June 27, 2001

How Much of the Surplus Remains After the Tax Cut?

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On June 27, the Center on Budget and Policy Priorities revised a report, How Much of the Surplus Remains After the Tax Cut? The report finds that the tax cut recently signed by the President consumes virtually all of the available surplus over the next ten years, leaving no room for additional tax cuts or large defense increases unless the tax cut is scaled back or funds from the Social Security and Medicare Hospital Insurance surpluses are used for current expenses (rather than to pay down debt). The report's findings include:

Based on the appropriations levels for non-defense programs over the past 15 years, the minimum amount Congress is likely to provide for these programs is a level that keeps the programs from falling in purchasing power on a per-person basis. Appropriations for non-defense programs have risen faster than this over the past 15 years. If funding for these programs increased (after adjustment for inflation and population growth) in periods of deficits, it is unrealistic to assume it will be cut after adjustment for inflation and population in periods of surpluses, especially since the Administration and Members of Congress from both parties are calling for increases in funding for education, health research, and various other non-defense programs.

The Surplus After Making More Realistic Assumptions
(in billions of dollars)
2002 9-year total
2002 - 2010
10-year total
2002 - 2011
Available surpluses after the tax bill and Congressional budget plan 31 287 497
Less: Cost of extending research and experimentation tax credit and other expiring credits 0 -64 -78
Cost of keeping non-defense appropriation even with inflation and population growth -2 -168 -208
Resulting increase in interest costs 0 -41 -57
Remaining available surplus (excluding Social Security and Medicare HI) 29 14 154
Note: May not add due to rounding.

The Center's report closes by noting that in 1981, Congress and a new President overreached in passing a tax cut too large for the budget realities of the time. Congress and the Administration revisited that tax cut in two of the next three years and reduced its size about 30 percent. The pattern could be repeated in the years ahead.