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Spend the Surplus—Viewpoints | EPI

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Spend the Surplus

by Edie Rasell

Americans are facing one of the most important issues of the decade — how to use the large federal budget surplus. This dilemma could be posed as a question: “What do you want, your money or your life?”

The choice we face is not between paying down the debt and enacting a large tax cut. A third option — the one we should select — is to spend a sizable share of the surplus on the many things that Americans want and need, things that will be life enhancing and life saving. And there would still be enough money for sizable debt reduction and a small tax cut.

According to the latest projection, the surplus will total $5.6 trillion if the economy turns in an “average” performance over the next 10 years. Of this, about $2.5 trillion will come from Social Security and can be safely targeted for debt reduction.

This leaves the $3.1 trillion surplus from the rest of the budget. But it is important to realize that the amount of money that will actually be available is likely to be much smaller than this.

This estimate assumes, wrongly, that programs due to “expire” over the next 10 years (for example, emergency farm aid and tax credits for research) will not be renewed, even though these very programs have been repeatedly renewed in the past. It also assumes that funding for social programs (like childcare for low-income children) will continue at current, inflation-adjusted levels, even though the size of the population will be growing.

If the federal budget calculations were modified to take account of program renewals and population growth, this $3.12 trillion surplus is reduced by about $400 billion. This is still a lot of money, but there are many needs that should be met.

Shoring up Social Security, no matter how it’s done, would take at least $500 billion.

Strengthening Medicare’s finances would take even more, and expanding benefits to cover just one-quarter of the cost of Medicare prescriptions (with full coverage for the poor elderly and for all seniors after they spend $4,000 in a year) will cost another $350 billion over the ten year period.

Repairing all the decaying public school buildings would cost about $100 billion.

And shouldn’t we establish more after-school programs; make childcare affordable for middle-income families; relieve congestion by building more mass transit; repair our crumbling roads, bridges, and water systems; acquire more national parks and take better care of those we already have; and increase federal funding for research and development?

Doing even some of these things would require a lot of money. Thankfully, we have it. That is, unless we enact President Bush’s $1.6 trillion tax cut (most of which would go to the wealthiest households) or earmark an excessive amount for debt reduction, a plan that even Fed Chairman Alan Greenspan thinks is unwise.

America is at a crossroads. We can make some major changes that will boost our quality of life and even save some lives, or we can go for the quick fix – a tax cut too small for the folks that really need it and way too high for the folks that have done so well in recent years.

It’s our choice. What would you ask for from Congress: your money or your life?

Edie Rasell is an economist at the Economic Policy Institute in Washington, D.C.


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