Jewish World Review Oct. 30, 2001 / 13 Mar-Cheshvan 5762
"The numbers will be horrendous, and they should scare people into fiscal discipline," says Republican economic expert Robert Hormats of the investment firm Goldman Sachs.
Hormats, among many others, recommends that the economic-stimulus package that will be worked out between Congress and the White House be short term and consumer oriented, so as to give the economy a swift pickup without further draining the long-term surplus.
There's a contrary tendency at work - which White House Budget Director Mitch Daniels calls "opportunism" - to take advantage of the recession and the anti-terror campaign to spend and cut taxes with aband
on. CBO's last projection, published in late August, revealed that the 10-year surplus, once estimated at $5.6 trillion, had fallen to $3.4 trillion because of President Bush's tax cuts, a soft economy and new spending initiatives.
An Oct. 4 estimate by the Republican and Democratic leaders of the House and Senate Budget committees showed that the surplus had plummeted to just $2.6 trillion because of the recession and post-Sept. 11 outlays.
Daniels believes that number will hold, but a new study by Robert Bixby of the Concord Coalition found that the surplus could fall to as little as $1.1 trillion - or even less if Congress overspends or passes a too-large economic-stimulus package.
The estimates mean that the non-Social Security portion of the surplus, once estimated at $2.5 trillion, has evaporated. That money originally was intended to pay for a prescription drug benefit for Medicare beneficiaries, among other programs.
Now even the Social Security surplus - money that was supposed to pay down debt and keep interest rates low to spur long-term investment - may be in danger.
Hormats said at a recent forum sponsored by the New Democrat Network that CBO should publish an authoritative new estimate "quickly" as a guide to Congress during its deliberations on appropriations bills and stimulative tax cuts.
"If fiscal discipline collapses," he warned, "long-term interest rates will rise, including mortgage rates, causing a decline in the housing market - the one part of the economy that is still showing strength."
Bixby, in an interview, added, "If we're going to have a stimulus package, we should keep it narrowly targeted to have an immediate effect, not a long-lasting one.
"There should be tax cuts targeted to low-income people who'll spend it, and business cuts to encourage immediate investment. It should be a one-year, one-shot deal."
The good news is that the Budget committees and the White House seem to concur that the stimulus should give the economy a short-term jolt, not cut tax revenue over the long run.
The danger, though, lies in Congress dropping its previous spending and tax-cutting restraint, using the recession and the anti-terror war as excuses.
"You see a lot of opportunism in both parties," Daniels said in an interview. "In the guise of addressing immediate problems, people are taking actions that would expand government programs over the long run."
Daniels indicated he thinks that opportunism creeps up primarily on the spending side. He declined to specify culprits, but administration officials are known to be dubious about major improvements for Amtrak, new farm subsidies and nationwide expansion of small business breaks for New York City.
Others, meantime, point to Ways and Means Chairman Bill Thomas' (R-Calif.) big tax-cut package as a surplus sapper.
The bill calls for tax breaks skewed to corporations and wealthy individuals that would cost $103 billion in fiscal year 2002 and $162 billion over 10 years.
It includes a capital-gains tax cut, elimination of the alternative minimum tax for corporations, and retroactive repayment of 15 years' worth of past AMT payments - all of which appear to have no chance of passage.
Even Treasury Secretary Paul O'Neill dismissed the Thomas bill as "show business" designed by Republicans to impress the party's corporate political base.
Senate leaders Thomas Daschle (D-S.D.) and Trent Lott (R-Miss.) are ready to write an alternative stimulus bill and get it passed and into a House-Senate conference, with White House participation, as quickly as possible.
The President favors a $75 billion package with only a few billion dollars for new spending (mainly for unemployment assistance) and has acceded to Democratic demands for $16 billion in rebates for lower-income workers who pay Social Security taxes but not income taxes.
Meantime, Democrats seem to agree that businesses should be allowed to "expense" new purchases of plants and equipment to encourage investment, although for a shorter period than the White House favors.
The bottom line is that the two sides should get money into people's hands to give the economy a Christmas-spending boost - but without sapping what's left of the budget surpluses.