Planning for Economic Rainy Days
Big Tax Cuts Irresponsible with no Guarantee of Future Surplus
Eric J. Plosky
I never believe predictions, and I’m not sure why anyone does.
Bostonians in 1950 thought that Beantown’s population would swell by millions by century’s end; they failed to anticipate the Sunbelt migration and mass suburbanization that has transformed America.
Todd Gross, who announces the weather every morning on Channel 7, often forecasts partly cloudy skies with a sunny, confident face I remember later in the day while I’m being soaked by a thunderstorm.
So why is everybody so excited about the projected federal budget surplus?
It is true that the booming economy of the 1990s has led our government to believe that it will have a huge budget surplus over the next decade and a half, a gigantic pile of money amounting to trillions of extra dollars. Naturally, Republicans and Democrats are divided as to what to do with it all.
Democrats want to use the projected surplus to pay down the national debt, to “save Social Security,” to do other things. Republicans primarily want hundreds of billions of dollars in tax cuts. I must say, in theory I agree with the Republicans. There really should never be a surplus -- if the government takes in more than it needs, by some error of accounting or some unexpected economic fortune, it should refund the difference to taxpayers by adjusting rates to cancel out the surplus. Of course, the question of “what government needs” is dicey, and many would argue -- with considerable merit to the position -- that a surplus should be used to expand the national budget, to pay for some of the programs that we’ve always really wanted but could never quite afford. I personally am not certain whether the surplus should be spent on new initiatives, but doing a better job at existing programs -- paying off part of the national debt and bolstering Social Security -- seems reasonable enough.
But the main practical objection to the Republican position is not that surplus monies should be used for government initiatives (whether new or old). It is that the surplus exists only in the shadowy forecasts of economists and bureaucrats who are probably no more adept at predicting 2015 tax revenues than Todd Gross is at guessing tomorrow’s weather.
Why cut taxes in expectation of future prosperity? Why bet on the economy a few months or years from now when the present economy is so strong? When the economy is booming, taxes shouldn’t be cut. People are more able to pay for goods and services -- and more able to pay taxes -- when they have money, not when the economy is mired in recession. If raising and lowering taxes were easy, one would simply adjust rates to match the economic climate. Pragmatists, however, will realize that tinkering with taxes is political dynamite, very rarely to be attempted. The difficulty of adjusting taxes means that if we cut rates now, we may not be able to restore them if the projected surplus fails to materialize. And, as I’ve just said, raising taxes during a recession doesn’t make much sense.
Still, in an ideal, long-term, politically levelheaded world, I wouldn’t have a problem with tax cuts -- that is, equitable, carefully-thought-out cuts that provide relief to those who really need it. I have so far failed to mention that the proposed Republican tax cut isn’t a simple across-the-board rate reduction, but a complicated webwork that, for the most part, aims targeted cuts -- at the rich. The House and Senate versions differ slightly, but both are brow-furrowing at best and downright despicable at worst, with various degrees of shadiness in between. For the same reason that you shouldn’t cut taxes during prosperity, when people can better afford them, why would you reduce the tax burden of the affluent, those best able to pay?
I don’t mean to talk about tax cuts, though; I’m talking about planning -- or, more accurately, the lack thereof on the part of Republican lawmakers. Let’s review. In the name of shrinking the federal government and in the name of equity, two concepts that are completely incomprehensible from a so-called “conservative” standpoint, legislators are rabidly pressing to reduce taxes on those best able to pay them at a time when the economy as a whole can best afford them. As if it weren’t nutty enough, the logic underpinning the Republican plan, the foundation upon which it is entirely and precariously based, is that the massive, multi-trillion-dollar federal budget surplus forecast through 2015 will materialize as advertised.
For all the supposed fiscal conservatism of the GOP, President Clinton is demonstrating a much calmer and more prudent understanding of the issue than Trent Lott and company. How is it that this Democratic administration, which the right tells us is an evil expander of government, has eliminated deficit spending but not managed to eliminate its reputation as a fancy-free social-programs spender? “Pay off the national debt,” suggests Clinton; “Cut taxes and we -- probably -- won’t have a budget deficit in a few years,” promises the Republican Party.
Forget the politics: it is foolish to cut taxes now in anticipation of continued prosperity. There is no assurance that the sunny economy will stretch as far as dollar-sign-chasing Republican lawmakers would have us believe. Better to use the budget surplus to pay off part of the federal debt and to refresh Social Security; we’ll then be in far better financial shape if the Dow nosedives. Despite all the confident blatherings of Alan Greenspan and his distinguished dismal scientists, and as I’m sure Todd Gross will tell you, nobody can be sure when the economy will turn cloudy -- it could be in six years or it could be this afternoon. Bring an umbrella.