[Congressional Record Volume 144, Number 9 (Tuesday, February 10, 1998)]
[Senate]
[Pages S590-S592]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                       THE COMING BUDGET SURPLUS

 Mr. KYL. Mr. President, with the federal government apparently 
on the verge of running its first unified budget surplus in nearly 30 
years, many people are beginning to ask what comes next? What should 
happen to the budget surplus when it materializes? Should we spend it? 
Should we begin to pay down the national debt? Or should we provide 
hard-working Americans with meaningful, long overdue tax relief?
  Before we try to answer those questions, it would be worthwhile to 
recall how we got here. Remember, it was not that long ago--in fact, it 
was as recently as February of 1995--that President Clinton submitted a 
budget that would have locked in annual deficits in the range of $200 
billion for the foreseeable future. A unanimous Senate rejected the 
Clinton budget on May 19, 1995. And from that point on, the debate took 
a fundamental turn from whether to balance the budget, to how to 
balance it.
  During the last three years, we have begun to slow federal spending 
growth. We eliminated 307 mostly small federal programs. But perhaps 
the most decisive factor has been what we did not do. We did not impose 
another large tax increase on already overtaxed families and 
businesses. And that gave people enough room to do things to invigorate 
the economy.
  In fact, the economy has outperformed just about everyone's 
expectations, producing tens of billions of dollars in unanticipated 
revenues to the Treasury to close the budget gap. When the budget 
agreement passed last year, for example, unified budget deficits were 
projected to go from $67 billion in fiscal year 1997 to $90 billion in 
fiscal year 1998. But as it turns out, the fiscal year 1997 deficit 
came in at only $22 billion, and it is projected to amount to just $5 
billion in the current year. The unexpected turnaround is due almost 
entirely to the economy's performance, and it comes in spite of the 
substantially increased spending allowed by the 1997 budget agreement.
  Whatever we ultimately decide to do with a unified budget surplus--
and I would caution that projections of a surplus are just that, 
projections--we ought to be sure that it sustains the economic growth 
that has gotten us to where we are today.
  Mr. President, the suggestions that have been made about how to 
handle a budget surplus generally fall into four categories: Apply it 
to new or existing federal spending programs; use it to strengthen and 
improve Social Security for future generations; apply it toward the 
national debt; or return it to the American people in the form of tax 
relief.


               OPTION ONE: INITIATE NEW SPENDING PROGRAMS

  The first option is to spend any surplus, and there is no shortage of 
suggestions about how to do that. With deficits seemingly behind us, 
the thought of lavishing readily available funds on new government 
programs is tempting to many. President Clinton is proposing the 
creation of dozens of new programs, costing $125 billion over the next 
five years. That is in direct contradiction to his pledge to save 
Social Security first.
  There are good reasons to be cautious about creating any new spending 
programs. For one thing, a surplus has yet to be posted. We should not 
commit to spend what we do not have.
  Moreover, we are all aware of the instability now being experienced 
by Asian economies, and some of that could spill over into our own 
economy in the coming months. To some degree, United States markets 
have already felt the effects of the Asian problems.
  Just as the fast-growing economy has produced billions of dollars in 
additional revenue for the Treasury during the last year, any slowdown 
in the economy could take billions of dollars out of the equation. If 
we cannot ensure that any new programs have a dependable revenue stream 
to support them, we will be back into deficit very quickly.


                            SOCIAL SECURITY

  Mr. President, millions of Americans, myself included, listened 
intently to what President Clinton had to say about Social Security in 
his State of the Union address. What we heard--or what we thought we 
heard--was a declaration by the President to reserve any budget surplus 
that might emerge in the next few years to shore up Social Security for 
future generations.
  It was a statement that drew widespread praise from the public. But 
now it turns out that what we heard is not, according to White House 
spokesmen, what the President really meant. The Washington Post put it 
this way in a February 4 report: ``the ringing simplicity of Clinton's 
call to `save Social Security first' gave way to a fog of bewildering 
budget-speak from the administration's top economic advisers.''
  It turns out that the President is not proposing to reserve the 
surplus for Social Security at all. First, it is worth noting that his 
budget would spend the surplus that is generated this coming year by 
the Social Security system itself. In other words, President Clinton 
takes an estimated $93 billion out of the Social Security trust fund, 
issues the retirement program a set of IOUs, and uses the money, not 
for retirees today or in the future, but to pay for other programs run 
by the federal government.
  Second, as I mentioned a few moments ago, he would diminish the size 
of the other surplus we are talking about--the unified budget surplus--
by proposing to spend it on a whole host of new government programs 
costing $125 billion over the next five years.
  Is that really putting Social Security first? It seems to me that 
that is a plan for putting it last--or at least way, way down the list 
of things to do with a budget surplus.
  If we really want to save Social Security, we ought to get back to 
what most people thought Social Security was supposed to be: A safe and 
secure account where their contributions could be deposited and where 
they could grow to produce a nest egg for their retirement years. A 
unified budget surplus will make it easier to get to a system where 
money is put into individual Social Security retirement accounts for 
each citizen so that the money will actually be set aside for him or 
her. This would put Social Security reserves completely off limits to 
the federal government so they could not be squandered on other 
programs.
  This may be the best thing to do with a unified budget surplus.


           OPTION THREE: BEGIN TO PAY DOWN THE NATIONAL DEBT

  Mr. President, there are those who say that we should not spend any 
surplus revenues that may arise, nor reserve them for Social Security, 
but begin to pay down the debt instead.
  The federal government has not run a unified budget surplus since 
1969, so the fact that it may do so next year is indeed significant. 
But I would caution that we are not yet at the point that we can 
actually begin to pay down the debt--at least in the sense that most 
people think of. The fact of the matter is that the national debt will 
continue to rise, even though we are about to enter an era of 
surpluses. Why?
  We are only on the verge of running a surplus in the unified budget--
what we get when we total up all government revenues and expenses, 
including Social Security revenues and expenditures. If borrowing from 
Social Security and other trust funds were removed from the 
calculation, the Clinton budget would show not a surplus of $9.5 
billion for fiscal year 1999, but a deficit of $95.7 billion.
  With borrowing comes the obligation to repay. That is, the IOUs that 
are issued to the Social Security trust fund must be repaid as the 
needs of the retirement system dictate. This is one reason that the 
President's budget forecasts the debt rising from $5.5 trillion this 
year to $6.3 trillion by 2003.
  We have a long way to go before we balance the budget without relying 
on Social Security, and so the first order of business must be federal 
spending restraint. That is why we should reject President Clinton's 
call to spend billions of dollars to start dozens of new programs. When 
we get to the point where we can balance the budget without relying on 
Social Security, the debt will stop growing, and then we can think 
about starting to shrink it.
  But here is the more fundamental point: it seems to me that if our 
only

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focus is on paying down the debt, we will fail in our ultimate duty to 
the American people. At best we will merely perfect a mechanism for 
collecting the taxes and paying the debts of a government that still 
regulates too much, spends too much, and taxes too much. Milton 
Friedman has said that he would rather have a smaller budget that is 
out of balance, than a larger budget that is in balance. I think he is 
right.
  It is more important, in my view, to aim first to limit government 
spending, reduce taxes, and foster a less intrusive federal government. 
The fact that we achieve balance only by relying on Social Security and 
other trust funds is indicative of a government that is still operating 
far beyond its means.
  A final point. Jack Kemp has suggested that keeping taxes higher than 
they need to be simply to run budget surpluses to slow the amount of 
debt we are accumulating puts the ``cart of austerity ahead of the 
horse of economic growth.'' I think his point is a valid one. The 
absolute size of the debt is not nearly as burdensome as its size 
relative to the overall economy. In other words, as long as the budget 
is in balance or near balance, the country's true debt burden is going 
to shrink by virtue of a growing economy.
  The focus ought to be on maintaining a healthy and growing economy 
that produces good new jobs, more opportunities for everyone to get 
ahead, and the resulting capability to meet federal budget requirements 
and actually pay down the debt over time.


              OPTION FOUR: PROVIDE BROAD-BASED TAX RELIEF

  That gets to the fourth option: Tax relief. We know from recent 
experience that a strong economy can turn the unified budget from 
deficit into surplus, so long as we also exercise some modest restraint 
over federal spending. So a thriving economy is one of the keys to 
solving our Nation's long-term budget problems. It is a thriving 
economy that will make it much easier to safeguard Social Security and 
Medicare for the generations to come.
  But with the favorable short-term budget outlook so dependent upon 
economic growth, and no significant pro-growth policy changes to 
prevent the already lengthy expansion from petering out, many of us 
believe that it will be difficult, if not impossible, to ever realize 
the extra revenues that we are depending on for the budget to stay in 
balance once it gets there.
  Federal Reserve Board Chairman Alan Greenspan gave this advice to the 
Budget Committee in early February: He told us to view the surplus very 
cautiously, avoid new spending, adhere to spending caps, and focus on 
growth-oriented tax cuts, like lowering marginal income-tax rates and 
reducing capital-gains taxes.
  So, Mr. President, regardless of what happens to a unified budget 
surplus, it would be prudent to invest in economic growth, and the best 
way to do that would be to reduce income-tax rates for all Americans. 
This would help the economy by lowering the tax on each additional 
dollar earned--something that will stimulate work, saving, and 
investment. This, in turn, will lead to more jobs, better pay, more 
opportunities for all Americans, and ultimately more revenue for the 
Treasury.
  If the political climate is such that across-the-board income-tax 
rate reductions cannot be accomplished this year, then providing 
marriage-penalty and death-tax relief may be the best alternative for 
helping millions of hard-working families, while promoting economic 
growth.
  Mr. President, in early December, Congressman John Shadegg and I 
hosted a town hall meeting in Scottsdale, Arizona, to discuss taxes 
with our constituents. Half the session was devoted to reform of the 
Internal Revenue Service. The other half focused on tax reform.
  Most of the people we heard from expressed frustration with the 
federal government's propensity to try to pick winners and losers--that 
is, to target tax relief to select groups of Americans. That is what 
President Clinton is proposing again this year. The consensus was in 
favor of broad-based relief so that everyone has a chance to do 
better--singles as well as married couples, retirees as well as 
students, families with children as well as those without. People also 
cried out for simplification. Last year's attempt to provide tax relief 
resulted in an additional 821 changes in the Tax Code. It is just too 
complex.
  In fact, most constituents favor scrapping the entire Tax Code and 
starting over with an entirely new tax system--one that puts taxpayers' 
interests ahead of the interests of accountants, lawyers, and 
lobbyists. A majority of the Arizonans who attended the Town Hall 
meeting appeared to favor a national sales tax. But there is a lot of 
support for the flat tax as well.
  Therein lies our dilemma. While public sentiment appears to be 
strongly in favor of a fundamental overhaul of the Tax Code, 
significant public consensus has yet to emerge in favor of a single-
rate or flat tax over a sales tax or some alternative. And given 
President Clinton's lack of support for any fundamental tax reform, it 
is likely to take a broad public consensus, the likes of which we have 
not seen in recent years, to drive such a tax overhaul through Congress 
and past the President's veto pen. Comprehensive reform will take time 
to accomplish.
  In the meantime, though, we can take a big step in the direction of 
fundamental reform by providing broad-based tax relief to the American 
people. Income-tax rate reductions would be best, but we ought to go as 
far as we can this year. Marriage-penalty and death tax relief are 
other good places to start.


                        A FEDERAL SPENDING LIMIT

  Mr. President, the chairman of the House Ways and Means Committee 
recently recommended that we not only provide tax relief, but also set 
a goal of limiting federal revenue to no more than 19 percent of Gross 
Domestic Product (GDP)--that is about 0.9 percent less than where 
revenues are today. The growing debt under the Clinton budget and the 
dozens of costly new programs the President is proposing are evidence 
of the need to limit the government's burden on hard-working Americans. 
Obviously, a tax limit would also have to be coupled with a requirement 
that the government balance its books.
  Establishing such a limit is an idea that I have advocated for some 
time, although I think a better and more direct approach would be to 
limit federal spending instead of revenue.
  It has proven notoriously difficult to accurately project what 
federal revenues will be from year to year. And even if we could 
accurately predict revenues, keeping them within the limit would no 
doubt require near constant tinkering with the Tax Code--something that 
ought to be avoided if we are interested in simplifying compliance and 
returning some stability to the tax laws.
  But we can limit spending. And that is the cornerstone of the 
Balanced Budget/Spending Limitation Amendment that I have proposed over 
the years. Voters in my home state of Arizona overwhelmingly approved a 
spending limit as part of our state's constitution in 1978. It is a 
home-grown idea that would work well in Washington, too.
  The spending limitation amendment I propose would limit spending to 
19 percent of GDP, which is roughly the level of revenue the federal 
government has collected for the last 40 years. There are also 
statutory approaches to establishing such a limit.
  Balance the budget and limit spending, and there is no need to 
consider tax increases. Congress would not be allowed to spend the 
additional revenue that is raised. Link federal spending to economic 
growth, as measured by GDP, and an incentive is created for Congress to 
promote pro-growth economic policies--that is, policies that lead to 
more jobs and better pay, more opportunities for small businesses. The 
more the economy grows, the more Congress is allowed to spend, but 
always proportionate to the size of the economy.


                               CONCLUSION

  Mr. President, we need to be straight with the American people when 
we talk about a budget surplus. It has yet to materialize, so we should 
not attempt to spend what we do not have. Paying down the debt is not 
really an option, since the debt will keep growing as a result of 
continued borrowing from Social Security and other trust funds. We 
still have a long way to go to balance the budget without Social 
Security.
  We can, however, begin to protect Social Security from spendthrift 
politicians by considering ways of putting

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Social Security contributions off-limits to the government in 
individual Social Security accounts. And we can invest in broad-based 
tax relief that will help fuel economic growth so that we not only have 
the means to safeguard Social Security and Medicare for future 
generations, but the resources to balance the budget without relying on 
Social Security.
  The healthy and growing economy of the last year did what the big tax 
increases of 1993 and 1990 could not do. It has produced the surge in 
revenues that has nearly closed the gap between government revenues and 
expenditures. And it has validated what many of us have said for some 
time: Reduce the tax burden imposed on the American people, and the 
economy will flourish and produce the revenues we need to solve our 
budget problems.
  Let us really put Social Security first, and let us provide broad-
based tax relief. Those objectives should top our agenda for the 
year.

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