Minnesota Budget Project - Federal Tax Plan Relies on Surplus That Does Not Exist

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Federal Tax Cut Plan Relies on a Surplus That Does Not Exist

This spring, the Congressional Budget Office predicted a $996 billion surplus in the non-Social Security part of the budget over the next ten years. However, the surplus will only occur if all discretionary programs (including defense) are cut by 15% adjusted for inflation or by 23% as a share of the economy. (Sometimes the size of the federal surplus is described as over $3 trillion, but $1.9 trillion is Social Security reserves, which policymakers have agreed is "off limits.") Allowing defense spending to grow only with inflation and adjusting domestic spending only for inflation and population growth would produce a surplus of $224 billion - 78% less than the CBO's projections. Using more realistic assumptions, the Center on Budget and Policy Priorities predicted a surplus of $112 billion.

At the time the surplus was predicted, it was difficult to believe that such cuts in spending could be achieved, even if it were desirable to do so. Recent decisions by Congress have made it nearly impossible for any surplus to materialize. Congress is having a difficult time living within budget caps, and has engaged in a number of accounting tricks, including:

Classifying $11.4 billion in outlays as "emergency spending" that doesn't have to fit under the cap, including such predictable items as the 2000 census.
Using $16.4 billion in "scorecard adjustments" - intentional underestimates of the cost of appropriations bills - to keep this amount from counting toward the budget caps.

On July 1, the Congressional Budget Office revised its numbers, taking all bookkeeping gimmicks into account, changing a $14 billion surplus for 2000 into a deficit of over $3 billion. When actions since July 1 are added, the deficit for 2000 alone rises to $17 billion.

One disturbing element is the type of programs that are targeted to make up for budget shortfalls.

The House of Representatives is reconsidering welfare block grants to the states, and especially the $4.2 billion that has been appropriated but not yet spent by the states. Many states consider these unspent dollars as "rainy day" funds they are saving for future hard times.
The House appropriation committee's allocation for VA-HUD eliminates funding for Section 8 housing vouchers and cuts public housing by over $500 million.
Billions of dollars in funding needed for the Labor, Health and Human Services appropriations bill has already been transferred to other bills. What's left would require a 34% reduction in appropriations for programs covered under the bill. Such a possibility is so unacceptable that Congress hasn't been able to take action on the bill.

August 19, 1999

Resource Links:
Center for Budget and Policy Priorities, http://www.cbpp.org
Citizens for Tax Justice, http://www.ctj.org

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