Commentary: Gentlemen, Before You Give Away That "Surplus"...

As Presidential candidates George W. Bush and Al Gore battle over health care, education, Social Security, and tax cuts, one question stands out: Where is the money going to come from? Bush says that Gore's proposals would consume the surplus. Gore retorts that Bush would plunge America back into deficit.

In fact, both platforms are based on the dubious assumptions that future spending increases will be held to very low levels and that Congress will repeal popular tax breaks. A more realistic look suggests the surplus available for new initiatives will be far smaller than either candidate says.

Bush and Gore each claim the total surplus over the next decade will exceed $4.5 trillion. Both vow that roughly $2.3 trillion should be reserved for Social Security and kept off-limits to tax cuts or new spending. That leaves $2.2 trillion to pay for everything from Bush's tax cuts to Gore's education initiatives.

But the next President will be lucky to have half of that $2.2 trillion. Already, Congress seems well on its way to increasing spending for fiscal year 2001 by nearly $30 billion. At the same time, Congress and the White House are nearing agreement on a pension reform bill that is likely to cost $50 billion or more over the next decade.

REALITY CHECK. And that's just the start. The left-leaning Center on Budget & Policy Priorities (CBPP) figures the two candidates really have closer to $1.2 trillion to work with over the next 10 years. Brookings Institution economist William G. Gale and University of California at Berkeley economist Allen J. Auerbach suggest that Bush and Gore will have barely $350 billion.

Here's why. First, some $360 billion of that $2.2 trillion non-Social Security surplus represents current payroll taxes that later will have to be used for Medicare. Both houses of Congress, President Clinton, and Gore have endorsed the idea of retaining those funds in a Social Security-like lockbox. And it is hard to imagine Bush dipping into the federal health plan to fund his tax cuts. So, subtract $360 billion.

Now let's look at taxes. A half dozen popular tax breaks, including credits for research and development and low-income housing, are due to expire in the next couple of years. But Congress won't let them die. Their cost for the rest of the decade will total $50 billion.

The other big-ticket tax item is relief under the alternative minimum tax (AMT). The law was supposed to force the wealthy to pay some tax. But thanks to inflation, more ordinary taxpayers are getting hit. Congress enacted a temporary fix a few years ago, and there is broad support for a permanent solution. Cost: $80 billion to $200 billion. If Bush's tax plan is adopted, repairing the AMT could cost even more, since lowering marginal rates throws more taxpayers into the alternative tax.

Now consider spending. Estimates by the Congressional Budget Office (CBO), which Bush and Gore use, figure that spending for programs other than Social Security and Medicare will rise no faster than the rate of inflation--or 2% to 3% a year--in the next decade. But over the past 10 years, says James Horney, an author of the CBPP study, non-Social Security spending has grown 20% faster than inflation. And in the fiscal year due to begin on Oct. 1, such spending will probably rise by more than 10%.

Such huge increases are unlikely to happen year after year. But spending growth of 3% or less seems equally implausible. CBPP expects that spending hikes will reflect inflation plus increases in population. That would cut the surplus an additional $300 billion over the next decade. Auerbach and Gale figure spending to rise at about the same rate as the overall economy grows, which would drain an extra $750 billion from the surplus.

To be sure, Bush and Gore could be bailed out by the booming economy. Lawrence B. Lindsey, Bush's chief economic adviser, says an economic growth rate of 3.7% a year over the next decade--instead of the 2.7% the CBO assumes--would generate an extra $2 trillion in tax revenues. That, Lindsey argues, would be enough to fund Bush's initiatives. And Gore's, too, for that matter.

True. But it's just as likely that health-care costs could rise faster than the CBO forecasts, absorbing a big chunk of those new revenues. Indeed, CBO officials say they wouldn't be surprised if their forecast is off by $500 billion. These studies can't predict the future. But a realistic assessment suggests that neither Al Gore nor George W. Bush will be able to deliver on their promises.

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