Academic journal article ABA Banking Journal

More Money Than They Know What to Do With

Academic journal article ABA Banking Journal

More Money Than They Know What to Do With

Article excerpt

Now that the receipts line has crossed over the expenditures line, the wonderful magic of compound interest is working to flood government coffers. And the politicians are drooling. With governments at all levels rolling in the dough, what should be done with all this surplus cash?

Persistently high economic growth and spending restraint have brought about the balancing of the federal budget. Since revenues--which follow broad economic trends--grew 7% per year, the budget was balanced years ahead of expectations.

Revenue growth is likely to continue to surpass expenditure growth, so the budget surpluses will continue to build. At this point, however, it must be realized that the entire surplus enjoyed at the federal level is the product of the current excess of Social Security System receipts collected over benefits paid out. Mind you, under current law, even if every penny of these surpluses is saved, Social Security still faces a multi-trillion dollar unfunded liability. In plain language, any plan to spend the surplus is pushing Social Security deeper into insolvency. Or looked at in a different manner, any plan to spend the surpluses now should be thought of as the beginning of a convoluted process to restructure benefits for retirees in the distant future (but not the benefits Mom and Dad are currently receiving). So how might the surpluses be used?

Save them: This will at least push the Social Security System's day of reckoning further into the future. The increase in national saving will help to keep interest rates low.

Cut taxes: Lest we forget, it's not the government's money; it's our money! If the tax take is so strong because the economy is performing so well, how about giving the "shareholders" a dividend? …

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