Budget Surplus Estimate Jumps by $1 Trillion, Aiding Bush’s Tax Cut

The Congressional Budget Office will announce today that the federal government’s budget surplus will be $1 trillion more over the next decade than it last projected--the latest in a series of developments that have boosted political prospects for President Bush’s ambitious tax-cut plan.

The revised CBO figure--which estimates that the surplus will rise to $5.6 trillion over 10 years instead of the $4.6 trillion predicted in October--had been widely anticipated. Still, the new figures come at a politically crucial time.

President Bush next week is expected to unveil his $1.6-trillion tax cut proposal officially. And his allies believe the new surplus projections will make it more difficult for opponents to argue that such a cut would be fiscally irresponsible.

“We are seeing a government that is awash in surplus money,” said White House spokesman Ari Fleischer. “There’s plenty of room for cutting taxes.”

Bush met Tuesday with GOP leaders to begin plotting how to move the plan through Congress. And individual lawmakers began eyeing the surplus as a way to finance their own pet tax initiatives--raising the prospect that the final bill could end up even larger than Bush’s proposal.

“I’m sure there will be an attempt to keep the tax cut [at $1.6 trillion] but it will get bigger,” said Sen. James M. Jeffords (R-Vt.), a member of the tax-writing Senate Finance Committee.

Rival Plan Would Cut $850 Billion

Democrats were far more cautious, warning that the surplus estimate could easily be thrown out of whack. Many of the Democrats back a 10-year tax cut of $850 billion, arguing that a reduction as big as Bush seeks would starve the budget of money needed for initiatives such as a prescription drug benefit for Medicare beneficiaries.

But they conceded that the new surplus estimate adds to the momentum Bush’s plan has gained in light of the weakening economy and the endorsement last week of the kind of tax cuts the administration envisions by Alan Greenspan, chairman of the Federal Reserve Board.

“Any time you have a forecast for a higher surplus, that makes . . . an additional tax cut easier to do,” said Sen. Kent Conrad of North Dakota, senior Democrat on the Senate Budget Committee.

Still, it may be months before any version of Bush’s tax-cut plan becomes law.

Plan to Be Broken Into a Few Pieces

GOP leaders emerged from their meeting with Bush saying that they expect the House to approve his plan in two or three separate pieces of legislation--a strategy that the chamber’s leaders believe will make it easier to pass the measures quickly and sell them to the public.

But in the Senate, where the rules make it harder to move legislation quickly, leaders plan to move the tax cut later and in one package.

“I think clearly we can complete a tax-cut provision in June, certainly by the first of July,” said Senate Majority Leader Trent Lott (R-Miss.). “The House seems to be convinced they want to do it in two or three pieces. We can’t do that without it being filibustered or amended to death.”

That essentially dashes any lingering hope among those who see it as a needed economic stimulus that a tax cut could become law before the summer.

Administration officials are still discussing whether to push for a tax cut that would be retroactive to increase its potential effect on the economy.

CBO officials declined to confirm their revised surplus estimates until after the numbers are presented to Congress today. But sources briefed on the report said that the figures would show a total surplus of $5.6 trillion over the years 2002-11.

That includes $2.5 trillion in Social Security surpluses, which both parties have said should not be used for new spending or tax cuts. That would leave a surplus of $3.1 trillion for non-Social Security purposes.

Bush campaigned on a tax plan that includes an across-the-board cut in income tax rates, a gradual abolition of the estate tax, reduction in taxes on married couples and new deductions for charitable contributions.

Democrats and other critics have argued that, if Bush’s plan is enacted, the drain on the Treasury actually would amount to about $2.2 trillion over the next decade. That would occur because of other changes in tax law widely expected to be made--including extension of popular tax credits, such as those for research and development.

Democrats also have cautioned that the surplus may not be as large as projected because of pent-up demand for spending it on defense, education and other popular programs.

As an alternative to Bush’s tax cut, Conrad and other Democrats are advocating a plan that allocates part of the estimated surplus to tax cuts, part to new spending and part to a “reserve fund” to be used for shoring up Social Security or as a hedge against a downward trend in surplus projections.

But Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) said that he plans to write a budget resolution that makes room for the entire Bush tax cut, a Medicare prescription drug plan and additional defense and domestic spending.

House GOP leaders have not yet decided which piece of the Bush plan they will move first. They intend to hash that out with rank-and-file members at a GOP retreat later this week.

But a top GOP leadership aide said that a “leading candidate” for the first bill would propose a cut in income tax rates as well as popular provisions to increase the savings limits on individual retirement accounts and 401(k) accounts--provisions that are seen as having the most direct effect on the economy.

That could mean later action on two other popular components of the Bush tax package--cutting taxes for married couples and abolishing the estate tax.

Bush, Hastert Differ on Piecemeal Approach

Bush in the past has insisted on keeping his tax-cut plan whole, worrying that it would undercut support for some parts if they are considered separately.

But House Speaker J. Dennis Hastert (R-Ill.) has strongly argued for a piecemeal approach--at least in the House.

After Tuesday’s meeting with GOP leaders, the White House gave the green light for congressional leaders to handle the legislation as they see fit.

“The plan that we submit will be one tax plan,” said Fleischer. “But then the path it takes after we submit it to the Congress will be largely decided by congressional leaders.”