Surpluses, Tax Cuts & Debts
Dateline: 8/8/99
To see politicians arguing over money is far from unusual. But, to see them arguing over what to do with extra money, why, that's downright confusing.
This article is meant to explain the elements and budgetary concepts behind the debate over how to use the budget surplus and the standpoints of both sides involved.
About the "Surplus"
Q. Does the fact that we have a surplus mean we no longer have a national
debt?
A. Not by a long shot. Just as you or I might have a little money left at the end of the month, but still owe a bundle on credit cards, mortgages and loans, paying off the USA's credit debt (the "national debt") would require about $13,400 from each man, woman and child in America. Got your checkbook?
Q. Just how big is this surplus?
A. Both the Congressional Budget Office (CBO) and the Office of Management and Budget (OMB) estimate the surplus for 1999 at about $99 billion, $142 billion by the end of 2000, and up to $1 trillion over the next 15 years. Since the CBO works for a Republican-controlled Congress and the OMB works for a Democrat-controlled White House, there is little disagreement over the size of the surplus. (Estimates are as of 8/5/99 and may have been adjusted since.)
Q. Where is all that money coming from?
A. Government downsizing, reduced government spending, and the virtual end of the arms race have contributed, but the vast majority is coming from excess Social Security taxes being paid by the workforce and designed to keep Social Security benefit checks coming into the next century. Of the $142 billion surplus projected by the end of 2000, $137 billion will come from excess Social Security taxes.
What the President Wants to Do With the Surplus
President Clinton would prefer that the entire surplus be used to protect the
Social Security system , to modernize and strengthen Medicare, and to pay off the national
debt. The President asserts that by following his proposed policy for use of the surplus,
America could be debt-free by 2015.
What the Republicans Want to Do With the Surplus
The Republican-controlled Congress wants to use the portion of the surplus not
generated from Social Security withholding to fund a large tax cut amounting to $792
billion over the next 10 years. The Republican plan would put the entire portion of the
surplus that is generated from Social Security taxes in to what
they call a "lock box" that would prevent its use for anything but supporting
the Social Security system. (Currently, all Federal funds from all sources get thrown into
a single pot and used to pay for all government programs.)
The Tax Cut Bill
Known as the "Financial Freedom Act of 1999," the tax cut bill would do
the following:
- Implements an across-the-board 10 percent cut in income tax rates, phased in over 10 years.
- Reduces the bottom 15 percent income tax bracket to 14 percent and raises the income level for that bracket to $47,050 for married couples and $27,750 for single people.
- Increases the standard deduction for married couples from $7,200 to $8,600.
- Cut the maximum tax rate for most investments held at least a year from 20 to 15 percent.
- Exclude the first $1,000 earned in long-term capital gains from being taxed.
- First reduce and finally end the inheritance tax.
- Increase the limit for contributions to an IRA to $5,000 from $2,000 per year.
- Many smaller tax reduction items
The House version of the bill is H.R. 2488.
The Senate version is S.
1429.
President Clinton argues that the cuts in the bill are too large and would undermine his Administration's efforts to protect Social Security and pay off the National Debt. He has indicated that he will veto the bill as written.
Republican leaders in Congress defend the tax cut bill as an equitable way of sharing the budget surplus with taxpayers, yet not threatening the financial future of Social Security,
Is a Compromise Possible?
President Clinton has indicated that he would agree to a maximum of $300 billion in tax
cuts if they are mainly in the form of subsidies to retirement savings account. No sign of
compromise has been offered by the Republican Congressional leadership.
With the 2000 Presidential election just over a year away, and the desire of both parties to use this issue as a campaign arguing point, a compromise in the near future seems unlikely.
Reference Links
President
Clinton's Remarks on the Surplus
Released by the White House on June 28, 1999.
Current US Budget Projections
From the Congressional Budget Office
The
United States Government Budget -- FY 1999
From the Government Printing Office
H.R.2488 - Full Text
The House version of the Tax Cut bill.
House Roll Call Vote on H.R.2488 (Conference Report)
S.1429 -
Full Text
The Senate version of the Tax Cut bill.
Senate
Roll Call Vote on H.R.2488 (Conference Report)
To comment on this article or the Tax Cut / Surplus debate in general, visit "The Big Tax Cut" Discussion Group.
