- The Washington Times - Tuesday, July 11, 2000

The announcement by the Clinton budget office that the federal tax surplus will be twice as large as previously estimated comes better late than never. For the past three years, ING Barings economist Larry Kudlow and I have been warning that the budget surpluses were going to be much, much bigger than anyone expected. We were predicting this back when the federal government was still awash in red ink. We were ridiculed as wild-eyed supply-side optimists relying on rosy scenarios. Earlier this years former Congressional Budget Office Director Robert Reischauer called these "phantom surpluses." Oops.

Now, both the Clinton budget office and the Congressional Budget Office concede that the tax surpluses are real and that they are here to stay for a while. The Office of Management and Budget forecasts a 10-year, $4.2 trillion mountain of black ink. Our latest forecast suggests that with continued bullish growth in the economy, the tax overpayments could exceed $5 trillion.

That is almost twice the amount of money that we spent on LBJ's failed War on Poverty. Conservatives better start getting this money back to taxpayers or we could easily see a second liberal Great Society that would make the price tag for the first one seem like pocket change. If we simply gave this money back on a per-household basis it would come to about $40,000 for every family in America and with that kind of money seniors could buy all the drugs they needed for themselves, parents could afford to send their kids to gold-plated day care centers, and we wouldn't need mass transit because we could each buy ourselves a BMW.

It is time for congressional leaders and Gov. George W. Bush to stop nickeling and diming us to death and start thinking big really big. The figure shows that today the average household pays $30,000 in taxes, three times what was collected in 1950 even after adjusting for inflation. Mr. Bush's tax plan contains a lot of good ideas, but it would only shave this tax burden by about 5 percent. That's far too chintzy, given the new numbers. What's more, these multitrillion-dollar surpluses offer a wondrous once-in-a-lifetime opportunity to repair the damage done by our still dysfunctional tax and entitlement systems in Washington. In the past, skeptics have argued that the "transition costs" to a consumption tax and to personal accounts for Social Security were too large to even start to go down that route. Now the money is there in spades.

What is needed is a comprehensive pro-growth budget surplus gameplan. It should include the following planks:

• Cut taxes to keep the expansion alive: The pro-growth wings of the Republican and Democratic parties should be proposing a new tax cut every week. Cut the payroll tax, the cap gains tax, the gas tax, the corporate income tax. Double IRAs. Index the tax brackets for real bracket creep. Adopt the alternative maximum tax so that no one has to pay more than 25 percent federal tax. Do all of this and we will still have tax surpluses. He would only use one-fourth of the surplus for tax cuts. It should be closer to three-fourths. Don't flinch any more when Al Gore tries to skewer tax cuts as "risky schemes." As the Wall Street Journal reports, "the bigger surpluses make it much harder for Gore to make that argument."

• Defend and promote prosperity: Ronald Reagan, Jack Kemp and Art Laffer were right all along. We did grow our way out of the budget deficit. Growth and prosperity are the key to a balanced budget. The anti-supply-siders who called this theory "voodoo" were all wrong. Voters need to be reminded of this early and often. We've now had 18 years of nearly 3.5 percent economic growth. It is the Reagan economy, stupid.

• Keep pushing personal Social Security accounts: Gov. Bush is winning the fight on private Social Security accounts. The only half-sane argument that the left has made in this debate is that the transition costs are too sizable to afford private accounts. We now have $2 trillion of anticipated surpluses in the Social Security fund alone. If we use that money to finance private accounts, we can still pay all the benefits to the current retirees and we can pay for private accounts twice as large as what Mr. Bush has endorsed. Again, Republicans should start setting their sights higher.

• Make the case that it's our money, not the government's: The reason we have surpluses is because tax revenues are growing 8 percent to 10 percent yearly. Spending hasn't been cut at all except for military spending. Republicans must start to refer to the "surpluses" as "taxover payments." Language matters in politics. Tax overpayments should be returned to the people who overpaid. End of argument.

• Reject new medicare entitlements: President Clinton's proposal to trade a multibillion-dollar Medicare Prescription drug benefit for marriage penalty relief should be rejected. Better to demand a 10 percent capital gains rate or a reduction in the payroll tax. Marriage penalty relief is an overrated political issue and has little economic benefit.

George W. Bush is absolutely right. It's as certain as the Cubs losing the pennant that if Congress doesn't cut taxes we're going to see the biggest spending binge that ever hit D.C. Our budget surpluses are larger than most nation's GDPs. Americans can do a world of good with all this money, if the politicians will simply let them.



Stephen Moore is an adjunct fellow at the Cato Institute.

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