Related Link CBO Delivers Rosy Revised Surplus Estimates (Washington Post, July 16) Updated Surplus Projections On the Web CBO's New Economic Report

By Eric Pianin
Washington Post Staff Writer
Friday, July 17, 1998; Page A12

The new Congressional Budget Office (CBO) estimate of the federal budget surplus has rekindled congressional tax-cut fever, as House Speaker Newt Gingrich (R-Ga.) yesterday proposed as much as $1 trillion of tax relief over the next 10 years.

Gingrich and House Budget Committee Chairman John R. Kasich (R-Ohio) have begun discussing possible changes in the budget law that would allow Congress this fall to dip into the projected long-term windfall to help finance tax cuts. For months, House and Senate GOP leaders have agonized over ways to pay for $30 billion to $100 billion of tax cuts over five years by reducing spending for popular domestic programs.

Moreover, moderate Republicans including Senate Budget Committee Chairman Pete V. Domenici (N.M.) and Rep. Michael N. Castle (Del.), who have resisted large tax cuts, now appear to be climbing aboard the bandwagon of those arguing that future surpluses can be used to provide hefty tax cuts as well as bolster Social Security and reduce the national debt.

"These new numbers cause everyone to go back to the drawing board," Castle said after reviewing the CBO report released Wednesday. Kasich, reveling in the upgraded numbers, told reporters, "Tax cuts are coming, and the president will sign them."

But the White House and congressional Democrats have cautioned the Republicans against crafting tax policy on the basis of projected surpluses that could evaporate with an unexpected change in the economy. Others said that the Republicans are exaggerating the extent of the surplus increases to justify making an issue of tax cuts in an election year.

"If Republicans are acting surprised [by the forecast], it's a little like finding gambling in Casablanca at Rick's," said Robert D. Reischauer, the former director of the CBO. "These changes are along the lines of revisions that most observers expected . . . and these numbers really aren't a lot different from the administration's numbers."

Even so, CBO's cumulative long-term surplus forecast more than doubles its previous estimates. And while the predictions for the next two years are relatively modest, they have grown considerably – three- and four-fold – in the "out years."

The CBO said that the government would finish this year with $68 billion more than it spent and generate surpluses totaling $1.6 trillion over the coming decade – about $1 trillion more than the agency predicted last March. Over the next five years – the maximum window for budget planning purposes – the CBO is forecasting $520 billion of surpluses, compared with the $225 billion that CBO officials were informally predicting this spring.

President Clinton early this year proposed that the surplus be set aside until the administration and Congress work out a plan to avert the potential long-term bankruptcy of Social Security. Until recently, Republicans generally went along with this approach.

During a speech yesterday to the libertarian Cato Institute, however, Gingrich proposed using $650 billion to bolster Social Security while targeting the remaining $1 trillion for tax relief – including elimination of the marriage tax penalty, further reduction in the capital gains tax, phasing out the estate tax and allowing the self-employed to fully deduct the cost of the health care programs.

"You cannot afford to leave $1.6 trillion [of surplus] in Washington, D.C., where they will spend it," Gingrich said. "And so here is a package that gets it all back home. . . . This is a total winner for us politically."

Domenici said that before Congress adjourns this year, Republican leaders and the administration should determine precisely how much of the projected surpluses must be set aside for Social Security and then determine how much of the remainder should go for tax relief.

"We have no more important business than this," Domenici said in an interview. "If in fact we can find a way within the budget rules and good long-range policy to do a tax cut of major significance, then we should do that."

Before Congress could use part of the overall surplus to finance a tax cut, it would have to rewrite its budget laws, including a "pay-as-you-go" provision requiring that all new tax cuts be offset by increases in other taxes or the elimination of other tax loopholes or reductions in entitlement spending.