Federal Budget Surplus Larger Than Expected; GOP Tax Cut Budget Plan Taking Shape
By Catherine Hubbard, Jeff Carlson and Paula Cruickshank, CCH Washington Staff Writers
The Congressional Budget Office (CBO) on July 1 released increased budget projections that could enable the Republican majority to enact a larger tax cut than the $778 billion 10-year tax cut proposed in its fiscal 2000 budget resolution approved in April. The CBO estimates that the unified budget will be $14 billion larger in fiscal 2000 than it had predicted in March.
CBO projects $996 billion in on-budget surpluses, which do not include Social Security surpluses, from 2000 to 2009--$172 billion more than it had estimated in March. All projections reflect current law and do not account for any proposed changes.
Specifically, CBO estimates $1.9 trillion in off-budget surpluses for the 10-year period and a total unified budget surplus of nearly $2.9 trillion over 10 years. CBO also predicted a total budget surplus of $161 billion in fiscal 2000, which includes an on-budget surplus of $14 billion and $147 billion in off-budget surpluses.
CBO had estimated in March that the on-budget (non-Social Security) surplus over 10 years would be $824 billion and minus $5 billion in fiscal 2000--$19 billion less than it now projects. The on-budget figures are key, since they are most likely to affect the size of Congress' proposed tax cuts.
Republican Proposals
Earlier, House Ways and Means Committee Chairman Bill Archer (R-Tex.) vowed to use the budget surplus to eliminate the marriage penalty in the tax code, ease estate taxes, institute a broad-based income tax cut, make education more affordable and enact tax incentives to make health insurance more affordable. "We propose to use the magnitude of the budget surplus to accomplish these key goals for the American people," he said at a briefing on July 1.
He emphasized, however, that Congress' first priority "should be shoring up Social Security and Medicare while maintaining our fiscal discipline." Once Social Security is saved, Archer said, Congress should refund to the public the excess taxes citizens have paid that created the budget surplus.
Although Archer at that time did not discuss specifics of the upcoming tax bill, which the committee is set to begin writing on July 14, he said he wants to extend the research and development tax credit.
He also said he favors a capital gains tax cut that would be effective July 1. Reports indicate there would be a reduction in the maximum capital gains tax rate from 20 to 15 percent on gains from property held more than one year. For taxpayers in the 15 percent ordinary income tax bracket, the capital gains tax rate would decline from 10 to 7.5 percent under the plan.
Additionally, the House GOP's 1999 tax plan will include a 100-percent deduction for long-term care insurance premiums, provide a family caregiver an increased personal exemption on federal income taxes and offer the option of purchasing employer-provided long-term care insurance with pre-tax earnings.
Education tax relief is another goal of Archer's proposal, allowing expansion of pre-paid tuition plans for private universities (currently, only public universities are permitted to offer these programs), raising maximum limits for tax-free education savings acccounts, and changing bond rules to permit more flexible funding of school construction.
Finally, a phaseout of the gift and estate tax is expected to be part of the tax cut proposal.
Speaking to reporters on July 1, Senate Budget Committee chairman Pete V. Domenici (R-N.M.) said there are several options for using the increased CBO budget projections, none of which the chairman has decided on. The budget resolution as currently written allows Congress to propose spending any newfound non-Social Security budget surpluses for fiscal 2000--about $14 billion--on tax cuts. Thus, under the budget resolution, the total tax cut could be roughly $792 billion over 10 years, he said.
Otherwise, Congress could revise the budget resolution to allow it to increase the current-law domestic spending caps or to reduce taxes even more than $792 over 10 years, Domenici said.
However, House Budget Committee Chairman John R. Kasich (R-Ohio) said at the briefing that increasing the spending limits is not an option.
Both budget committee chairmen stressed the importance of shoring up Social Security and Medicare, providing Medicare prescription drug benefits and eventually reforming Medicare.
Archer, Domenici and Kasich also noted that all of the Social Security trust fund surpluses (estimated by CBO to be nearly $1.9 trillion over 10 years) would be locked away and used only to shore up the system. Domenici said locking away the Social Security trust fund surpluses would also reduce the size of the national debt and, thus, reduce interest payments on the public debt.
Democrats Respond
Richard A. Gephardt (D-Mo.) responded that the GOP plans to use the budget surplus for tax cuts "is an indication of what their priorities are and there is not any chance for a compromise."
"The tax cut proposal is totally irresponsible and misplaced in terms of its goals," Gephardt said, adding that the plan is likely to include a "large capital gains tax cut component." He estimated that the wealthiest 8 percent of taxpayers and wage earners in the country would get 91 percent of a capital gains tax cut. "Everyone else would get just 8 percent of that particular feature in their tax cut. We don't think that's fair."
Gephardt said the government needs "to be fiscally responsible with the tax cut that we're able to do. We do need a tax cut. It can be far less expensive than this one. It can be targeted at middle income families," he said referring to Archer's statement that he wants to use much of the budget surplus for tax cuts.
"We can pay down the debt by saving Social Security. We can put money into Medicare and have a prescription drug benefit," said Gephardt.
Ranking minority Ways and Means member Charles B. Rangel (D-N.Y.) said that, although the GOP held a rally to lay out its tax proposals, complete with a fife and drum corps, "they did not provide one detail of how their tax bill would help American families." He contended that "only a fraction of the tax cut actually goes to the middle class."
Blue Dog Coalition members said at a briefing that the GOP is proposing to spend the projected budget surplus without dealing with the national debt and the long-term problems of Social Security. Policy co-chairman Rep. Charlie Stenholm (D-Tex.) said Republicans are getting "carried away with plans to spend unproven surpluses."
White House Response
White House Press Secretary Joe Lockhart on July 1 questioned how the GOP leaders expected to reform Social Security and Medicare and cut taxes by $1 trillion without making drastic spending cuts in essential federal programs.
Office of Management and Budget (OMB) Associate Director for Communications Linda Ricci said that a tax cut of that magnitude in the long run would leave nothing left to extend the life of Social Security and Medicare, and would ultimately lead to budget deficits.
Lockhart and Ricci were referring to a previous statement by Archer that Congress could propose a tax cut of up to $1 trillion if the CBO's estimates were in line with OMB's budget surplus estimates, which turned out to be higher than CBO's estimates. OMB estimated the baseline on-budget surplus will be $1.084 trillion over the next 10 years--$88 billion more than CBO's estimate. The baseline estimates do not incorporate President Clinton's budget proposals.
Ricci said such a budget scenario would occur because the GOP plan would use the non-Social Security surplus, which is money taken from general revenues and not from FICA payroll taxes, to pay for its tax cut package rather than address the long-term solvency problem facing Medicare and Social Security. Choosing to use the estimated $1 trillion surplus for tax cuts rather than reduce the national debt also means the U.S. must pay interest on the debt, which in the long run would result in a budget deficit, Ricci noted.
With respect to the revised CBO numbers, Ricci said that the latest estimates may differ from OMB's mid-session numbers "to a small degree," but they do not change the administration's fundamental goal" of resolving the long-term solvency problems facing Medicare and Social Security and reducing the national debt before considering other issues.
lycos.com |
