The federal government is projected to collect $27.9 trillion in taxes over the next 10 years. President George W. Bush has proposed a $726 billion tax relief package that would drop that total to "only" $27.2 trillion. While that amount seems sufficient to satisfy Washington's spending appetite, a group of Senators opposed to any tax cut larger than $350 billion has pushed through a budget resolution that leaves the door only slightly open for a $550 billion tax cut. These Senators have described all proposals that would tax less than $27.6 trillion over the next decade as "unaffordable."
Some of these Senators argue that painful budget deficits and economic hardships await Washington if it fails to collect the extra $376 billion. Budget deficits, however, depend as much on government spending as they do on revenues.
Increasing the tax cut from $350 billion to the $726 billion originally proposed by President Bush and passed by the U.S. House of Representatives would not increase the budget deficit if spending restraint offsets the additional tax relief. Offsetting the rest of the tax cut would require that Congress cut just $376 billion out of the $27 trillion (or 1.4 percent) that they are scheduled to spend over the next decade. Eliminating the wasteful spending listed in Table 1 would do that.
The almost $387 billion saved would cover the rest of the House tax package of $726 billion, plus an additional $11 billion for any contingencies. But why stop there? Congress could set aside an additional $100 billion for pro-growth tax relief by enacting the proposals listed in Table 2.
It is important to remember that the revenue loss from the President's tax proposal will likely be much less than the $726 billion static estimate. Increased economic growth will likely recover anywhere from 25 percent to 60 percent of the revenue loss. If Congress still insists on projecting a $726 billion revenue loss and offsetting all costs beyond $350 billion, the opportunities for spending offsets are numerous. All Congress needs is the will to act.
Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.