No Voodoo Economics-Yet
The incredible shrinking surplus is upon us, moving in briskly and proving larger than expected. Even more incredible--though shrinking fast--it is still the second largest surplus in U.S. history, thanks to the end of the cold war and to the fiscal responsibility of the Clinton administration and the last several Congresses. Why is the surplus shrinking?
As many economists predicted, the Bush tax cut, accounting for two-thirds of the decline, has taken a large chunk of federal funds. Declining tax revenues caused by the slowing economy accounts for the other third. But if the surplus is so big, why worry? Because, first, most of the surplus belongs to Social Security and Medicare and, in theory and recent practice, has been kept in the famous "lock-box" by both Democrats and Republicans; and second, President George W. Bush and Congress have spending plans that, if passed, would bring on deficit spending.
The meaning of these volatile trillions and their relation to the budget process and the future of Social Security and Medicare is difficult to grasp. Such large amounts of money (some of it mere projection) and the complexity of the federal budget lead many people to look at the consequences of a revenue shortfall (what will happen?). But some attention needs to be paid to how this happened.
For many Americans those consequences focus on Social Security and Medicare. Will there be enough for baby-boom retirees if the current surpluses in these funds are used to make up the difference between government revenues (now declining) and government expenditures (likely to increase)? Current Medicare recipients want to know if there will be any real money for the prescription-drug benefit in bills now pending before Congress.
Meanwhile, parents of school-aged children want more money for smaller classes, better teacher preparation, and the technology and information that will give their children a real chance at the jobs of the future. And then there are what appear to be somewhat more esoteric concerns. For example, what is to become of stores of weapons-grade plutonium from U.S. and Russian nuclear weapons that were scheduled to be "immobilized" or recycled as nuclear reactor fuel? The Bush administration says the United States cannot now afford the promised cleanup; certainly the Russians cannot. Closer to home, the Welfare Reform Act must be revisited and perhaps revised next year, in the midst of what may be a very, very sluggish economy with its predictably higher welfare rolls. The list goes on.
In light of the shrinking surplus, what are Bush's concerns? His priorities, he says, are spending on the military and on education. He has asked Congress to make those its priorities too. In fact, the president seemed to take inordinate pleasure in the "straitjacket" that the shrinkage will bring to federal spending--"incredibly positive news," he said. It will curb the propensity he sees in the House and the Senate to waste the taxpayers' money--not something he plans to do himself, of course. While crowing about coming tax cuts, especially to the most well-off Americans, he is pressing for money to increase the military budget and to begin building the missile shield for which he and Secretary of Defense Donald Rumsfeld are aggressively lobbying. …