It's time for a little sanity--and honesty--in the tax-cut debate swirling around Washington. Both Republican and Democratic politicians are drooling over an extra $1 trillion in the budget surplus that they want to carve up and send back to their various constituencies. Tax cuts are great in principal and the right ones promote economic growth. But the feeding frenzy now going on in Congress and on the Hill is over a surplus that exists more in political than fiscal reality.
Here's the math. Congress has agreed to put very strict caps on spending to get the budget under control. To get to the magic $1 trillion number, Congress has to abide by budget rules that actually cut discretionary spending through 2002 for such things as national parks, the FBI, trade subsidies, and education. Then it must freeze spending entirely through 2009. This is a scenario that is not likely to see the light of day.
If Congress were merely to keep real spending constant, Federal outlays would rise by $600 billion over the next 10 years. That would leave a surplus of about $400 billion, not $1 trillion. That brings us back to reality. But in this calculus, not a cent has yet been spent on the Medicare solvency problem or reducing the Federal debt.
Nowhere in the tax-cut free-for-all has monetary policy been considered either. With the economy running flat out, any major tax cut now will be inflationary and put pressure on the Federal Reserve to raise interest rates. Not a good idea.
The nation has finally gotten rid of its perennial budget deficit and the borrow-and-spend policies that went with it. Before we launch massive tax cuts, perhaps we ought to make sure that there really will be an extra $1 trillion surplus over the next 10 years. It sounds like a phony number based on some highly dubious assumptions.