Tax-Cut Fever
Alan Greenspan has blessed a tax cut, the budget surpluses are said to be bigger than ever, and Republicans control all branches of the federal government. Are we ready to rumble with George W. Bush's gigantic tax cuts? Can we cut taxes even more?
Take a deep breath.
The projected surpluses. According to the Congressional Budget Office (CBO), non-Social Security surpluses over the upcoming decade could be $3.1 trillion, assuming ... well, that's the rub. To reach that staggering surplus estimate, the budget office assumed such things as zero population growth, government wages falling further behind private wages, more and more Americans cheerfully paying the Alternative Minimum Tax, and so forth. It's not the technicians' fault: These implausible assumptions are all required by law. But nobody, including the estimators, thinks that they're realistic.
Here's a more believable story. Start by subtracting the $400 billion in projected Medicare surpluses, which an overwhelming majority in Congress last year said should be off the table. That leaves us with $2.7 trillion. Then adjust projections of future appropriations so they keep up with population and wages. That trillion-dollar adjustment knocks us down to $1.7 trillion. Next, fix the minimum-tax problem, concede that some technically-expiring-but-always-extended tax credits will be continued, and assume that Congress keeps providing aid to farmers. We're now at a surplus of $1.3 trillion--and we haven't yet gotten to the hundreds of billions of dollars in new spending on education, prescription drugs, defense, and other programs that enjoy widespread support.
Add these up and over the next decade we may not have a trillion dollars in surpluses, even if all goes well. And over the next four years, we shouldn't expect more than a few hundred billion dollars.
The Greenspan theory. Until recently, Alan Greenspan's main theme was how good it was to pay down the national debt. But with a Republican president, Greenspan is suddenly concerned that surpluses will be too big and--horrors!--might either lead to more public services or force the government to start earning interest rather than paying it. A debt-free federal government is something that no one has any experience with, and it does raise some intriguing issues. But it's not a "problem" we need to worry about over the next few years; trust me--we'll still have a national debt at the end of Dubya's first term. And a debt-free America isn't a long-term concern either. Ten or 15 years from now, the retirement of the baby boomers will send the red ink flowing once again--and any financial resources the government may build up in the meantime will come in very handy. These are the kinds of things Greenspan used to harp on, and his change of heart looks a lot more political than substantive.
The Bush tax cuts. Since the start of the year, the proposed Bush tax cuts have been growing like Topsy. First, Bush spokesman Ari Fleischer allowed that there are actually 10 years in a decade, thereby adding about $300 billion to the $1.3-billion "10-year" price tag that the Bush campaign had promoted, though it was based on nine-year estimates. Then, new Treasury Secretary Paul O'Neill opined that it would probably be necessary to fix the huge new Alternative Minimum Tax problem that Bush's plan would create, adding another $250 billion to the tax cut's price tag. Others noted the obvious, that cutting taxes will mean higher government interest payments, which brings the cost of Bush's plan up to $2.2 trillion. CBO's latest forecast of revenues under current law boosts the tax cut's real price to about $2.5 trillion. The Bush administration has suggested speeding up the phase-ins of the tax cuts, which could add hundreds of billions of dollars to the 10-year cost. And business lobbyists are clamoring for new corporate tax breaks that could add several hundred billion dollars more.
The bottom line. With less than a trillion dollars in plausibly available surpluses over the next decade--maybe a lot less--how we can afford a tax cut that will cost as much as three times that amount? It seems as though we'd be bankrupting the government in order to cut taxes that mostly affect the very-best-off people in the country. Yipes! I think that's exactly the plan!
