges claiming violation of First Amendment separation of church and state.

A somewhat similar role for subsidiaries of religious organizations was included in the 1996 welfare legislation that allows religious groups to participate under the "charitable choice" provisions of the Act to help welfare recipients adjust to the work world. In that program, however, churches need to create subsidiary organizations to participate and are not allowed to provide services directly. Even that provision has been challenged on First Amendment grounds and claimed abuses of that provision arising from those programs are currently under review in federal district courts in Texas and Minnesota. One complaint is that "religious indoctrination" of participants is the essence of the program noting one program emphasizes that those on welfare find "employment through a relationship with Jesus Christ." Another abuse cited was use of federal funds to purchase bibles for participants. An additional criticism of charitable choice is that groups receiving federal funds have been permitted to discriminate based upon religion in making firing and hiring decisions for those staff delivering services.

Some religious organizations are wary of the proposal. Under his initially proposed legislation, Bush would have allowed these organizations administering federal programs to override state and local nondiscrimination requirements. Recent well-publicized efforts by the Salvation Army to obtain a federal exemption from state and local nondiscrimination laws brought out strong condemnations of such a provision. It is unlikely that legislation could be enacted if such a provision was contained in the final version.

The proposed legislation also includes a provision that would allow gifts to religious and charitable organizations to be deducted from income, whether or not taxpayers itemized their deductions. Contributions of $25 annually could be deducted, rising to $100 in ten years. Initially estimated to cost $90 billion, the scope of the deduction has been limited to bring revenue losses down to $13 billion. Even at that level, it seems unlikely to survive given current budget shortfalls.

The initiative has also been derided by some who have claimed it is simply an effort to co-op black ministers to better reach black voters and gain increased support for Republican candidates. Still others criticize it for going to far and unnecessarily raising First Amendment problems that need not be confronted in that anything that would be done under the initiative also could be achieved by using subsidiary corporations of existing religious groups that carry out charitable choice activities, such as Catholic Charities and Jewish Family and Children’s Services already active in urban areas.

Another consideration for religious organizations is the real danger if they become involved directly in receipt of federal funds that they open themselves up to potentially embarrassing incursions into their books and records by government auditors. These audits frequently occur so as to trace the use of federal funds to ensure the monies were used consistent with federal guidelines set by OMB. Such audits could raise uncomfortable issues for churches that decide to accept federal funds. Such potential incursions into the activities of religious organizations has been one reason that many mainline national religions have been opposed to the measure. In an effort to diffuse this issue, the White House has asked that the legislation require that federal funds be put into accounts that are separated from the organization’s private funds.

Despite sympathy and potential support from Senator Lieberman in the Senate, it is unlikely the measure will survive there without significant changes. The White House is pushing hard for adoption of some bill so it may claim success.