A trillion here, a trillion there ...
As you've probably heard, government estimators now predict some $1.9 trillion in non-Social Security budget surpluses over the next decade if current tax and spending policies are maintained. That's more than a $1 trillion increase from what was predicted just last February. What's going on?
The improved budget outlook reflects higher revenue projections and the accompanying drop in interest payments from a lower national debt. (The estimates assume that all the increased revenues go to debt reduction.) What's most interesting is that there has been very little change in expected revenue growth over the 2001-2010 period. Instead, the improved long-term revenue outlook is almost entirely due to a big boost in expected revenues in fiscal 2000, which ends in September. Because this year's anticipated revenues are now much higher, so are future revenue projections, even with hardly any change in expected growth rates after this year.
Fiscal 2000 revenues (excluding Social Security taxes) are now expected to be up by 11.5 percent compared to fiscal 1999, according to the Office of Management and Budget (OMB). That huge increase is dominated by an expected 13.6 percent jump in personal income taxes. (In comparison, OMB's February estimate was that income taxes would go up by 8 percent this year, after the 6 percent growth in fiscal 1999.) OMB says that its revised fiscal 2000 projections "in large measure reflect continued strength in the stock market," which has boosted taxes on capital gains and income from exercising stock options. Reasonably enough, estimators continue to have trouble believing that such growth can continue.
... And what to do with it
The administration's plan for the burgeoning surplus is to devote about a third of it to prescription drug coverage for the elderly, other expanded health coverage, and a modest tax cut--leaving the other two-thirds to pay down the national debt.
In fact, the president has offered a deal to congressional Republicans. He'll give them one of their favorite upperincome tax cut plans--"marriage penalty" relief--if they'll give him his prescription drug plan. Each item is said to cost about $250 billion over 10 years.
But Clinton-hating GOP leaders have reacted coldly to the president's offer. House Ways and Means Committee Chairman Bill Archer of Texas blurted out that he is not interested in "a raw deal where American families get just a few more pennies in tax relief and President Clinton gets a trillion-dollar blank check for more government spending." Of course, Archer is correct that the House GOP's marriage penalty tax cut really is worth only pennies to the typical, as opposed to high-income, couple--about 40 cents a day is the median--but it's surprising that Archer is finally willing to admit it.
For his part, George W. Bush is happily crowing that the revised surplus estimates prove his giant tax cut plan is now affordable. But Bush's problem is that even with the new figures, his tax cuts would use up more than nine-tenths of the surplus over the first 10 years, leaving almost nothing for either debt reduction or Bush's various spending plans, from Star Wars to drug coverage.
Al Gore says he's willing to up the ante on tax cuts, to about double what the president has proposed, but still wants to save the bulk of the projected surpluses for debt reduction and other future needs.
Finally, there's the conservative camp, which includes, among others, former Congressional Budget Office Director Robert Reischauer of the Urban Institute, Henry Aaron of Brookings, and, well, me. After many years of watching official budget projections turn out to be too rosy and worrying that what goes up can easily come down, we're unwilling to make long-term budget commitments based on guesses, however educated, about what will happen five or 10 years from now. Which, come to think of it, is a lot like the stance that Gore and Clinton have adopted.