THE WHITE HOUSE
Office of the Press Secretary (Okinawa, Japan) _________________________________________________________________________ For Immediate Release July 22, 2000
MEMORANDUM FOR THE PRESIDENT
FROM: Jacob J. Lew
SUBJECT: Effect of Congressional Legislative Action on the Budget Surplus
This memo is in response to your request that OMB assess the effect of legislative action on the budget surplus. Over the past six months, Congress has passed nine major tax cuts resulting in a cost of $712 billion dollars over ten years. Draining this sum from the United States Treasury reduces the amount of debt reduction we can accomplish, thereby increasing debt service costs by $201 billion over ten years. Therefore, the Congressional tax cuts passed to date will draw a total of $913 billion from the projected surplus.
In addition, the Congressional majority has stated clearly that its tax cuts to date represent only a "down payment" in a long series of tax cuts it intends to realize. While there has been little specificity about the size and nature of their entire program, the full range of action taken by the 106th Congress, both last year and this, provides an indication of the total impact of Congressional tax cut proposals on the surplus.
In the first session of the 106th Congress, the majority passed one large measure, which included a variety of tax cuts totaling $792 billion. Excluding certain individual tax cuts which passed this year as well as last year (such as elimination of the estate tax and the marriage penalty), the cost of tax cuts passed last year amounts to $737 billion, and the additional debt service amounts to $148 billion for a total of $885 billion.
The bill-by-bill approach to tax cuts in the absence of an overall framework masks the full impact and risks of the cumulative costs. In the absence of more specific indications about the content and number of future tax cuts the Congressional majority has stated it plans to produce, we have used the total costs associated with tax cuts from the 106th Congress as an illustration of Republican plans. If their plans remain consistent with past activities, the full cost of this program would be:
The effect of such tax cuts would be to completely eliminate the projected non-Social Security/Medicare budget surplus at the end of ten years. Even by the more optimistic projections the entire surplus would be drained. The most recent CBO projections issued earlier this week estimate a ten-year non-Social Security/Medicare surplus of $1.8 trillion. OMB's recent projections estimate a ten-year non-Social Security/Medicare surplus of $1.5 trillion. In either case, because the costs of the tax cuts match or exceed the projected budget surplus, there would be no funds available for any of the nation's other pressing needs, including our proposals to establish a new voluntary Medicare prescription drug benefit, pay an additional $150 billion in debt reduction to pay down the debt by 2012, expand health coverage to more families, provide targeted tax cuts that help America's working families with the costs of college education, long-term care, child care and other needs, or extend the life of Social Security and Medicare.
# # #