Sometimes, you just get lucky. Thanks to faster growth, the budget negotiators managed to cut a relatively painless budget deal. Now it's time for politicians to get smart. The unpleasant task of curtailing rising entitlement spending remains, and they shouldn't shun it.
As it now stands, the balanced budget deal is O.K.--but not great. The $85 billion in tax cuts represents an unfortunate inclination to pander to interest groups, not an effort to generate a healthier economy. The middle-class tax credit for children is a giveaway. The education tax credits will tend to prop up college tuition rates. The country is awash in capital. The estate tax affects a tiny number of individuals. Far better would be to take the entire $85 billion and cut marginal tax rates across the board, helping all taxpayers.
It shouldn't be too much to ask budget negotiators to focus on entitlements. The budget agreement sidestepped the difficult task of reforming Social Security and Medicare, precisely because the revenue windfall allowed negotiators to do so. There's no question that a strong economy helps. If economic growth between 1998 and 2006 comes in at 3% instead of the 2% currently projected, it could eliminate nearly 50% of the projected shortfall in the Old Age Survivors & Disability Insurance Program trust funds. Good news indeed. But that would still leave the other half of the shortfall uncovered.
The tough work remains to be done. The consumer price index should be lowered to reflect reality. This would save billions in new outlays for Social Security over the years. For Medicare, competition and managed care must be introduced. This will anger interest groups but politicians must find the backbone to do it.