BUDGET:
A Novel Suggestion

By Martin Anderson

Sometime early in the next century the federal government is likely to begin taking in more money than it spends, going into surplus for the first time in decades. What to do with the billions of dollars that will begin piling up? Hoover fellow Martin Anderson has a suggestion.

One of the best kept secrets in America is the federal government's automatic tax increase.

Without changing a single tax rate, federal tax revenues are increasing by an average of $75 billion a year. The increase in our taxes is due to people working harder and earning more--and the more you earn, the more you pay. In fact, higher earnings can push you into a higher tax bracket, where taxes increase at an even faster rate than income.

Politicians love this kind of stealth tax increase. It all happens automatically, quietly, without anyone having to vote on it. And that $75 billion a year tax increase dwarfs the tax reduction crumbs some of us got in the recent budget deal.

But we may soon have a golden opportunity.

The U.S. economy is generating new tax revenues so fast that Washington can't spend it fast enough to keep the deficit from melting away. We may soon be faced with a new problem--what to do with a large and growing budget surplus. There will be pressure to spend that extra money on new and bigger federal programs. Some may want to begin paying off the national debt.

But there is something else we can do. How about an automatic tax cut to offset at least part of those built-in automatic tax increases? How about a law that says part of any extra tax revenues--say 50 percent--must be returned to the taxpayers by an across-the-board reduction in income tax rates?

After all, it's our money. We earned it.

Available from the Hoover Press are Impostors in the Temple: A Blueprint for Improving Higher Education in America and Revolution: The Reagan Legacy, by Martin Anderson; to order these publications, call 800-935-2882.

Martin Anderson is the Keith and Jan Hurlbut Fellow at the Hoover Institution, Stanford University. Born in Lowell, Massachusetts, August 5, 1936, son of Ralph and Evelyn Anderson. A.B. summa cum laude, Dartmouth College, 1957; M.S. in engineering and business administration, Thayer School of Engineering and Tuck School of Business Administration, 1958; Ph.D. in industrial management, Massachusetts Institute of Technology, 1962. Married Annelise Graebner, September 25, 1965.