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Budget Bonanza? Surplus spenders should curtail celebrations and pay down debt, UD tax expert argues

NEWARK, DE.--Is the multi-trillion-dollar U.S. budget surplus for real? Should we be spending it to provide tax cuts?

Some surplus revenues can be expected in the future, tax expert Sheldon D. Pollack says, but estimates of trillions of extra dollars are grossly inflated. And, in light of the national debt and expected Social Security shortfalls, "It's absurd to even speak of budget surpluses," says Pollack, a tax lawyer and author of The Failure of U.S. Tax Policy: Revenue and Politics.

Budget surplus figures "conveniently ignore unfunded, long-term liabilities such as the $3 trillion revenue shortfall that the Governmental Accounting Office estimates the Social Security system faces over the next 75 years," says Pollack, an associate professor in UD's College of Business and Economics.

Clearly, federal income taxes have hauled in extra revenue in recent years, he says. But, he doubts the accuracy of the Congressional Budget Office prediction ($2.9 trillion surplus for fiscal years 2000 through 2009), as well as the Office of Management of Budget estimate ($5.9 trillion surplus over the next 15-year period).

President Bill Clinton's 1999 State of the Union address proposed dedicating some 62 percent of the projected surplus to beefing up the Social Security trust fund, as well as government-funded retirement savings accounts. Republican legislators, meanwhile, are calling for tax cuts of around $800 billion over a 10-year period, though moderates have suggested no more than $500 billion in breaks, and Democrats support even less.

Pollack questions both the wisdom and the legality of such legislation. The so-called "pay-as-you-go," or PAYGO rule, set forth by the Budget Enforcement Act of 1990, requires that any tax reduction must be offset by a comparable revenue increase or cut to direct spending programs. "The PAYGO rule expressly bars Congress from so using a budget surplus to finance tax cuts," he contends. "You cannot simply cut taxes to make the surplus go away!"

Moreover, Pollack argues, "There's no guarantee that these surplus dollars will ever actually materialize" because "they are nothing more than predictions of future revenue based upon certain fundamental economic assumptions."

Instead of tax cuts, Pollack says, policymakers should use any surplus revenues to pay down the nation's $5.6 trillion debit, thereby freeing up future funds for the $3 trillion Social Security shortfall.

With such large surplus estimates floating around Washington, he says, "It's no wonder that tax policymakers have been thrown into such a tizzy." But, he says, "Let's make it a brief celebration!"

Contact: Ginger Pinholster, (302) 831-6408, gingpin@udel.edu
Laura Overturf, (302) 831-1418, overturf@udel.edu
July 22, 1999

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