Washington DC, July 13, 1999 --  

With projections for the U.S. Government surplus surging almost monthly, Washington politicians have become so drunk with the prospect of billions of dollars of new spending that it almost makes me wish for a return to the days of the deficit.

Think about it. For almost all of the past twenty years, every time the self-proclaimed do-gooders in Washington wanted to launch a new multi-billion dollar bloatfest to "fix" one ill or another, the deficit stopped them dead in their tracks. Well, maybe not quite, but at least it slowed them down a bit. Every new program would have to be "paid for," the argument went, by spending cuts or increases in taxation. That's a hard sell. But now it's gone. Today, with the Congressional Budget Office projecting the annual surplus to grow to $413 billion annual suplus in 10 years, all that politicians have to do is write a check.¹

Thus, President Clinton came out with his plan to expand Medicare to pay for prescription drugs like Viagra and Prozac for his wealthy, aging Baby Boomer friends. (The generation of drugs and free love is therefore fulfilling its destiny of legislating free sex drugs.) Thanks to the surplus, a huge new entitlement program may soon be born.

The problem with entitlements, of course, is that once they're established it's almost impossible to get rid of them. Witness the current brewing demographic crisis with Social Security and the total impotence of Americans to get it changed in any productive way. So Clinton's proposal may haunt future generations in the same way the Social Security crisis now haunts the post-Baby Boom generations.

Of course, this is only if it passes—which it likely will. The same economic boom that made the surplus has made Americans so rich that they are thoroughly passive about what the government does with the huge chunk of their paychecks that it takes away.

Think the Republicans will save the day? Think again. While the party's leadership in Congress has gone on record in favor of huge tax cuts to be financed out of the surplus, the risk is that they will choose rhetoric and partisanship over any real progress. This rhetoric has already begun:

"…[I]f we don't cut taxes now and the money stays in Washington, the politicians will surely spend it," said Rep. Bill Archer (R-TX), author of a leading tax cut bill, "Republicans are determined to protect taxpayers who ultimately get stuck with the bills."²

The Republicans will protect us? Oh, really? This couldn't possibly be the same party that pushed through last year's immensely pork-laden $500 billion budget.³ I'll believe it when I see it.

A far more likely outcome of the surplus budget debate will lie somewhere between Clinton's huge new entitlement nightmare and Republicans' disingenuous tax cut plans. We'll end up with a few billion dollars in tax cuts here, many more billions in pork spending there, and the balance will be used to "shore up" existing failing entitlement programs. They'll call this compromise, but he real loser will be the American taxpayer.

As people earn more, they slowly more up to higher tax brackets and thereby end up giving a higher percentage of their income to the government. The risk during times of economic growth and government surplus is that the size of government will grow when it is clearly needed least. This kind of situation has been kept in check for 20 years by the stigma of deficit spending. For better or worse, those days are gone. The challenge for the future is to find new ways of keeping spending down in the face of billions of extra dollars flowing into the public trough.

Notes:

1. Congressional Budget Office, THE ECONOMIC AND BUDGET OUTLOOK: AN UPDATE, July 1, 1999
2. The San Diego Tribune, GOP Pushes Tax Cuts in Era of Plenty, July 11, 1999
3. The New York Times, Spending Bill, Pork Full, Becomes Law, October 22, 1998