US Politicians Argue Over $4.5 Trillion 10-Year Surplus

Mike Godfrey, Tax-news.com, Washington

19 July 2000

The US Congressional Budget Office is now projecting a gigantic $2.17 trillion in federal surpluses over the next decade, and that's without including a separate, also enormous surplus of $2.4 trillion in the Social Security Fund. So the Government (the people, remember) will have $4.5 trillion to play with.

As in other rich countries, the prospect of Government surpluses has spurred a lively debate between those who would cut taxes and those who would increase spending, but in the US it's election year and the debate has naturally become an integral part of the hustings. However, both parties have agreed informally to use Social Security surpluses only for debt reduction, so it's 'only' $2 trillion that they are squabbling over.

The figures will give a boost to Texas Governor George W. Bush, the likely Republican presidential nominee, who argues that his proposal for more than $1.3 trillion in tax cuts over 10 years can be paid for by budget surpluses without eroding Social Security's trust funds. Meanwhile, in the Republican-dominated Congress, legislators aren't waiting for the election, but are pushing ahead with tax cuts, supported by dozens of Democrats who have crossed party lines to support an end to the 'death tax' and other tax-cutting bills.

The Democrat administration, led by President Clinton, is opposed to tax cuts, and the President has promised to veto the estate tax bill. Identical bills have been passed by both the House and the Senate: they start by eliminating a 5 percent surcharge on some estates next year and by reducing the top rate in yearly stages until by 2010 the tax would be repealed altogether. The repeal is estimated to cost $104 bn in the first 10 years and $750 bn in the following 10 years.

Yesterday the Senate also voted 61 to 38 to ease the "marriage penalty" quirk in the income tax system, again with some Democrat support. This would cost $248 bn in the next 10 years. The version of the bill passed by the House in February would provide only $182 billion in relief, so negotiators from the two chambers will have to work out the differences.

Republican plan to put the bill on the President's desk just before the Republican National Convention begins in Philadelphia on July 31, forcing him to either sign the bill or explain why he does not want to sign it.

Mr. Clinton has said he will sign the measure only if Congress also sends him a bill creating a prescription-drug benefit in the Medicare program. The President's plans to expand the Medicare service are estimated by the Budget Office to cost about $300 bn over 10 years, although the calculations are difficult and the President's own figure is $250 bn.

Well, a few hundred billion here and a few hundred billion there and soon you're talking real money. 104 + 248 + 250 = 602, but even that's less than one third of the projected surplus, so you can see that American politicians are going to have a fun summer.

Larry Summers, US Treasury Secretary, and guardian of the nation's tax base, knows what to do with the money: save it. Yesterday, in a speech timed to coincide with the Senate vote on the marriage tax, Summers said it is vital Americans boost their savings, warning this is not the time for tax cuts:

'Raising national savings is an especially important macroeconomic imperative today' he intoned at a Labor Department event to stress the importance of retirement savings.

Summers said the Clinton administration considered measures to encourage savings preferable to tax cuts because it allowed the government to continue paying down its accumulated debt. Lowering the public debt cuts the burden of future interest payments and makes more money available for productive investment, he said.

In an attempt to coax some of the 75m Americans who don't have retirement savings into 401(K) and equivalent public-sector plans, the Treasury Secretary announced that employers could in future assume that new employees would participate in such plans, and could deduct 3% contributions unless the employee opted out.

This sounds more like a tax than a 'voluntary contribution', especially in the hands of the Government, which will probably make opting out into an obstacle course, and could erect all kinds of non-regulatory barriers to the opting-out process.

The days of Democrat tax-and-spend administration may be drawing to a close, but the Clinton administration evidently doesn't plan on going out with a whimper!

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