The Washington Times
Tax cut watchers should keep an eye on this coming July. Sometime that month, the Congressional Budget Office (CBO) will release the six-month update of its Budget and Economic Outlook. That will include a revised 10-year projection for federal surpluses. And that could make for some pretty interesting politics.
For years now, the semiannual revisions of the CBO forecasts have been cause for cheering in Washington. That’s because each one has projected a bigger surplus than the previous one, to the point that the 10-year figure as of January stood at $5.6 trillion.
Now, if you want to cut taxes or increase government spending or pay down the national debt or all of the above, each of these succeeding revisions has strengthened your hand. Six years ago, Clinton administration Budget Director Alice Rivlin was circulating a confidential memo called “Tough Choices,” all about the painful spending cuts and potential tax increases on the way to fiscal discipline. More recent memos could have been called “Easy Choices,” or maybe “Why Choose When You Can Have It All?”
For example, as the Clinton administration and the GOP Congress were finalizing plans for a balanced budget agreement in 1997, in sloshed a new pile of money, courtesy of the revised CBO forecasts. Just when lawmakers were maybe going to have to reconcile their conflicting priorities, enough cash came in to take the pressure off. And indeed, while domestic discretionary spending actually did decline as a percentage of gross domestic product for awhile, Congress and the White House have lately been shooting the moon, blowing through their previously agreed caps like so much tissue paper, thanks to all the good news delivered in the CBO revisions.
But, of course, the economy was roaring along in this period. And while economic growth is not the only driver behind the surplus boom, it is hardly an inconsequential one. The economy has slowed, as we all know. But how much? And for how long? And, more to the point, to what effect on the projected surplus come the next CBO revision?
There is, in short, a distinct possibility that come July, for the first time in a long time the 10-year surplus projection is going to go down rather than up. Bush Budget Director Mitch Daniels acknowledged as much in response to a question I asked him at a White House budget briefing last week.
Now, in the scheme of things, such an event (should it come to pass) is likely to have little lasting consequence. Since the economy usually grows faster in the immediate aftermath of a slowdown, one might well see further upward revisions ahead. In short, a downtick in July may be an anomaly. Mr. Daniels makes a good case that the projections on which Congress and the administration are relying are more likely underestimating than overestimating future surpluses.
But that’s not what we are going to be hearing about in July if the surplus forecast is revised downward. This will constitute a major opportunity for Democrats to attack the fiscal irresponsibility of the GOP tax cut. What does this mean for the prospects of the Bush tax cut itself? For starters, tax cut proponents probably want to get their work done and a bill on the president’s desk well before that July date. At present, I don’t think Democrats on Capitol Hill really think they can stop a Bush-size tax cut. But if they can drag things out until July and a downward revision comes in, that might be a different matter.
If the administration does get its tax cut by then, it had nevertheless better brace itself for the sharpest version of the Democratic counterattack yet: Tax Cut for Wealthiest Blows Hole in Budget; Social Security, Medicare, Environment Imperiled. Rightly or wrongly, Democrats will regard this as a substantial consolation prize for a failure to derail the GOP tax cut.
Now, a cool-headed Republican would approach this problem with equanimity. After all, the point of the GOP tax cut is to reduce the government surplus, i.e., to quit overcharging people now and to prevent vast sums of money from making their way to spendthrift Washington in the future. In a way, the whole idea is to create the policy conditions that lead CBO to lower its estimates. Viewed in this way, bad news in July is good news; a tighter fiscal environment might help hold discretionary spending increases to something like the 4 percent the Bush administration proposes, as opposed to the substantially greater increases that will surely result if CBO revises upward yet again.
Nor, finally, is there ever going to be any getting around the fact that Democrats will be blaming an excessive GOP tax cut for every dollar that doesn’t get spent from now until they get the White House back. But equanimity under fire is not a characteristic of senators in general, nor of GOP congressional majorities still prone to night-sweat flashbacks to their 1995-96 near-death budget experience at the hands of Bill Clinton. The difference this time is that Republicans in Congress won’t be fighting the White House; they have the White House. That’s a huge difference, but the whole thing is going to have to work out for them before they believe it will.