The federal government’s budget surplus will increase to $5.6 trillion over the next decade, according to estimates released yesterday by the Congressional Budget Office (CBO).

Most agree that Americans need significant tax relief. However, a closer look at these new estimates shows that Congress and the Administration will need to not only reduce current spending, but also cut back on new proposals to pay for the tax cuts.

Congress has promised to keep their hands off the projected $2.5 trillion dollar Social Security surplus, and the $500 billion expected surplus in Medicare. That leaves approximately $2.6 trillion of the total projected budget surplus for tax cuts and new spending.

President Bush’s promised tax cut may be more expensive than the $1.6 trillion figure that has been widely reported.

At least another $200 billion is needed fix the alternative minimum tax and about $300 billion for interest costs on the debt. All told, President George W. Bush’s promised tax cut will cost at least $2.1 trillion.

The cost of implementing Bush’s campaign promises to enhance defense capabilities and to expand some domestic programs while preserving popular tax credits would eat another $600 billion or more of the projected surplus.
Additionally, the Pentagon released a new list of spending priorities that could total over a trillion dollars in the next ten years. Lawmakers from both parties are also calling for more aid to farmers, a prescription drug benefit, and scores of other projects.

Massive budget surpluses that have magically appeared in recent budget projections are real only if you believe three unbelievable things:

First, you have to think Congress will sharply cut federal spending. CBO budget surplus projections assume that federal programs other than Social Security, Medicare and Medicaid will not expand over the next decade.

Second, you must assume that no “emergency spending” will occur, despite the fact that Congress has, over the last decade, averaged over $8 billion in emergency spending per year.

Third, you have to believe that it is possible to predict what the economy will be like for the next 10 years. In its latest forecast, the CBO projects 2.4% economic growth this year, a far cry from the 1.4% from the last quarter of 2000. If the growth rate were .1% lower than the CBO estimates, the surplus would shrink by $211 billion.

While there is undoubtedly room for a tax cut this year, Congress and the new Administration should proceed cautiously. Americans deserve tax relief, but not at the high cost of future deficits.