Cost of GOP tax cut estimated at $2.8 trillion in 2010-2020

Treasury economists say impact would be greatest as baby boomers retire

July 16, 1999|By Jonathan Weisman | Jonathan Weisman,SUN NATIONAL STAFF

WASHINGTON -- Trying to squelch a Republican drive for a major tax cut, the Treasury Department has estimated that a House GOP tax proposal would cost the Treasury nearly $3 trillion in the decade when retiring baby boomers begin to strain the Treasury.

The department's $2.8 trillion cost estimate would be more than triple the $864 billion that the proposal is expected to cost in its first 10 years.

Administration officials say the plan would almost certainly drive the federal budget back into the red, and they plan to use the new Treasury Department estimates in the battle with the GOP over what to do with the burgeoning budget surplus.

"It is so exploding, it's extraordinary," a senior administration official said last night. "We're going to go to the American people and ask them if they are prepared to mortgage their future for a totally irresponsible, exploding tax cut."

Republicans counter that 20-year economic forecasts are inherently untrustworthy. And they point to the tax cut passed in 1997 that appears not to have dampened the federal government's tax receipts, even though the tax and budget agreement did not foresee a balanced budget until 2002.

"The Republican Congress pushed through the first tax cut in 16 years two years ago, and the revenues for the government exploded," said Ways and Means Committee spokesman Trent Duffy. "The way the Democrats see it, you'd think the government would have less money to spend now," not a record surplus.

The White House believes its numbers will be compelling. At the request of President Clinton, Treasury economists are scrambling to finish their analysis in time for an official announcement, possibly tomorrow in Clinton's radio address.

"He has asked for that," White House spokesman Joe Lockhart said of the analysis. "I expect that in the next day or so."

The House is expected to take up the tax measure next week, just as Senate Republicans unveil a slightly less ambitious plan. White House aides are eager to undercut both plans in case Clinton decides to veto a final version.

A Treasury official cautioned that the department's estimates have not been finalized, but the numbers are not difficult to calculate.

The House GOP tax bill would cost about $864 billion through 2009, comfortably within the $1 trillion in surpluses projected over the next decade through increased tax revenues and decreased spending outside the Social Security system.

But because many of the biggest-ticket items in the tax bill are phased in, the cost over the second 10 years would skyrocket.

For instance, the centerpiece 10 percent, across-the-board tax cut would cost $21 billion in 2004, $112 billion in 2009, then $121 billion once it is fully phased in the next year, congressional tax writers told Treasury officials Wednesday night. It would remain at that level over the next 10 years.

The cost of the repeal of the federal estate tax would jump from $15 billion in 2009 to as much as $40 billion the next year. A phased-in capital gains tax cut would see a similar jump.

Even within the first 10 years, the costs of the plan would accelerate rapidly, from $200 billion from 2000 to 2004 to $664 billion from 2005 to 2009. In a single year, between 2008 and 2009, the cost to the Treasury jumps from $152 billion to $203 billion.

These leaps would come just as the vanguard of the baby boom generation reaches retirement age, straining Medicare budgets and decreasing income tax revenues.

"That's a major problem. That's a collision, basically," said Iris J. Lav, an economist at the liberal-leaning Center on Budget and Policy Priorities, whose analysis was nearly identical to the Treasury Department's estimates.

The soaring cost of the bill raises questions about whether Republicans are serious about passing the measure -- or simply laying down a high opening position to bargain from, when next year's federal budget is negotiated in the fall.

"At a certain point, these are elected officials who have a responsibility to the American people to govern," a White House official said of the tax plan. "It just seems so irresponsible."

Republicans ardently defended their plan Wednesday before passing it out of the House Ways and Means Committee.

GOP leaders, meeting last night, decided to fight hard, confident that Democrats were quickly bowing to their demands. They would, however, make slight changes to the bill next week to make it somewhat less costly, a senior leadership aide said last night.

Already, Senate Democrats are preparing a 10-year, $300 billion tax cut package, higher than Clinton's $250 billion proposal. House Democratic leaders are indicating they are willing to be somewhat flexible.

Pub Date: 7/16/99

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