Monday, September 21, 1998

Scaled-down GOP tax cuts still bad idea

The House Republican leadership has scaled down its grandiose plans for a tax cut of $600 billion to $700 billion over 10 years to a more modest $70 billion to $80 billion over five. It's still a bad idea.

Although congressional budget rules call for new tax cuts to be offset by spending cuts or new revenues, this tax cut would be financed entirely out of future budget surpluses, now generously -- and quite possibly erroneously -- estimated at $1.6 trillion over 10 years.

With what seems like a global economic crisis creeping closer, now might not be the wisest time to start spending any budget surpluses. The surplus forecasts assume no recessions, but a relatively mild recession, on the order of 1991-92, would halve that surplus and put the budget in deficit for three years, 2000-2002, most of the life of the GOP's proposed tax cut.

House Republicans are pushing the tax cut not because it's good economics -- it's not -- but because they think it might be good politics. It might not be that, either. There is no groundswell of demand, other than from the usual vested interests, for tax cuts, and this package will be hastily stitched together out of a little here and a little there until it totals $80 billion, the most the leadership thinks it can get away with.

Congress' first idea when confronted with a surplus was its best: Bank it. The surplus is only surplus if Social Security revenues are counted. Take away that money, and this year's $63 billion surplus becomes a $41 billion deficit and that recession-free $1.6 trillion surplus over 10 years shrinks to $169 billion.

Aside from strengthening Social Security, there's another reason to save the surplus: to be financially strong -- or even just less in the red -- when the economic boom comes to an end. That's when a tax cut, as a fiscal stimulus, makes both economic and political sense.