· should the budget surplus be used for a tax cut? How big and for whom? · should e-commerce be taxed?

The man elected president in November 2000 will face an unprecedented situation with regard to the national budget: a projected surplus of $4.6 trillion through 2010. Even if the $2.4 trillion social security tax component is put in a 'lock box' and left untouched, that still leaves the government taking in some $2.2 trillion more than it spends.

Though some doubt the surplus will materialize as fully as estimated (see below), the Treasury Department released impressive numbers in October, 2000: in fiscal year 2000, the government posted a surplus of $237 billion--almost double the previous year's $124.4 billion, which itself was a doubling of the $69.2 billion of the year before that. The government hasn't posted three consecutive years of surplus since the post-WWII boom of the late 1940's. This windfall has largely been made possible by the roaring economy, though the Balanced Budget Act of 1997 and welfare reform have also played their part.

There are two approaches to dealing with the surplus, which were on display most vividly during the presidential debates. The Gore approach is to use it to shore up long term entitlement programs like Social Security and Medicare, the cost of which is growing faster than overall economic growth, or, pay down the $5.7 trillion national debt. Any other route, he says, would be irresponsible. "He (Bush) would spend more money on tax cuts for the wealthiest one percent than all of the new spending that he proposes for education, health care, prescription drugs and national defense all combined," Gore said over and over during the presidential debates.

The Bush approach is to cut taxes across the board since the government is taking in more than it needs to spend. "The surplus is not the government's money. The surplus is the people's money. Now is the time to reform the tax code and share some of the surplus with the people who pay the bills, " he said at the Republican National Convention, a point he has hammered home throughout the campaign.

Both sides have some public support. But there are observers who warn that the surplus itself is not a sure thing. For example, at the end of October 2000, President Clinton and the Republican controlled Congress were negotiating over tax cuts and spending proposals that could use up $900 billion or more of the projected non-Social Security surplus of over $2 trillion over the next decade. Moreover, the Congressional Budget Office says that if real economic growth is just 0.5 percent higher or lower than expected over the next decade, the projected surplus could be off by as much as $250 billion. "Apparently, says one skeptical non-profit group,the Concord Coalition. no one has told them (politicians) we haven't paid for the meal we've already ordered."

Both Gore and Bush present themselves as the candidate trying to do the right and responsible thing with the surplus and both are very much in line with party thinking.

Bush would spend more than half the $2.2 trillion non-Social Security surplus on an across the board tax cut which would reduce all federal income tax rates (which now range between 15 and 39.6 percent depending on income). He also favors removing all estate taxes and doubling the current child tax credits to $1000. Over 30 percent of the money that would be returned by Bush¼s tax cut would go to the wealthiest one percent of taxpayers. During the first presidential debate, Bush painted the issue as one of differing philosophies. "He (Gore) wants to make sure the right people get tax relief. That's not the role of a president to decide right and wrong. Everybody who pays taxes ought to get tax relief."

Gore insists that all Americans will be better off if the projected budget surplus is used to pay down the national debt and shore up Social Secruity, Medicare and education, instead of cutting taxes. His proposed tax cuts are more modest. He wants to give tax breaks to the working families that profited least from the biggest economic boom in U.S. history. He has consistently portrayed himself as someone who fights for middle class families. "Well, it IS your money. But it's your Medicare, it's your Social Security, it's your environment, it's your school system, it's your country," he has said, defending his plans.

Gore takes credit for Clinton administration's record of turning a budget deficit into a surplus, and helped pass legislation lowering taxes for low income families and small businesses. He has also presented himself as an early and vigorous supporter of the Internet and e-commerce. Bush has mainly used President Reagan's tax cuts as a model for what he will do, since he has not held federal office.

Should the budget surplus be used for a tax cut? How Big and For Whom?

Vice President Al Gore opposes wide-ranging tax cuts, proposing instead targeted tax cuts aimed at strengthening middle class and low income families through elimination of the marriage penalty and making the child credit refundable, as well as giving special tax breaks for college education and healthcare. Some examples: he would offer a $3,000 tax credit for individuals with long-term care needs and their caregivers; new tax credits for child care costs, medical expenses, energy efficiency; expansion of the earned income tax credit; and a $10,000 deduction for college tuition. He also favors raising the estate tax exemption limit from $2.6 million to $5 million, removing estate taxes for about 90 percent of family farms and 70 percent of small businesses. He does not favor a complete repeal of the estate tax saying it would "give a massive tax break to the wealthiest Americans."

(More on Gore's tax plans.)

Governor Bush says Gore's approach is too government-oriented, as opposed to his plan which gives tax breaks to all Americans. "It's the difference between big, exploding federal government that wants to think on your behalf and a plan that meets priorities and liberates working people to be able to make decisions on your own," he said during the first presidential debate. Other critics point out that Gore creates too many entitlement programs which are hard to reverse. "Mr. Gore's initiatives are of a kind that could all too easily lead to a return of deficits if the budget surpluses don't materialize as planned. True, Mr. Bush's $1.6 trillion tax cut would also be written into law as continuing indefinitely. But history shows that presidents and Congresses are far more willing to raise taxes in the event of a revenue shortfall than they are to cut entitlements," writes Bruce Bartlett of The Center for Policy Analysis in The New York Times, August 22, 2000.

Bush proposes capping the top income tax rate at 33 percent, the middle rate at 25 percent and shifting some of the income for the bottom third of the population from 15 percent to ten percent. He would reduce the marriage penalty and double the child credit and also establish tax credits for healthcare and long term care. He believes "the best way to encourage economic growth is to cut marginal tax rates across all tax brackets".

Bush also proposes phasing out all estate taxes over eight years and allowing non-itemizers to deduct charitable donations. Critics say most of Bush's tax reforms will benefit mainly the wealthy. Noted economist and MIT professor Paul Krugman said in The New York Times (August 20, 2000): "Mr.. Bush's proposed tax cuts aren't just tilted toward high-income families; they target them with awesome precision. Around half the benefits would go to families with incomes of more than $250,000 per year; the average tax break for families in the top 1 percent of the income distribution would be 100 times that for families in the middle."

(More on Bush's tax plans.)

Should e-commerce be taxed?

Gore supports the tax moratorium on e-commerce and opposes any taxes on accessing the Internet. He also believes that cyberspace should be a permanent "duty-free zone," so that U.S. companies can sell goods, around the world, through the Internet, without duties.

Bush favors extending the tax-free status of e-commerce at least till 2004. He also opposes any taxes on accessing the Internet.

http://www.concordcoalition.org/
The Concord Coalition

http://www.usnews.com/usnews/issue/000131/31edit.htm
"Saving the Surplus" --an article by David Gergen,in US News and World Report)

http://www.usnews.com/usnews/issue/000911/11pol.htm
"A Fair Question: Bush Tax Plans Keep the Special Interests at Bay" -- Michael Barone analysis in U.S. News & World Report of both candidates¼ tax plans.

http://www.brookings.org/views/op-ed/sawhill/20000921.htm

"Gore Plan Protects the Bottom Third" -- An article by two Brookings Institution analysts.