Press Release
Wednesday, April 14, 1999
WASHINGTON--The Concord Coalition today praised the Republican leadership in Congress for producing, on time, a fiscal year 2000 Budget Resolution that complies with the discretionary spending caps of the 1997 Balanced Budget Act, and pledges to reserve the entire Social Security surplus for debt reduction or Social Security reform. At the same time, Concord expressed concern that, if implemented through legislation, the Budget Resolution would risk a return of large chronic budget deficits in the years when the baby boom generation begins to retire because it makes unrealistic assumptions about the size of future non-Social Security surpluses and then allocates almost that entire amount to tax reduction. "The tax cut is a high wire act without the net," said Concord Coalition Policy Director Robert Bixby. He pointed out that 94 percent of the projected non-Social Security surplus over the next ten years is allocated to tax reduction. "There is no margin for error in this plan." Concord has pointed out that a recession, resumption of high health care inflation, continued overseas conflict, or even minor deviations from current favorable economic assumptions could quickly turn today's projected surpluses into deficits. [See,"Castles in the Sky," Facing Facts Alert, April 9, 1999, available on the Concord web site at www.concordcoalition.org]. Bixby also said that the Budget Resolution uses unrealistically low assumptions about future discretionary spending to boost the size of the tax cut. The Budget Resolution assumes that discretionary spending will fall from its already low level of 6.6 percent of GDP, the lowest level in more than 50 years, to 4.5 percent of GDP by 2009--well below current projections of the Congressional Budget Office. "It is not realistic to assume such large reductions in discretionary spending, particularly when both parties are promising increases in defense and education," said Bixby. "It also amounts to using discretionary savings to finance a portion of the tax cut--something that should never be done because the effect of a tax cut automatically stretches out over the years while discretionary savings can only be enacted one year at a time." Moreover, if $778 billion of the projected non-Social Security surplus over ten years is used for a tax cut, it would not be available to reduce debt. Because of this, federal government interest payments would be higher than what they would be if no tax cuts were enacted. The total price tag of this tax cut including debt service cost is about $900 billion, not $778 billion. "The bottom line is that if a huge tax cut is enacted this year based on projections of huge surpluses in the future, and those projections turn out to be even slightly optimistic we'll be back to running huge deficits or dipping into the Social Security surplus," Bixby warned. Concord believes that a more fiscally responsible approach would be to hold off on enacting any net tax cut until at least one fiscal year has passed in which the budget is balanced without counting the "off-budget" Social Security surplus. According to the most recent Congressional Budget Office projections, the first such surplus will not occur until fiscal year 2001. "The best thing to do with the surplus right now is to pay down the debt that we've spent the last 30 years accumulating," said Bixby. "If non-Social Security surpluses actually materialize, we can consider tax cuts then."