A Well-Earned Refund


A Well-Earned Refund

Aug 12th, 1999 2 min read

Visiting Fellow in Welfare Policy

Ronald Utt is the Herbert and Joyce Morgan Senior Research Fellow.

Give President Clinton credit: He's convinced a lot of people that the $792 billion tax-relief bill Congress just passed would substitute a "gigantic risky tax scheme" for sensible debt reduction. In reality, it's a modest tax refund that otherwise would be squandered on congressional pork.

Any tax relief is welcome, of course-and the legislation does represent the largest tax cut since 1981-but the size of the cut must be kept in perspective. At $792 billion, the tax refund amounts to less than one-third of the $3 trillion in projected budget surpluses over the next decade. What's more, the bill distributes the cuts over 10 years, during which time the Congressional Budget Office estimates gross domestic product will grow from $8 trillion to $13 trillion. By 2008, the bill's $168 billion worth of relief will amount to only 1.3 percent of the total economy.

Although hardly gigantic, the tax cut offers meaningful relief for all taxpayers, including millions of middle-class families. By 2008, the bill would reduce federal income taxes by $771 for an individual earning $37,500 and by $896 for a single filer earning $47,500. Many working families would also benefit from the proposed reforms. A family of four earning $51,726 would save $381, while a family of four earning $60,000 would get a tax cut of $463.

Tax-cut opponents often protest that people don't believe they're overtaxed. That doesn't change the fact that American families now shoulder the highest federal tax burden in peacetime history. The federal government's tax take now stands at 20.6 percent of GDP, compared with 18.2 percent in 1990 and 17.6 percent in 1983. The federal tax burden was higher in only one other year: 1944, when the United States was fighting a two-front world war.

Congressional opponents of tax cuts say they want to use the surplus to pay down the national debt, but the record shows Congress will most likely waste it on favorite spending programs. Last October, Congress and the president spent $20 billion of the Social Security surplus on dozens of hometown projects, corporate welfare and other redundant and obsolete programs-including such necessities as improvements to a public marina where one lawmaker kept his yacht.

This year's over-spending, which is expected to top $30 billion, so far includes a "Garden Machine" to foster plant growth on long-term space missions, money to improve "efficiency" in peanuts, and six separate grants for manure handling and distribution.

The spending bill for the Department of Housing and Urban Development and Veterans Affairs alone includes 215 such items-and that's just one of 13 spending bills that Congress must pass. Most of next year's $14 billion surplus is already gone, sacrificed to an "emergency" farm bill and a measure to fund the census. Such behavior seems hard to reconcile with the sanctimonious noise some members make about "saving" Social Security and Medicare-let alone paying down the national debt.

If budget surpluses are left in Washington, they will be spent. Sen. Joseph Lieberman, D-Conn., an opponent of the tax bill, recently conceded as much: "If you keep the federal government at the level of spending we're at now in real dollars and add the normal emergency spending on things like the drought where we're going to have to spend it, the surplus is not a trillion at the end of 10 years, it's $46 billion."

Defenders of high taxes also point out that Federal Reserve Board Chairman Alan Greenspan has expressed skepticism about the proposed tax cut. They neglect to add that he's even more concerned about wasting the surplus on government spending. In recent congressional testimony, Greenspan said using the surpluses for "expanding outlays" is the "least desirable" option.

But "expanding outlays" is exactly what taxpayers can expect. Surpluses come and surpluses go, but excessive federal spending is more predictable than the phases of the moon. There's only one way to keep tax overpayments from being spent by the wrong people: Get it out of Washington.

Ronald D. Utt is a research fellow in economics at The Heritage Foundation, a Washington-based public policy research institute.

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