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Surplus Fever

October 7, 1998

Tags Taxes and SpendingBig GovernmentFiscal Theory

Washington is celebrating what Clinton calls "a new era of balanced budgets and surpluses." The fiscal year ended with $70 billion in taxpayer's money left over, a sum that is now burning a hole in Leviathan's pocket. The government, sad to say, is not planning to return the money from whence it came.

For decades, the dispute about tax policy has centered on whether taxes should be cut so long as the feds were running a deficit. Some people said cutting taxes would be fiscally irresponsible, and, by the way, the same people liked big government. Others said taxes should be cut to spur economic growth, but those people typically didn't have the stomach for requisite spending cuts.

Tax cuts were put on hold, even after the end of the Cold War when the public was promised a "peace dividend." Instead, the government got a dividend in the form of soaring and unexpected tax revenue.

At least the budget surpluses held out the chance of breaking this gridlock. The solution would seem obvious: if the government collects more in taxes than it spends even by Washington's profligate standards, a tax cut should be the mandatory response.

Alas, such common sense overlooks a key point of government: its relentless greed for other people's money. Since it has been able to plunder millions of people under the pretense that it is for their own good, it is not about to reverse course and do the right thing.

The Republican House passed a perfunctory tax cut bill, one so small that it wouldn't be noticed by the average taxpayer. In fact, it is appalling that a one percent decline is all this Congress could dream up four years after the self-proclaimed revolutionary tax cutters gained control. But the House looks positively fearless in comparison to the Senate, which is sure to strike down even this minuscule cut.

The picture is further complicated by Clinton's now-legendary abuse of the English language. In a ceremony celebrating surpluses, Clinton warned Congress not to "squander this surplus and start spending a little here, a little there, a little yonder on the tax cuts." Catch that? He calls returning our own money to us a form of spending.

What's more, this speech is the fiscal equivalent of his finger-wagging proclamation about "that woman." For on that very day, he and the Republicans were planning a $17 billion "emergency" spending bill for military adventures in Bosnia, pork on the Gulf Coast, and yet another study of the Year 2000 computer problem. That Americans are more despoiled by taxes today than at anytime in history doesn't qualify as an "emergency."

Clinton's official rationale for opposing tax cuts is that the surplus should be used to "save Social Security." He has no stated plan on precisely how this would work, but one supposes he has in mind the traditional tactic of keeping the rip off going by dumping ever more money into it, to fund the liabilities that mount on a daily basis.

Sadly, the Republicans have been no help in countering this ploy. In a remarkable display of bad timing, many are calling for the "privatization" of Social Security, meaning that it should be converted into a mandatory savings program with a greater degree of portfolio flexibility.

But look at the details. The plan to privatize would continue to meet the massive liabilities at the same time it imposes a new mandate on young workers. The transition would last up to 70 years and cost as much as $10 trillion.

Where is that money going to come from? When pressed, the privatizers suggest it can come from, you guessed it, budget surpluses. The bottom line, then, is that the plans to privatize Social Security and the demand for tax cuts are at cross-purposes. Sensing this, some Republicans have softened their support of tax cuts, as Paul Gigot pointed out in the Wall Street Journal.

In the end, the excuses don't matter much to the American people, who pay more in taxes than they do for meals, clothes, housing, and automobiles combined. Apparently, the U.S. political system, as currently structured, is incapable of doing anything about this. And pundits wonder why people don't trust the government.

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Llewellyn H. Rockwell, Jr is president of the Ludwig von Mises Institute in Auburn, Alabama.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.

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