Tax cut chickens coming home to roost

The ink is barely dry on the president's tax cut bill, but already the declining economy is prompting concern that Congress will have to go after the Medicare and Social Security "lockboxes" to come up with the funds needed to run the country.
Of course, the lockboxes are accounting conveniences not real lockable boxes, but George Bush laughed when Vice President Al Gore, using the lockbox metaphor, warned of the dangers in the tax-cut plan on which Bush campaigned. Like most Americans, we have believed strongly that revenue surpluses can evaporate quickly and should not be the basis for long-range planning -- look what's happening in Ohio. Any surpluses, we have stated, should be allocated to paying down the national debt and protecting Medicare and Social Security.
And now, the economic news is not good. The stock market is bouncing around again as investors worry about where their money will be safest. New claims for state unemployment insurance have jumped to the highest level in nine years as more high-tech and industrial companies announce large lay-offs.. Corporate earnings are down, and along with that, consumer confidence continues to slip.
Lower surplus: Now, Office of Management and Budget Director Mitchell E. Daniels Jr. says the federal budget surplus for 2001 could be as much as 40 percent smaller than the $275 billion forecast earlier this year.
Last winter, the Congressional Budget Office projected that the federal government would run a $275 billion surplus in the current fiscal year, which ends Sept. 30. But Bush's tax cut chopped about $75 billion off that estimate, and slowing revenue growth has reduced the projection even further -- $60 billion to $75 billion, or perhaps even more.
Daniels insists that the surplus is still enormous, but a $75 billion potential shortfall isn't chickenfeed.
What's also problematic is that most of the surplus will come into the Social Security trust fund that both Democrats and Republicans had agreed should be used to reduce the federal debt and not to fund general government operations.
Prior to the passage of the tax cut bill, moderates attempted to insert language that would trigger a reduction in the size of the tax cut if revenues dropped below a certain level. That amendment failed.
Voinovich amendment: On Tuesday, Ohio Sen. George Voinovich introduced a measure that would trigger federal spending cuts if it looked as if the Social Security surplus would get spent. Voinovich saw this as a "safety valve which will ensure that we stay on course to limit spending and pay down our irresponsible debt."
But the Senate -- including Republicans like Sen. Ted Stevens of Alaska -- was having none of it, and the measure was defeated. And Stevens is the ranking Republican on the appropriations committee. It isn't just Democrats who want to protect their favorite projects.
The president is still hoping that the tax rebates -- the checks should be in the mail starting later this month -- will give the economy a push in the right direction. But if the tax cuts and rebates don't have the desired effect, and if the Federal Reserve's rate cuts don't stimulate corporate investment later in the year, the nation's economy is in for a bumpy ride.
We would suggest Congress and the administration work aggressively on Plan B.