Commentary

Return the Surplus to Those Who Earned It

This article appeared in Copley News Service, November 2, 1999, and in the Washington Times on November 8, 1999.
The standoff over the budget between the Republican Congress and Democratic president has had a curious byproduct: leaving more money to pay off the national debt. Some analysts are lobbying to devote future surpluses to the same purpose, perhaps eventually paying off the entire $5.6 trillion national debt, or at least the $3.6 trillion in Treasury bonds owned by the public.

Eliminating not only the budget deficit but also the national debt is obviously a worthy goal. Incredibly, interest payments were the second-largest federal expenditure in 1999.

Although low interest rates have been reducing this burden, it will remain above $250 billion annually despite expected surpluses throughout the next decade. We all will be paying the price of Washington’s past profligacy for years to come.

However, it is more important to provide tax relief to Americans who have been bearing that burden. According to the Tax Foundation, the per-capita expense of taxes this year is $10,298; the burden is even heavier in high-tax states such as Connecticut, New Jersey and New York.

This expenditure dwarfs everything else in people’s budgets: shelter ($5,833); health care ($3,829); food ($2,693); transportation ($2,568); recreation ($1,922); and clothing ($1,404). Separate federal ($7,026) and local ($3,272) levies, and taxes, still top the list, while taking third place as well!

The rise in taxes has been particularly sharp during the Bush-Clinton administrations of the 1990s. Because of these two spendthrifts, every American pays an extra $2,000 to accommodate the steadily expanding federal behemoth.

Of course, rising incomes in a booming economy have helped mask the impact of higher taxes. But that doesn’t make a serious tax cut any less imperative.

Reducing the tax burden would strengthen the economy at a time when some analysts fear an approaching slowdown. With the Federal Reserve hinting at higher interest rates and pessimists predicting the imminent arrival of the stock market bear, let Americans keep a bit more of their incomes.

In a study for the Institute for Policy Innovation, economists Aldona and Gary Robbins figure that the GOP’s modest $792 billion tax cut would generate enough new economic activity to cover nearly a third of the lost revenue.

Cutting taxes would also be the right thing to do. People are paying too much for too little. The budget is larded with pork, unnecessary programs, special interest subsidies and blatant waste. The president is insulting people’s intelligence by claiming there’s no money to give back.

A tax cut would not be some special benefit to taxpayers. It would simply return some of Uncle Sam’s outrageous overcharges.

However, opponents of tax cuts routinely pull out their trump card: Social Security. We should pay down the national debt to save Social Security, they say.

Of course, this is the first time these people have ever shown any interest in reducing the national debt. Having spent years advocating a policy of tax, borrow and spend, they now denounce the debt they did so much to accumulate.

In any case, the debt has nothing to do with Social Security. Because of the demographic tsunami of more elderly, and more of them living longer and older by around 2014, the system will be spending more than it takes in.

Cutting the debt won’t change that. Social Security is an unsustainable Ponzi scheme that is breaking down as ever more retirees depend upon ever fewer workers.

Of course, lower interest payments would make it easier to shift general revenues to Social Security. But cutting nonessential programs that dominate the budget would achieve the same end. And those programs should be eliminated in any case.

However, the savings shouldn’t be poured into what will eventually become a bottomless pit. By 2070, the annual flood of red ink will be $7 trillion. In fact, between 2010 and 2070, the system is committed to paying out $140 trillion more than it is projected to take in.

Social Security can be fixed only by allowing younger workers to choose private investment plans, thereby yielding them better benefits and eliminating their claim to a tax-paid retirement. There would be a short-term burden of paying off the elderly who rely on the system. But over the long term, spending would fall.

If we reform the system. Not if we retire the debt.

The federal government expects to collect $22.8 trillion in revenue over the next decade. The niggling Republicans have proposed a tax cut of just 3.5 percent. Even that, however, argues the president, is too much.

The surplus doesn’t belong to the government. It belongs to the taxpayers who were overtaxed. It should be returned to its rightful owners.

Doug Bandow is a senior fellow at the Cato Institute.