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99 IRET Congressional Advisory 1 (2000)

handle is hein.taxfoundation/iretcgadv0096 and id is 1 raw text is: March 4, 2000 No. 99 RISING BUDGET SURPLUSES SHOULD BE TRANSFORMED INTO FALLING TAXES Both the Congressional Budget Office (CBO) and the Administration's Office of Management and Budget (OMB) foresee huge federal budget surpluses during the next decade under current policies. CBO projects total surpluses of $4.2 trillion over the period 2001-2010, under its intermediate assumption regarding Washington's adherence to discretionary spending caps, and OMB looks to total surpluses of $3.1 trillion over the same years in its current-services projection. These numbers are much larger than those CBO and OMB issued only a few months ago. Compared to last July, CBO has raised its baseline projection for the period 2000-2009 by $880 billion and OMB has increased Economic surpluses, tax biases against and iniv estment. reforms. First, it is increasingly clear that the surpluses are real and enormous. They can finance deep tax cuts without the federal budget going into deficit. Second, the reason why CBO and OMB raised their projections highlights the desirability of pro-growth tax reforms. Economic growth is driving the surpluses, and the surest way for the federal government to facilitate more growth and reduce the odds of an economic downturn is to enact legislation that reduces tax biases against work, saving, and investment. Third, the reason why CBO's upward revision was not higher and why OMB's revision, though large, was much smaller than CBO' s, reveals an additional reason for reducing taxes. Money left in Washington will largely be spent on an expansion of government; that is already happening. Unless bigger government is judged more desirable than lower taxes, taxes should be cut decisively now. The federal budget surpluses are real. For years, some people claimed they would favor tax relief if only the federal growth and the is driving the surest way for budget were not in deficit. Then, when the budget moved into surplus in 1998, some doubters called that a fluke and insisted that surpluses in succeeding years would be too small and uncertain to warrant tax relief. But as government estimators have steadily revised their surplus projections upward, that excuse for denying tax relief has rapidly lost credibility. For work, saving, its projection by about $170 billion. Even if it makes the pessimistic assumption that the spending caps will fail, CBO now projects a decade-long surplus almost as large as the one it projected six months ago under the optimistic assumption that the caps will hold. The new figures strengthen the case for using the surpluses to finance deep and powerful tax instance, in January 1996, CBO's estimators projected a 1999 deficit of $219 billion and they continued to project a 1999 deficit, though smaller with each revision, through their January 1998 estimate. In actuality, the federal budget registered a $124 billion surplus in 1999. Similarly, in January 1998, CBO's estimators projected that surpluses would not begin until 2001 and would total less than $400 billion over the period 1999- Institute for Research on the Economics of Taxation the federal government to facilitate more growth and reduce the odds of a economic downturn is to enact legislation that reduces IRET is a non-profit, tax exempt 501 (c)3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 * Fax 202-463-6199 0 Internet www.iret.org

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