The Growth Experiment: How the New Tax Policy Is Transforming the U.S. Economy

By Lawrence Lindsey | Go to book overview

Chapter 12

The Great Surplus of '99

"The Reagan Administration's economic policies are neither careful nor protective of the nation's future.... They have touched off a national borrowing and buying binge that will have to be paid for in the morning."

—Editors, The New Republic1

Now for a short civics test. Answer "true" or "false." To balance the budget in the 1990s the Congress must either increase taxes or cut spending from current levels.

The right answer is "false." If you responded "true," however, I won't take off too many points. There is probably no more widespread myth about the U.S. budget system than the supposed need to raise taxes or cut spending.

Let's consider how the myth got started. We do have a budget deficit of some $160 billion. 2 For the Congress to balance the budget in a single year, it would have to enact some $160 billion in combined tax increases or spending cuts. Since most of our budget is "uncontrollable," in that it is comprised of defense, Social Security, Medicare, and interest on the debt, cutting $160 billion is impossible. So the pundits say we need a major tax increase as well.

The fallacy in this analysis is that no responsible economist would suggest that the United States try to reduce its budget deficit by $160 billion in a single year. The result would almost inevitably be a very sharp recession, or even a depression, as the government desperately sucked spending power out of the economy. Most sensible people favor narrowing the gap by $30

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