The Surplus War

National Review, July 26, 1999 by Stephen Moore

How the GOP should fight.

Mr. Moore is director of fiscal-policy studies at the Cato Institute.

During his triumphant press conference announcing $2.9 trillion in tax surpluses over the next 15 years, President Clinton outfoxed the Republicans on the budget yet again. The president cleverly grabbed the headlines by proclaiming that he now wants to retire the national debt. Every penny of it eventually. This unexpected pronouncement calling for a debt-free America was quintessentially Clintonian: seductive, economically defensible, and utterly lacking in sincerity.

To believe that Bill Clinton actually wants to pay off the national debt stretches credibility beyond the snapping point. After all, it was just three years ago that Clinton, in the midst of hand-to-hand combat with Newt Gingrich, admitted that balancing the budget wasn't a high priority of his administration.

It was just six months ago Clinton proposed an obese budget with 58 new federal programs carrying a five-year price tag of $150 billion. Bill Clinton wants to retire the debt about as much as Andre Agassi wants to face another Pete Sampras first serve.

As it happened, Clinton's dedication to debt repayment lasted only a bit over 90 seconds. Having declared himself the slayer of debt, he went on to propose a $118 billion prescription-drug benefit for seniors-arguably the most expensive new open-ended entitlement program since Medicare itself was created more than three decades ago. Most health-care analysts say the price tag could be more than twice as high as the administration blithely predicts, once Uncle Sam starts paying for every prescription from Viagra to $10,000 life-expanding wonder drugs. "We couldn't possibly hold costs down," one Democratic senator confided to me. He then smiled mischievously: ". . . unless, of course, we imposed strict price controls on the pharmaceutical industry."

A few days later, the president jetted off on Air Force One for a seven-city tour bearing taxpayer-financed gifts: all part of his latest plan to direct $15 billion in new subsidies to inner cities and other depressed areas. He's also touting his latest scheme to provide federal payments to parents who stay at home with sick kids.

It is truly a testament to Bill Clinton's salesmanship that even though his agenda these days is filled with the most preposterous self-contradictions, he's somehow winning the debate. And he's winning because Republicans have no unified economic message to counter Clinton's own: a government that pays its bills but also gives you everything you want.

As usual, the White House is at least one chess move ahead of the Republicans. While balanced-budget Republicans are still internalizing the sudden economic reality that we truly are in a new era of trillion-dollar tax surpluses (they should have listened to nr's Larry Kudlow, who predicted this tax windfall almost two years ago), the president has already staked out the money for his own grandiose priorities. His aim is to preempt GOP tax-cut plans by labeling them fiscally reckless. And sure enough, when Republican congressional leaders announced their proposal for an $800 billion tax cut over ten years, the press dutifully reported that this was the money the administration wanted to use to save Social Security and pay off the national debt.

Adding to the GOP's miseries is that the party is splintered into three factions: the Old Bull spenders, the debt hawks, and the supply-side tax cutters. The price of this disunity is that a multitrillion-dollar tax surplus is likely to be earmarked for government expansion, not for pro-growth tax and market-based entitlement reforms.

What the Republicans need is a fiscal game plan for the post-deficit era. Here are five suggestions for regaining the moral high ground in the surplus debate.

(1) Stop referring to this windfall as a "budget surplus." These are "tax overpayments," not budget surpluses. The primary explanation for massive forthcoming surpluses is that we are still collecting revenues from the Cold War. This is the first post-war period in U.S. history that has not brought with it a substantial reduction in tax bills. The average effective tax burden- combined federal income and payroll taxes as a share of wages and salaries-has risen from 23 percent to 28 percent in the past six years.

(2) Enough already about "tight" spending caps. Social spending is higher now in real terms than ever before. Even if Congress sticks to the spending caps dictated by the 1997 budget deal, the federal government will spend more than $10 trillion over the next five years-more than the government spent, adjusted for inflation, in its first 200 years.

(3) Seize back the moral high ground by refusing to spend the budget surplus. Surpluses should benefit future generations. Americans believe this-which is why so many voters are inclined to the rhetoric of retiring the debt. Fine. If we care about "the children," then surplus taxes shouldn't finance Bud Shuster's highway and airport projects or Bill Clinton's social-welfare programs. This means no free drug benefits for seniors. It's bad enough that the federal government's income-redistribution schemes rob Peter to pay Paul. It borders on fiscal child abuse when Peter is 2 years old and Paul is 72.