Playing the Numbers

Writing the annual federal budget is never an exact science. It’s built on uncertain economic projections about how much the Treasury will collect in taxes and on a good deal of creative accounting on the spending side. This being an election year, the budget-writing process is turning into a giveaway extravaganza, with both parties proposing to spend hundreds of billions they don’t have.

According to the latest White House estimates, the budget surplus will reach $1.9 trillion over the next 10 years, more than double the February estimate. That doesn’t count the $2.3-trillion surplus the Social Security system will generate.

Those estimates are as impressive as they are fickle. They show that even a small upward adjustment in quarterly economic growth figures balloons into huge surpluses when projected over a 10-year period. In America’s $10-trillion annual economy, a revision of the anticipated annual economic growth from 2.7% to 3% adds up to $1 trillion in surpluses. A downward revision would shave off hundreds of billions. With the economy showing signs of slowing and the Federal Reserve doing all it can to depress future growth, counting on annual 3% growth is risky. That’s why both the Republicans’ plans for large tax cuts and the Democrats’ lavish new spending plans are imprudent.

Even if the economy continues to perform at its record-breaking pace, the independent Center on Budget and Policy Priorities says, the spendable surplus is likely to be $400 billion, not $1.9 trillion, when current policies and obligations are factored in.

President Clinton this week offered to accept the Republicans’ $250-billion cut in the so-called marriage penalty tax if they would support his $250-billion Medicare drug benefit package. Never mind that the marriage penalty relief would benefit mostly the wealthy or that the huge drug benefit proposal--more than double what was originally proposed--would exacerbate Medicare’s looming insolvency problems. Certainly, if there is extra money in the till, spending it on a prudent plan to help the elderly defray the high cost of medications is the right thing to do. But it has to be designed right, and at the levels proposed by Clinton it is almost certainly not going to be accepted by Republicans.

Paying down the debt accumulated over the last 20 years is still the first, best way to use the windfall surpluses, rather than in huge splurges of spending or tax-cutting.