The High-Stakes Politics of Spending the Surplus http://www.nytimes.com/2001/01/07/weekinreview/07STEV.html
January 7, 2001 THE NATION By RICHARD W. STEVENSON
AUSTIN, Tex. -- President-Elect George W. Bush spent much of last week building support for his tax-cut plan, meeting here with like-minded business executives and asserting that a dose of fiscal stimulus would neatly complement the Federal Reserve's surprise interest rate reduction in the effort to reverse the economy's downturn.
But while the incoming administration and its allies in Congress were busy peddling the $1.6 trillion tax cut as anti-recession insurance, conservatives also had their eyes on an even bigger ideological prize.
Their goal is not just to put the growing federal budget surplus to use on their terms. It is to return the government to the days when every initiative had to be weighed against keeping the budget balanced. By getting the surplus out of Washington via a tax cut, they hope to check what they acknowledge is a bipartisan impulse to spend any money that is put on the table.
"Starve the beast," said one prominent conservative.
Should Mr. Bush succeed in pushing through a tax cut similar to the one he has proposed, he would wipe out a good portion of the projected surplus. And if his own calls for increased spending for the military, education and prescription drug coverage for the elderly are added to the tab, he could eliminate it.
That would put conservatives right where they want to be, having used the surplus to their ends and emerging with a cudgel with which to beat back attempts to use tax revenues for purposes they do not like.
"There's really a two-tiered argument for the tax cut," said Stephen Moore, president of the Club for Growth, a conservative political action committee. "One is the fiscal stimulus, supply-side argument. The other is that it's the best way to stop a spending spree. Tactically, it makes sense to do the tax cut quickly or you won't be able to repel the spending momentum that comes from both sides."
Over the last few years, budget surpluses have grown with each calculation, like a pot of gold that replenishes itself faster than anyone can empty it. But those surpluses have grown only because Washington has been deadlocked by divided government, unable to agree on what to do with the windfall.
With Republicans in charge both on Capitol Hill and at the White House, that deadlock is probably at an end. Although they will probably have to compromise to get legislation through the evenly divided Senate, it is possible Republicans could end the coming legislative year having claimed for their own most of the money that is on the table for tax cuts and spending. By current estimates, that amounts to something better than $2.5 trillion over the next decade, the portion of the surplus generated outside of Social Security.
Unless the economy were to get a lot more robust in a hurry, the surplus pot would then be empty for years, perhaps decades, to come.
"You only decide once how to dedicate the surplus," said Jacob J. Lew, the Clinton administration's budget director.
To the extent that Republicans are pressing for tax cuts to keep Democrats from getting their hands on the money, they are bringing back a strategy similar to that used by Ronald Reagan right after he became president in 1981. Mr. Reagan's team very explicitly saw the large tax cut they pushed through as a way of blocking calls for new spending and checking the inexorable expansion of the size and influence of the federal government.
But Mr. Reagan was unable to stop Democrats, or Republicans, from spending more, nor would he pare back his demands for more money for the Pentagon.
"If you look back to the 1981 economic policy, they were creating a squeeze on spending that was supposed to force hard decisions," Mr. Lew said. "It didn't work. We got enormous deficits that spiraled out of control and put the economy in peril."
Like Mr. Reagan, Mr. Bush is promising to get tough on spending. But even under Republican control since 1994, Congress has kept the fiscal floodgates open, and there is now bipartisan agreement on the need to spend more on issues like education and health care.
There are a few big differences between today and the Reagan years. For one, the economic desirability of fiscal responsibility is much more deeply rooted in the political system. For another, even if the entire non- Social Security surplus were to be apportioned, the government would still have a huge buffer in the form of the surplus being generated by Social Security more than $2.5 trillion over the next decade.
The two parties have agreed that the Social Security surplus should go only to paying down the national debt or overhauling the retirement system, and not to tax cuts or new spending. Still, the existence of the money would greatly reduce the risk of running up the kinds of deficits that dragged down the economy in the late 1980's and early 1990's.
Indeed, the nation now confronts its needs economic, social, military from a position of remarkable fiscal strength. Despite the threat of recession, the budget situation that Mr. Bush is inheriting from Bill Clinton is light-years better than the morass of deficits Mr. Clinton inherited from Mr. Bush's father. The fight now is over how to spend the bounty.
Grover Norquist, president of Americans for Tax Reform, a conservative research group, said that until the surplus is off the table it will be difficult for conservatives to turn back the expansion of government. Welfare reform, reductions in aid to farmers and the devolution of power over domestic programs to the states only moved ahead after Republicans made balancing the budget their goal in 1995, he said.
"Budget discipline forces the reforms," he said.
Democrats have their own claim to fiscal responsibility through their insistence on reducing the national debt. But they say it is ridiculous to create an atmosphere of restraint when there is a national consensus about the need to address so many issues.
"You can have a fair difference of opinion about priorities," Mr. Lew said, "but it is a bad idea to pretend you can create an environment in which goals that have public support can't be considered."
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