Monetary Mirage

Is The Federal Surplus Evaporating?

WHILE IT APPEARS inevitable that George W. Bush has lucked into the Oval Office, don't go spending all of that big tax cut in one place.

"The Bush tax cuts will not pass through the United States Congress," predicts Arizona Sen. John McCain.

There are a number of reasons why Bush won't persuade Congress to go along with his promised $1.31 trillion tax cut. Bush didn't exactly win in a landslide, so he has little in the way of a mandate to force his agenda on a Senate split 50-50 between Democrats and Republicans.

But there's another underlying problem with returning the surplus to the people: There may not be much of a surplus if current federal spending trends continue. The Concord Coalition, a non-partisan congressional checkbook watchdog group, reports that Congress is failing to abide by spending caps it passed in the 1990s. If current spending trends continue, the group estimates that two-thirds of the $4.6 trillion surplus will be spent over the next 10 years.

"The dirty little secret in Washington is that we're already spending the surplus through pork-barrel spending," says McCain.

His congressional colleague Rep. Jim Kolbe agrees that the surplus is evaporating. "We're spending it on pork barrel, but we're also spending it on some very substantial expansions of programs," says Kolbe. "We're massively expanding entitlement programs. It's like this is hot money in our pocket and we have to spend it. We just can't stand the idea it should not be spent."

Kolbe, who stressed his support for education during his recent re-election campaign, pointed to increased spending for 100,000 new teachers and school construction as examples of new entitlement programs.

"Is it worthwhile?" Kolbe asked. "Maybe, maybe that's where our priorities should be. But should it be at the expense of eliminating the surplus which we desperately need to take care of the Baby Boomer problem coming up with Medicare and Social Security?"

Kolbe also criticized a prescription drug program as a budget-buster, saying it was "a program that started off fairly modestly but by the time we finished it was a very expensive program."

In a campaign mailer earlier this year, Kolbe declared, "No senior or disabled American should ever have to go without their medicine because they cannot afford it."

Kolbe argued last week that the surplus should be retained for three purposes: "One, for Medicare reform; secondly, for Social Security reform; and thirdly, we should be giving some of it back to the people. If ever there was an argument for a tax cut--this last session of Congress--where appropriation bills dragged on and on, and the longer they went, the more we found ourselves buying off programs and buying off people with added programs in order to get these bills passed. It's the best example I know why we should have tax reduction. If the money isn't there in the first place, it's much more difficult for Congress to spend it. When you had deficits, it was much easier to argue you shouldn't be spending more money. When there's a surplus that discipline just disappears. There's just so much more pressure to spend money. That's why I would argue that tax reform is necessary."

Will there be money available for tax relief? The Concord Coalition has more bad news regarding the surplus. As the group notes in its report, "The first thing to keep in mind about the $4.6 trillion surplus is that it doesn't exist. The money is not sitting in a vault at the Treasury Department waiting to be spent on new programs or rebated in the form of a tax cut. It is a projection of what might happen given a set of assumptions about the economy, revenues and spending. Slight, and entirely conceivable, changes in those assumptions produce dramatically different results over a period as long as 10 years."

In other words, an economic slowdown--like we're already seeing as the collapse of absurdly overvalued dotcoms drags down the NASDAQ--could mean all those chickens we've been counting are not going to hatch.

Given all that, McCain's probably right when he declares the Bush tax cuts dead. Since about half of the cuts would have gone to the country's wealthiest 1 percent, that's probably not bad news for the rest of us. We may even have a chance to see a break in prescription drug costs or more teachers at local schools.

But both McCain and Kolbe see serious budget problems just beyond the Congressional Budget Office's rosy 10-year estimates.

"I can't tell you the overall answer to the problem of an aging generation of Baby Boomers who are going to need more and more health care," says McCain. "We tamped down the inflation aspects of health care when we went to HMOs and now the inflation is creeping up again. We've got problems with teaching hospitals, we've got problems across the board, but it's all dramatically exacerbated by the fact that we're going to have Baby Boomers who are all going to become eligible for Medicare and over time the costs are going to have dramatic consequences and we're going to have to make some very tough decisions."

E-mail Tucson Weekly senior writer Jim Nintzel at Nintzel appears every Friday at 6:30 p.m. during the Reporter's Roundtable segment on KUAT-TV's Arizona Illustrated.
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