President Bush argues that his proposed $1.6 trillion tax cut will be good for the economy and good for American families, as it will return current surpluses in the federal budget back to the American people rather than the government hoarding them. Is he right?
One alternative to a tax cut is for the federal government to use this money to continue to pay down the accumulated federal debt and reduce federal interest payments. That would almost surely create a healthier economy in the long run.
A second alternative is for the government to spend the money in another way. There are obviously major public needs in this country. Most pressing is the large demographic bulge of the baby boom, people who are going to be retiring over the next 30 years. Our current Social Security system is not able to fully pay its commitments to these citizens. Today's surpluses provide an opportunity to make our public pension system solvent in the long run.
Other needssuch as health insurance for low-income working families and prescription drug insurance for the elderlyare also good uses for the surplus. Why should the immediate consumer needs of American taxpayers be more important? Finally, these surpluses may be more illusory than we think. If the economy slows down, if the Bush administration and Congress increase spending, the surpluses could shrink fast. But the proposed tax cut will reduce government revenues permanently and could easily produce a reappearance of budget deficits.