The strong internet-driven economy is doing it again: fooling the experts by outpacing all forecasts and generating an over-abundance of tax revenues to federal coffers. The Fiscal Year 2000 budget numbers are now pointing to an incredible $230 billion surplus. This would be more than $50 billion higher than official Congressional Budget Office estimates and would likely produce a $65 billion non-Social Security operating budget surplus.
This new information comes from senior Senate staffers who follow budget trends closely by tracking the daily and monthly financial statements published by the U.S. Treasury department. According to these sources, while non-defense discretionary spending is rising slightly above 4 percent relative to Fiscal Year 1999, tax revenues are exploding. This is due largely to economic growth over 7 percent in the October-December period and the expectation of 5 percent growth in the January-March period.
So, total tax collections look to rise by as much as 12 percent. Of this total, personal tax receipts are increasing by nearly 15 percent, capital-gains revenues by 10 percent, Social Security payments by 8 percent, with corporate tax receipts at 3 percent. So once again new-economy growth has exceeded official estimates. And when growth is strong, tax revenues pour in.
What will Uncle Sam do with this tax windfall? If the most recent Senate vote on the gas tax is any guide, the answer is: Washington will keep the money.
An amendment by Sen. Byrd recently passed handily expressing the sense of the Senate that lower gas taxes will NOT be included in the budget resolution. There were some surprising Republican defections that helped bury a gas-tax cut. Conservative John Ashcroft, for example, as well as McCain lieutenant Chuck Hagel, voted against cutting the gas tax. So did Utah’s Robert Bennett, along with Pat Roberts, Tim Hutchinson, Kit Bond, Michael Dewine, Lincoln Chafee, Fred Thompson, and John Warner. Budget master Pete Domenici voted against gas taxes. As did both conservative Wyoming senators Craig Thomas and Mike Enzi. Even the venerable Jesse Helms voted against the gas-tax cut. Kudos, by the way, should go to moderates Olympia Snow, Susan Collins, and Arlen Specter for voting in favor of lower gas taxes.
If the Republican party wants to regain the high ground on tax cuts, they should send a clear signal to the public that every on-budget surplus dollar will be returned to the taxpayers, not five years from now, nor ten years from now, but right now.
Fiscal Year 2000 ends September 30, roughly five weeks before the presidential election. A $65 billion surplus delivered back to taxpayers would be worth much more than the tens of millions of the usual squishy, bland TV campaign ads.
The options for how to do this are limitless [Do the math]. One way would be to take square aim at that enemy of the working class: the pay-roll tax. The Social Security surplus for this year is projected to rise by $153 billion. Each percentage-point reduction in the payroll tax would cost about $6 billion. The payroll tax is unquestionably the most oppressive middle-class tax. A working mom earning about $40,000 a year pays a 43 percent combined marginal tax rate. That’s even more than the 40 percent marginal rate levied on those who make over $250,000 per year. Republicans should provide desperately needed relief from this onerous tax (talk about a “toll-booth” to the middle class!).
And part of any tax-cutting agenda should be a cut in the capital-gains tax rate, which might help to offset the stock-market shock from the Justice Department’s anti-Microsoft vendetta and would actually increase revenues. Since the last capital-gains cut in 1997, capital gains tax revenues have exploded. But as an absolute bare minimum policy message the congressional Republicans should provide a strong endorsement of Gov. Bush’s tax-cut plan in their party caucus. This is how Jack Kemp laid the groundwork in 1978 and 1979 for Reagan’s tax-cut message in 1980.
Economic growth in the new economy has produced an unbelievable budget surplus. The GOP must now signal clearly that they intend to send it back to Main Street, which, through its enterprise and risk and toil, created it in the first place.