Conventional wisdom says that Congress will return from vacation next week, tanned, rested and ready for a game of budgetary "chicken" with President Clinton. The game will begin when the president vetoes Republicans' 10-year, $792 billion tax cut and will proceed torturously toward a compromise cut half that size.

Don't bet on it. Many moderate Republicans grudgingly agreed to vote for the tax bill only because the president promised to veto it. Even if the budget surplus was real, the last thing America's "Goldilocks economy" needs is a huge fiscal stimulus targeted at the wealthiest 10% of taxpayers. Instead, a booming economy is the perfect time to pay down public debt, boost public investment and expand low-wage job opportunities by cutting the regressive payroll tax. More than usual, the GOP tax bill is more political gesture than serious policy. It appears primarily an effort to raise campaign contributions. The New York Times reported that Republicans are "shopping [the bill] around," urging special interests to "make a donation now to insure that their special deal survives if there is a final tax cut accord with Clinton." The myth of a big surplus Many observers, including several conservative Democrats, envision a compromise that gives the GOP half of what it passed. No tax cut at all would be better for the economy and for most Americans. Here is why: First, to date the only budget "surplus" flows from Social Security payroll-tax revenue that both parties have promised to put into a "lock box" to pay baby-boomer benefits after 2015. The rest of the federal budget is barely in balance. If the economy keeps booming, the projected surplus of $996 billion over the next 10 years will become real only if Congress cuts every discretionary program by 15% (adjusted for inflation and population growth). And this assumes no recessions, or expensive "emergencies" such as wars or natural disasters. But is it realistic to believe that after today's Congress takes credit for a huge tax cut, the next five Congresses are going to pay the price with painful cuts in every discretionary program -- including the military, national parks, education and law enforcement? There is little money left to cut from welfare or "fraud, waste and abuse." The second flaw in the GOP tax bill is timing. Tax cuts are typically used to kick-start a stagnant economy, as President Ronald Reagan did during the 1981-82 recession. With personal saving rates in the negative and the Federal Reserve Board already raising interest rates to prevent the economy from overheating, the last thing we need is a burst of high-end consumer spending. A third problem with this tax bill is its heavy tilt to the best-off tenth of all taxpayers. The 60% of Americans with the lowest household incomes would receive less than 9% of the tax cuts -- an average $150 a year, according to calculations by the Treasury Department and by the nonpartisan Citizens for Tax Justice. In contrast, the top 10% would receive 68% of the benefits -- an average $7,520 annually. And the wealthiest 1% -- those with annual incomes exceeding $300,000 -- would save $46,000 a year on average. One reason for this disparity is the type of taxes Congress chose to cut most deeply. Over a period of years the bill would eliminate the inheritance tax completely and cut the capital-gains tax to an effective rate of 13%. (It was 28% before 1997.) Because the first $650,000 of any estate is exempt from tax, only 2% of all deaths result in estate-tax liability. As a result, abolishing the tax gives more than 90% of the $330 billion in lost revenue over 10 years to the wealthiest 1%, according to the Institute for Taxation and Economic Policy. Three alternative policy priorities Assuming the U.S. economy keeps zipping along and a sizeable surplus becomes real, at least three alternative priorities would do more to strengthen the economy and benefit all Americans. Pay down the national debt: When Fed Chairman Alan Greenspan told Congress in July that "the timing is not right" for a tax cut, he proposed using any surplus to pay down the national debt, now $3.6 trillion. The nation's biggest fiscal problem is how to fund Social Security and Medicare when baby boomers retire. The most direct way is to reduce the debt so the nation could avoid imposing the entire cost on future workers by borrowing again later. Boost public investment: A recent Wall Street Journal/NBC News poll revealed that while 34% of the public prefers a tax cut, 55% want increased public spending on education, health care and defense. During the Reagan-Bush era of record budget deficits, public investment as a share of the economy fell to its lowest level since World War II, falling from 2.4 to 1.4% of GDP. This decade's productivity surge is in large part the result of public investments in education, infrastructure and technology made 10 and 20 years ago. Today's unmet needs for improved public schools, job training, basic research and physical infrastructure will limit economic growth in the future. Cut the payroll tax: The kindest cut would focus on the one tax every working American pays -- the payroll tax. It takes 15.3% from every dollar of income up to about $70,000 and is now the largest and most regressive federal tax. Roughly 70% of American families (and 90% of individual workers) pay more in payroll tax than income tax. The payroll tax is also a job killer. From an employer's perspective, it adds 40 cents per hour to the cost of today's minimum wage. By directly raising the cost of labor, payroll taxes are a drag on job creation and exports, as well as an incentive for U.S. companies to move jobs overseas. Cut the cost of job creation Cutting the payroll tax could have bipartisan political appeal. It would lower the cost of labor for business owners and boost the take-home pay of low-wage workers in particular. Fewer people on welfare and an increase in real wages at all income levels are just two of the benefits the nation has enjoyed with unemployment at a 30-year low. Lowering the cost of low-skill labor would help move some of the remaining unemployed into jobs and, when the inevitable downturn dawns, to reduce the degree to which low-wage workers are knocked back into unemployment or even poverty. President Clinton's greatest legacy has been fiscal responsibility and economic prosperity. At this point in his presidency, no tax cut at all rather than a compromise that looks like the bill passed this summer by Congress seems more likely. Michael Calabrese directs the Public Asset Program at the New America Foundation, a non-partisan policy institute in Washington, D.C. His e-mail address is calabrese@newamerica.net.