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Treasury Overflow
What to do with the surplus?


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Larry Kudlow

The Treasury Department has just announced a record-setting government debt paydown plan that will redeem $185 billion of outstanding bills, notes, and bonds this spring, over 60 percent more than was retired the same time last year. While this blockbuster plan has sent a legion of Wall Street economists back to their drawing boards in order to figure out the implications for interest rates, the real significance of the announcement rests with its impact on Congressional politics and economic policy. Namely, what to do with the tax revenues that are spilling over the Treasury coffers?

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When properly adjusted, April 2000 tax collections will be 14 percent higher than April 1999. Non-withheld receipts from stock market-driven capital gains look to be rising about 10 percent. So, even assuming the usual late-year spending excess that has come to be a hallmark of recent budgets, the FY2000 budget surplus will run upwards of $230 billion, about $63 billion higher than official government estimates. And this staggering overall surplus will leave about $70 billion in the so-called on-budget surplus, i.e., the non-Social Security portion.

So what will Washington do with the windfall? $70 billion is a big number, even by Beltway standards. There is no rainy day money market fund for the Federal government. It will either be spent, thereby enlarging the Leviathan, or returned to the 130 million working Americans who earned it in the first place. Polling data suggests that until recently 50 percent of the public doesn’t believe that budget surpluses truly exist. But this year’s whopping total will change that. Overcharged taxpayers will demand a rebate — and a big change in Congressional policy thinking.

If across-the-board relief from high personal tax rates is not feasible this year, then how about a simple one-time rebate check that would be paid to all payroll tax contributors? The fiscal year books close on September 30. Within a week or two the government will know exactly what its financial position is. That’s when the checks should be mailed out. A $70 billion operating surplus would permit about $500 per working American. Well worth the while. It might not be optimal tax policy, but it would send the right message: that money left in private hands will be more efficiently used than if those surplus funds remain in the public trough.



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