IN 1981, CONGRESSIONAL Democrats joined Republicans in a bidding war over tax cuts. The country still is paying. The tax cuts helped produce a string of enormous deficits. The deficits translated into a vast increase in the national debt and the government's annual interest costs, which now make up more than an eighth of total federal spending, twice their earlier share. If the country were not still paying for the splurge in the 1980s in the form of this increased interest, it would have another $100 billion-plus a year to spend on current and future needs.
Yet no sooner have those past deficits given way to temporary and hard-won surplus than another bidding war threatens to break out. The war will be fueled this week, when both the Office of Management and Budget and the Congressional Budget Office are expected to report that the non-Social Security part of the surplus over the next 10 years may be even larger than the considerable amount they earlier projected.
The best use of most of that money, if in fact it materializes, would be to pay down the past accumulation of debt against the not-too-distant day when the government almost surely will need to borrow again to cover the impact on Social Security, Medicare and Medicaid of the baby boomers' retirement. Yet Republicans and, not to be outdone, an increasing number of Democrats are suggesting that all or a large part of the money be used instead for another tax cut.
Once more, reckless politics will crush sound policy if this occurs. The surplus the tax-cutters would consume exists on paper only. It is based on a set of assumptions. A continuation of economic expansion without harmful inflation is only one of those, and not the least likely. The main assumption is that government spending will decline sharply in real terms on the broad array of domestic programs -- from Head Start and air traffic control to the parks -- covered by the annual appropriations process. The surplus exists in large part because the estimating conventions assume that in real terms -- after allowing for inflation -- this spending will be cut over time by more than a fourth. Yet the very Congress that is about to make policy based on that assumption is balking at even the first stage of the appropriations cuts that would be necessary to make it come true.
IF YOU COUNT as well the large amount of extra money that will have to be spent on Medicare to keep it whole, the surplus becomes even fainter. They are spending an illusion when they propose to use the surplus for a large tax cut. At least some of them know it, but the politics are such that it isn't clear to what extent they will resist.
The possible misstep is the greater because of the kinds of tax cuts that are in contemplation. The worst may be a proposal by Sens. Paul Coverdell and Robert Torricelli to raise the income level at which the lowest income tax rate of 15 percent gives way to the next, 28 percent. Backers describe it in a way that makes it sound as if it would help lower- and middle-income people. They are moving more people into the lowest bracket, they say. In fact, three-fourths of all taxpayers -- people at lower- and middle-income levels -- would receive no benefit from the proposal, because all their income already is taxed at 15 percent. Two-thirds of the gain would go to people in the $75,000-and-up income range.
Proposals to end or reduce the so-called marriage penalty, itself a phony concept, likewise turn out to be little more than generalized tax cuts by another name. Some members also speak longingly of phasing out the estate tax, and Republicans again will propose a cut in the capital gains tax.
THE PRESIDENT long ago signaled that he, too, is prepared to support a tax cut, but only on certain healthy conditions. He would limit it in size; it would have to be part of a package that also made at least partial provision for Social Security and Medicare; and the aim should be to increase savings for retirement, as a cushion against the Social Security benefit cuts that likely also will be necessary (but which the president continues to flinch from proposing). That at least was his opening position; he proposed in his budget using part of the surplus over the next 15 years to create in addition to Social Security a system of Universal Savings Accounts. He repeated the position at his news conference Friday. How firm will he now be, that is the question.
Mr. Clinton can stop the bidding war that is building. Probably he is the only person who can stop it. He needs to say, in language that will be believed -- not an easy thing for him to accomplish -- that he will not countenance a tax cut that is fiscally irresponsible, meaning one that does not leave the government with funds enough to cover the major costs ahead that already can be easily foreseen. He needs to make clear as well that he will not sign a tax cut the benefits of which are unfairly distributed across the society.
On the first point particularly, it's clear that members of both parties need both a push and political cover to say no. The president said the other day that, "with our present prosperity, we . . . have a rare opportunity to meet the remaining large challenges facing our country on the brink of a new century." He suggested he was open to a deal. But the price of a signing ceremony ought not be a deal that uses an accounting mirage to finance a misshapen tax cut that the country can't afford. Better a stalemate, in which case whatever surplus develops would automatically be used to pay down the debt -- pay for the last party before printing the invitations to the next.