Memorandum for the President: Budget Surplus (7/22/00)
                              THE WHITE HOUSE

                       Office of the Press Secretary
                             (Okinawa, Japan)

Saturday, July 22, 2000


FROM:        Jacob J. Lew

SUBJECT: Effect of Congressional legislative action on the budget surplus

     This memo is in response to your request that OMB assess the effect of
legislative action on the budget surplus.  Over the past six months,
Congress has passed nine major tax cuts resulting in a cost of $712 billion
dollars over ten years.  Draining this sum from the United States Treasury
reduces the amount of debt reduction we can accomplish, thereby increasing
debt service costs by $201 billion over ten years.  Therefore, the
Congressional tax cuts passed to date will draw a total of $913 dollars
from the projected surplus.

     In addition, the Congressional majority has stated clearly that its
tax cuts to date represent only a "down payment" in a long series of  tax
cuts it intends to realize.  While there has been little specificity about
the size and nature of their entire program, the full range of action taken
by the 106th Congress, both last year and this, provides an indication of
the total impact of Congressional tax cut proposals on the surplus.

     In the first session of the 106th Congress, the majority passed one
large measure, which included a variety of tax cuts totaling $792 billion.
Excluding certain individual tax cuts which passed this year as well as
last year (such as elimination of the estate tax and the marriage penalty),
the cost of tax cuts passed last year amounts to $737 billion, and the
additional debt service amounts to $148 billion for a total of $885

     The bill-by-bill approach to tax cuts in the absence of an overall
framework masks the full impact and risks of the cumulative costs.  In the
absence of more specific indications about the content and number of future
tax cuts the Congressional majority has stated it plans to produce, we have
used the total costs associated with tax cuts from the 106th Congress as an
illustration of  Republican plans.  If their plans remain consistent with
past activities, the full cost of this program would be:

?    tax cuts of $1.447 trillion dollars
?    additional debt service of $349 billion
?    for a total of $1.796 trillion dollars.

     The effect of such tax cuts would be to completely eliminate the
projected non-Social Security/Medicare budget surplus at the end of ten
years.  Even by the more optimistic projections the entire surplus would be
drained.  The most recent CBO projections issued earlier this week estimate
a ten-year non-Social Security/Medicare surplus of $1.8 trillion.  OMB?s
recent projections estimate a ten-year non-Social Security/Medicare surplus
of $1.5 trillion.  In either case, because the costs of the tax cuts match
or exceed the projected budget surplus, there would be no funds available
for any of the nation?s other pressing needs, including our proposals to
establish a new voluntary Medicare prescription drug benefit, pay an
additional $150 billion in debt reduction to pay down the debt by 2012,
expand health coverage to more families, provide targeted tax cuts that
help America?s working families with the costs of college education,
long-term care, child care and other needs, or extend the life of Social
Security and Medicare.

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