Opinions........"Large-scale, across-the-board tax cuts would be unjustified, counterproductive, and irresponsible, for several reasons. It is unclear how much of the projected on-budget surplus will materialize. More than 75 percent of the surplus arises from projected cuts in real discretionary spending, which seem unlikely for political reasons. The forecasts also assume that almost all of the recent revenue increases will prove permanent, which is unlikely unless the economy continues to grow rapidly.
The surpluses that do materialize will occur only because government accounting procedures obscure enormous accruing future government liabilities. For example, more than 45 percent of the projected on-budget surpluses are due to accumulations in government pension reserves. These accumulations, like Social Security, represent resources owed workers at retirement, and should not be spent on tax cuts. More importantly, during the next several decades, the rising costs of Social Security, Medicare, and Medicaid will create large fiscal deficits that need to be addressed sooner rather than later.
Direct examination of the proposed 10-percent cut reveals additional problems. The tax cut would require use of about $200 billion from the Social Security Trust Fund, which would violate the general agreement to retain those funds for future retirees. It would provide disproportionately large benefits to the highest income households, while providing meager benefits to households in the bottom half of the income distribution. It would not boost economic growth, and it would reduce future budget discipline by violating the budget rules. And with the economy running at full employment, there is little reason to boost consumer spending by raising after-tax incomes.
Finally, the case for a tax cut is weakened further by the fact that families at most points in the income distribution will pay a smaller share of their income in federal taxes in 1999 than at any time in the last twenty to thirty years.
The combination of a short-term surplus, a sound economy, and the lowest tax rates for most households in decades provides a rare confluence of good fortune that should be used to address the nation’s pressing long-term fiscal problems related to Social Security and Medicare, rather than financing tax cuts" |
