It doesn't always happen, but yesterday's snow proved that our friendly weatherman's (or woman's) prediction was correct. If weather predictions are sometimes wrong it is because they are based on probability, not fact. There was an 80 percent probability that it would snow yesterday, and not surprisingly, it actually snowed. Our predictions for the future fiscal health of this country work the same way. Every few months the Congressional Budget Office (CBO) publishes its best guess about what will happen to our government's finances over the next 10 years, based on a huge number of economic variables. Because this guess-work forms the basis for President George W. Bush's tax cut proposal, there is no way to know for sure whether we will really be able to afford the tax cuts, not to mention whether we should be cutting taxes according to his particular plan. Just as the weather can sometimes bring unexpected surprises, his gigantic tax cut may leave our country wearing nothing but shorts in the middle of an economic snowstorm.
A large part of our country's fiscal health is determined by political decisions, like tax cuts or spending increases. Of course, with legislative politics the way they are, the CBO can't be expected to factor future policy changes into their calculations. That really would be like looking into a crystal ball. Instead the CBO's numbers are based on certain formulas and equations derived from the economy's behavior in the past. However, the more unusual the economy behaves, the greater the error will be in their prediction.
Bush's tax cut is based on the notion that we will have a $5.6 trillion budget surplus over the next 10 years. His main argument is that the government is taking more money than it really needs and so the taxpayers deserve a refund. But the $5.6 trillion is simply an estimate. There is a 50 percent chance of a surplus of that size. In fact, if you look at the range of the CBO's predictions for the next 10 years, there is actually a 10 percent chance that we could have anything from a $1 trillion deficit to a $12 trillion budget surplus. Although 10 percent is a pretty small probability, the CBO's predictions haven't exactly been stellar in the past. Its five-year predictions for the 1996-2001 budgets missed their mark by nearly $1 trillion. Just as the economy grew faster than expected in the late 1990s, it could easily grow slower than expected in the next five years. Every economic indicator in recent weeks has pointed to signs of a slowing economy, which means fewer taxes will be paid and there will be a smaller surplus.
Bush argues that even if a slowdown means less money comes in from taxes, it is still safer to cut taxes now, rather than leave the surplus in Washington for the politicians to waste. But doesn't Mr. Bush realize that he has the power to veto any budget that has wasteful spending in it?
Mr. Bush could use those tax dollars to pay for the things that the voters expressed a strong desire for: like a prescription drug benefit as part of Medicare. Mr. Bush budgeted only $153 billion over the next 10 years for both a prescription drug benefit and undefined Medicare reform, even though current Republican prescription drug plans could cost as much as $400 billion over 10 years. Which would you prefer, a program that allows your grandmother to buy life-saving drugs or a tax cut that gives the President of Dartmouth College, with an annual salary of $331,500, an additional $11,996 a year? (An equally hard-working employee at Food Court, with an annual salary of $27,000, would receive only $300.)
The real problem with tax cuts of such a large magnitude is that they show a complete disregard for the looming recession. Mr. Bush and Federal Reserve Chairman Alan Greenspan have lauded tax cuts as being beneficial to the slowing economy. But tax cuts that aren't implemented for 10 years will do nothing for the current economy. If we really wanted to link taxes to economic strength we would create floating tax rates that could change the amount people pay in taxes depending on the state of the economy. For example we could pass a law that lowered taxes across the board by a certain percentage if the unemployment rate rose by one or two points, and which would then raise taxes if the unemployment rate dropped back down. The fact is that neither Mr. Bush nor the CBO has any way of knowing accurately what the fiscal health of the country will be in 10 years. Let's save the money, by putting it towards debt relief, social security reform, education and health care. Just because it's a hot day today doesn't mean you sell your coat; you never know what tomorrow's weather may bring.
