Tax Cuts and the Budget
Posted: 21 Mar 2001
This report provides new evidence on the magnitude of the budget surplus under responsible and realistic accounting procedures, and on the wisdom of a large-scale tax cut. The authors show that although the current projected surplus is about $5.6 trillion over the next 10 years, basic corrections to incorporate responsible approaches to budgeting and plausible notions of current policy reduce the available 10-year surplus to between $1.0 trillion and $1.7 trillion. A full recognition of the growth of unfunded entitlement programs makes the surplus vanish entirely.
These findings suggest that the president's proposed tax cut - which is billed as a $1.6 trillion proposal but that would in fact cost much more than $2 trillion - is excessively large. Moreover, the authors contend that the president's tax proposal is poorly designed to stimulate the economy, and that arguments that tax cuts are needed to stop wasteful government spending and to avoid fully paying off the government's debt are flawed. Taken together, these factors suggest that tax cuts that consume all or more of the available surplus over the next 10 years and significantly worsen the long-term fiscal outlook remain a poor idea.
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