The New Year has begun and the federal budget is maxed out after a binge of end-of-year spending and reduced revenues. At best, the deficit this year will be less than $100 billion. But an uncertain economy and the need to fund a war against terrorism could push the deficit much higher.

In reflecting upon the past year, there is a fiscal lesson learned that will be useful as Congress and the President begin the budget process anew.

Just a year ago, the Congressional Budget Office (CBO) was predicting a $313 billion surplus for Fiscal 2002 and over $5.6 trillion in accumulated surpluses for the years 2002-2011.

The impulse was to spend and cut taxes. But the increased spending and tax cuts rested on a shaky foundation-multi-year projections that were optimistic, even by Washington standards.

Some at that time warned of the real potential of economic downturn, but few in Congress really listened and majorities with the support of the President subsequently approved big tax cuts–$1.7 trillion over ten years– and increased spending–at least 10% more than 2001.

No one could have predicted the terrorist attacks on Washington and New York and their attendant costs. But it was certain at the time that the rosy economic projections were not likely to prove accurate. That’s a good lesson to keep in mind.

As we begin 2002, most taxpayers are reviewing their personal balance sheets and acting prudently in this time of uncertainty. Congress and the President should demonstrate their ability to be fiscally responsible by directing spending increases to safety net programs, military needs, and other high-priority programs and by forgoing any further across-the-board reductions in revenues until the economic picture is a lot clearer.

Furthermore, Congress should put an end to their increased proclivity to bail out industries that perform poorly or face economic troubles. At the end of 2001, there were $500 billion in proposals rattling around Washington to bail out companies or industries, from the airlines, to defense-industrial companies, to the steel industry, to hospitality and restaurants. In one such example, Congress helped Boeing by forcing the Pentagon to lease 767s and 737s for military activities rather than purchase the planes. The cost to the taxpayer in this one instance will exceed $7 billion. Alternatively, Congress could have agreed to spend the money to buy the planes this year and saved a substantial sum of money.

Another nasty habit Congress should kick during 2002 is earmarking spending. According to informal tallies by Taxpayers for Common Sense and the Office of Management and Budget, since 1995 Congressional spending earmarks have increased 300%. With the November elections just around the corner, Members of Congress on both sides of the aisle will be tempted to curry favor with voters by sneaking pet projects into spending bills. History demonstrates that when budgets get tight and deficits appear, there is more pressure to earmarks funds, as special interests circle their wagons on Capitol Hill.

In these uncertain times, Congress and the President can send reassuring signs to taxpayers by establishing a balanced approach to spending and by making every effort possible to turn projected deficits into projected surpluses. Let restraint be the lesson from 2001 that is most exercised by Congress and the President during 2002.