Avoiding Daschle’s Tax Trap
CBO makes the case for tax cuts.

Mr. Moore is president of the Club for Growth
February 12, 2001 10:05 a.m.

he 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 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.