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Clinton’s Shrinking Surpluses
Since it has assumed such dramatic spending increases in its budget forecast, the White House’s projections of future budget surpluses are far less than even the mid-range projections of the Congressional Budget Office (CBO). The difference between these two forecasts is entirely due to their assumptions over what happens to discretionary spending over time. In contrast to OMB’s use of an inflated baseline, which it claims is “fiscally conservative,” CBO’s mid-range forecast assumes that discretionary spending is “frozen” at FY 2000 levels for 10 years. While this may not be entirely realistic, it is, at least, politically neutral since lawmakers must approve the level of discretionary spending each year.
Higher Taxes Lead To Puny Tax Cuts
The Clinton budget assumes that the economy will continue to flood the Treasury with tax revenues, though at a slightly lower rate than has been the case in recent years. Since 1993, federal tax revenues have grown by an average of 7.6 percent per year, far outpacing the growth in the economy and personal incomes. Over the next decade, however, OMB projects revenues to grow by an average of 4.1 percent per year, still 50 percent faster than the rate of inflation. Overall, Washington is expected to collect more than $24 trillion in total tax revenues over the next 10 years.
By Assuming Higher Spending
OMB Forecasts a Smaller Surplus Total Estimates
2001-2010
(in $Billions) OMB CBO Difference OMB to CBO
Unified Surplus $2,919 $4,179 - $1,260
On-Budget $ 746 $1,858 - $1,112
Off-Budget
(Social Security) $2,173 $2,320 - $ 147
Despite these remarkable growth figures, Clinton is not only proposing a paltry tax cut package, he is actually proposing more than 100 new taxes and fees that would raise nearly $220 billion over 10 years. The majority of these tax and fee hikes are used to offset Clinton’s tax cut plan, while the remainder are used to offset spending increases elsewhere in the budget.
The budget includes about 60 highly targeted tax relief measures, including: a tax cut for college expenses; an expansion of the Earned Income Tax Credit (EITC); a tax credit to encourage pre-seniors to buy into Medicare; and, a tax credit to buy “hybrid” automobiles.
Although the White House claims that these measures would cut taxes by $102 billion over five years and $351 billion over 10 years, the actual net size of the tax relief is nearly half that amount. First, the budget overstates the gross tax cut figures by some $20 billion by including the refundable portions of the proposed tax credits. (These funds are actually expenditures out of the budget because they are payments to refund money beyond what a person has paid in taxes.)
Next, the net value of the tax cut plan is further reduced by more than 80 separate tax increases that the administration euphemistically calls eliminating “unwarranted benefits” in the tax code. While many of these proposals effect arcane provisions in the tax code – such as the proposal to “require capitalization of mutual fund commissions” or the one to “clarify recovery period of utility grading costs” – their elimination does constitute a serious tax increase by any measure. Indeed, the administration figures these measures will raise $47 billion in revenues over five years, and $96 billion over 10 years.
In addition to these measures, the administration wants to raise another $66 billion over 10 years by increasing the 34 cents-per-pack excise tax on cigarettes (which is scheduled to increase to 39 cents) by an additional 25 cents. As well, the administration proposes to levy an “assessment” on tobacco manufacturers if the youth smoking rate is not reduced by 50 percent. This last provision makes as much sense as punishing auto manufacturers for teen speeding.
All of these new taxes reduce the size of the net tax cut to just $17 billion over five years, and $169 billion over 10 years. Remarkably, as Chart 3 shows, in FY 2001 and FY 2002 the new taxes overwhelm the tax cuts, resulting in a net tax increase in both of those years.
More Taxes And Fees
The administration also proposes a variety of other tax increases, tax extensions, and user fee increases to offset increases in spending elsewhere in the budget. For example, the budget would offset $36 billion in higher entitlement spending through such measures as reinstating the Superfund tax that expired in 1995 and extending customs user fees. Also, the budget would offset more than $20 billion in new discretionary spending through such measures as an increase in FAA user fees, the creation of a new harbor services fee, and the creation of an “immigration premium processing fee.”
Clinton's Bait-and-Switch FY 2001 Budget (Part II)
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