Rising budget surpluses should be transformed into falling taxes

Part of the surpluses should be used to help finance the transition from the tax-and-transfer Social Security system to private retirement accounts that generate real saving. And part of the surpluses should go toward income tax reform.

Some examples of positive steps to relieve anti-growth income tax biases would be cutting marginal individual and corporate income tax rates, abolishing the capital gains tax and the double-taxation of dividends, and allowing businesses to deduct capital expenditures when the costs are incurred rather than long afterwards (i.e., replacing depreciation allowances with expensing).

The boldest initiative, with the greatest potential to foster growth, would be to replace the current income tax system with a savmg/consumption-neutral tax system based on consumed income.

3) Higher government spending wig consume most of the surplus not returned to taxpayers through tax relief Washington has ahre.dy begun spending projected budget surpluses on increased federal outlays. CBO estimates that spending legislation enacted in 1998 reduced budget surpluses by $48 billion for the period 1999-2008 and that, since last July, additional spending bins reduced budget surpluses by an another $109 billion for the period 20002009. And that may be just the start.

In this year's budget documents, the administration has redefined its budget baseline to quietly shift more than $1 trillion over the next decade from budget surpluses to higher outlays: The administration ignores the caps on discretionary spending that were enacted as part of the Balanced Budget Act of 1997. Many members of Congress also seek to scrap the spending caps.

The message is that if one wants to grow government, keeping the surpluses in Washington is great news, but if one wants economic growth, the surpluses should be converted into deep tax cuts without delay.

ANSWERS

1. Jane Hannan, Democratic U.S. representative from the 36th District from 1992-98, was nominated to run again in her old district against GOP incumbent Steve Kuykendall.

2. Jay Kim, Republican U.S. representative From the 41st District from 1992 until his defeat for renomination in 1998 following his plea-bargain on corruption charges, lost a comeback bid in the neighboring 41st District.

3. House Budget Committee Chairman John Kasich (R.-Ohio), Education and the Workforce Committee Chairman Bill Goodling (R.Pa.), Ways and Means Committee Chairman Bill Archer (R.-Tex.), and Commerce Committee, Chairman Tom Bliley (R.-Va.).

4. Democratic Sen. Estes Kefauver, who held the seat from 1948 until his death in 1963 and sought the Democratic nomination for President in 1952 and '56, and Republican Sen. Howard Baker, who held the seat from 1966 until his retirement in 1984 and who sought the GOP nomination for President in 1980.

5. Republican Sen. Fred Thompson.

Mr Schuyler is Senior Economist with the Institute for Research on the Economics of Taxation and wrote this commmentary for the "IRET Congressional Advisory.'

Copyright Human Events Publishing, Inc. Mar 24, 2000
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