Washington's rush to dispose of a projected $3.1 trillion non-Social Security surplus runs a real risk of dropping the government back into an era of deficits. Before taking this fiscal plunge, President Bush and lawmakers seeking to amend his $1.6 trillion tax cut plan need to separate fact from fiction.
More realistic surplus assessments - ones that take into account the certainty that existing year-to-year tax breaks will continue, the alternative minimum tax formula will be reformed as it inevitably affects more middle-class taxpayers, and Medicare surpluses will be either walled off or used for prescription drug benefits - put the 10-year surplus nearer the $2 trillion level.
And realistic cost assessments - ones that factor in the price of Bush's retroactivity proposal and the added interest payments that must be made if more of the surplus isn't used to pay down the national debt more quickly - put the cost of the tax cut in the same ball park.
That's before any talk of increased spending on defense, education and health care. And it's before business interests reach full throttle on a just-started push to get either the administration or the Congress to add corporate tax breaks to the tax cut proposal.
In short, a huge up-front tax cut now could be spending money we won't have. A cautionary tale comes from Texas, where the $2.9 billion in tax cuts then-Gov. Bush shepherded through the state legislature during times of surplus now have given way to a budget crunch as costs increase.
The changing opinions of Treasury Secretary Paul O'Neill to the contrary, this plan also is unlikely to provide any breaks soon enough or strongly enough to stimulate the slowing economy. Many of the cuts will be phased in over years, while the economy will change more quickly. In that light, waiting for greater certainty in the rapidly changing surplus projections makes even more sense.
The Congressional Budget Office warns that its current surplus estimates are likely to have a large margin of error. There are economic growth assumptions that likely won't hold true, and about 70 percent of the projected surplus will accrue during the final half of the 10-year projection, when the assumptions are even flimsier than they are now.
Bush, at the moment, has the upper hand. He proposes revamping tax brackets, doubling the child tax credit from $500 to $1,000, reducing the "marriage penalty" and phasing out estate taxes. The middle class would get the biggest percentage cuts, while the biggest dollar savings go to upper-income Americans who pay the most federal income taxes. Try as he might to spin that fact, the truth is that those who need the cut least will benefit the most.
Democrats, stunned by both the ever-increasing surplus projections and Federal Reserve Chairman Alan Greenspan's unexpected approval of tax cuts, seem willing now to back a tax cut as large as $900 billion. But they also want to provide bigger breaks at lower income levels. Their concern for fairness is well placed.
The federal government has three basic choices for any surplus: Spend it, eliminate it through tax cuts that bring federal income more closely in line with federal spending, or use it to pay down the accumulated national debt.
Prudence dictates a combination of all three - spending to meet recognized needs without simply tacking on more big-ticket programs, cutting taxes at an affordable level to bolster the economy and retiring more debt to eliminate expensive interest payments and free that money for other uses.
Given the uncertainties of surplus and cost projections, it makes more sense to use today's money to pay down the debt more quickly - and to implement tax cuts over a shorter time - say five years. After that, if today's rosy predictions do come true and large surpluses do, in fact, exist, there will be time enough to enact another round of tax cuts.