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latest Congressional Budget Office budget-surplus numbers are a
nightmare for anti-tax cut Democrats and
moderate Republicans. Just to review the numbers: The budget surplus
is $5.6 trillion over 10 years. (Once again, immodesty compels me
to note that Larry Kudlow and I were right and almost all the left-wing
Democrats who said that rumors of surpluses are greatly exaggerated
were wrong. I mention this, because those who have been wrong for
five straight years continue to say that the surpluses aren't real
or won't be as big as expected. That's their story and they're sticking
with it.)
Now, there are several important policy consequences of these new
surplus estimates.
First, they make a powerful case for a bigger Bush tax cut. Larry
Hunter, the smart supply-side economist who works for Empower America
suggests that Bush should pull a Clinton. In February of 1993 Bill
Clinton said: "Oh my gosh, the budget deficit is much worse than
I thought, we need a much bigger tax increase than I campaigned
on." Bush should say: "Oh my gosh, the budget surplus is much bigger
than I thought. We need a much bigger tax cut than I campaigned
on." For Bush to do this would have the extra benefit that he would
be telling the truth, whereas, of course, Clinton was lying.
The budget surplus is now a whopping $1.5 trillion HIGHER than when
Bush devised his tax plan 14 months ago. Circumstances have changed
making the case for a bigger tax cut all the more persuasive. Even
if we lay aside all the Social Security surplus, then we still have
$3.1 trillion for tax cuts. That's twice the size of the Bush tax
cut. We need to start lock-boxing (am I the first to use that term
as a verb?) all extra surplus dollars for tax cuts.
Second, Republicans need to worry about the latest Democratic trap
of setting aside all the Social Security and all of the Medicare
surplus dollars for debt retirement. This is a
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only way out of the box is to grow the tax cut.” |
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terrible idea. Economist David Malpas of Bear Stearns tells me that
if the GOP does that, by about 2005, the federal government would
have to start buying up assets from the private sector. Very bad
idea! In fact, when I testified before the Senate Budget Committee
on February 8th, sitting down the table from me was Alice Rivlin
arguing that we should have the federal government buy up private
assets. While the rest of the world is moving toward divesting government-owned
assets, the U.S. government would be moving toward Uncle Sam owning
private assets.
The only way out of the box is to grow the tax cut. As has been
reported on NRO, the best tax bill before Congress now is co-sponsored
by Pat Toomey, Paul Ryan, Jeff Flake, Mike Pence, and about 20 other
House members who want a Bush-Plus agenda. They seek the immediate
repeal of the death tax, the income-tax-rate cutbacks accelerated,
and a capital-gains cut. All Republicans should embrace the plan
that would bring the tax cut number to $2.2 trillion.
Even if all of the operating budget surplus is corralled for tax
cuts, this still leaves $2.5 trillion of surpluses in the Social
Security fund. What is to be done with that money? The entire Social
Security surplus should be devoted to personal retirement accounts.
This would allow Americans to store away about three percentage
points of their payroll tax payments into IRA accounts. This would
lower long-term unfounded liabilities of the Social Security system
and raise retirement incomes of young workers. It would also allow
the burden of the national debt to fall to below 20% of GDP for
the first time since the 1920s.
If the GOP would follow this strategy, everybody goes away happy,
except the congressional appropriators.
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