For the first time in decades, the federal government is awash in budget surpluses and energized by the prospect of more surpluses to come. Congress and the President should use this good fortune, which has been provided by America's highly productive taxpayers, to return some of these surplus tax dollars to taxpayers. Congress also should make the kinds of tax cuts that are steps to a fair, flat, and simple tax system. It can do this within the restrictions imposed by the budget resolution.

The recent announcement by the Congressional Budget Office (CBO) that the next ten federal fiscal years could produce as much as $2.6 trillion in cumulative budget surpluses is good news: It will allow Congress to cut taxes and reform Social Security. CBO currently forecasts $824 billion in ten-year, non-Social Security surpluses. If Congress used that money for tax cuts, all of the $1.78 trillion in Social Security surpluses would be available to reform the country's largest pension program.

Congress this year can take important steps toward providing tax relief that will be consistent with long-term tax reform, within the restrictions imposed by the budget resolution. In particular, it can take two decisive steps:

• It can move toward more fundamental tax reform by reducing taxes on labor and capital while making the tax code fairer; and

• It can begin to reform the government-controlled Social Security system by giving Americans the freedom to use some of their payroll taxes to invest in personal, private savings accounts.

Specifically, Congress could (1) provide "marriage penalty" relief to married taxpayers; (2) reduce the tax rates on long-term capital gains; (3) phase out the federal death taxes; (4) expand eligibility for educational savings accounts; (5) expand eligibility for Roth IRAs; (6) repeal the surtax on federal unemployment taxes; (7) reform the tax treatment of "cafeteria plans" so that taxpayers will not lose their annual contributions at the end of the tax year; (8) provide taxpayers who pay for their own health care a 30 percent credit against their federal income and payroll taxes; and (9) cut individual marginal income tax rates by 10 percent.

In addition to these tax policy changes, Congress would be able to provide additional essential funding for national defense within the budget framework. If Congress preserves Social Security surpluses for Social Security reform, taxpayers will support the changes needed in the tax code-changes that address the overall objectives of increased fairness, greater simplicity, and a reduction in their tax burden.

William W. Beach is Director of the Center for Data Analysis and the John M. Olin Senior Fellow in Economics at The Heritage Foundation.