[Congressional Record Volume 144, Number 74 (Wednesday, June 10, 1998)]
[Extensions of Remarks]
[Pages E1083-E1084]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                               THE BUDGET

                                 ______
                                 

                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                        Wednesday, June 10, 1998

  Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington 
Report for Wednesday, June 10, 1998 into the Congressional Record.

                           The Budget Surplus

       One of the most striking economic developments this year 
     has been the return of the federal budget surpluses. For the 
     first time since the Johnson Administration the federal 
     government will spend less than it receives in revenue. The 
     deficits reached a record $290 billion in 1992 under 
     President Bush, and for many years they have dominated the 
     policy debate in Washington. Turning this around has been a 
     major accomplishment. Now Congress is faced with the quite 
     different question of what to do with the surpluses.


                           Latest Projections

       The latest projections are that the federal budget will run 
     a surplus of around $50-60 billion this year. The projections 
     are even better after that, as the combined surpluses over 
     the next ten years could exceed $1.5 trillion. These 
     surpluses reverse the trend of the past three decades in 
     which the federal government built up most of the national 
     debt, which now stands at $3.8 trillion.


                          Reasons For Surplus

       Part of the credit for the surplus goes to Congress, 
     especially for passing the 1993 deficit reduction package. 
     That helped to slow the growth of government spending and 
     built greater spending restraint into the budget law. Major 
     factors in holding down spending have been the shift toward 
     managed care in Medicare and defense downsizing after the end 
     of the Cold War.
       But even more important than the spending restraint has 
     been the growth in revenues coming into the Treasury because 
     of the strong showing of the U.S. economy. More people have 
     been working and hence paying taxes; the stock market has 
     been booming, generating a sharp increase in capital gains 
     taxes; and corporate profits have been high. Tax revenues 
     during the month of April were some 14% higher than a year 
     ago, and, because of the strong economy, tax receipts as a 
     share of the economy have risen to 21.5%, a postwar record.


                            Need For Caution

       Yet that dependence of the budget surplus on the economy's 
     remarkable performance means we must be particularly 
     cautious. Our economy will at some point slow down. The 
     current economic expansion is the second longest since World 
     War II, and the business cycle hasn't been repealed. When the 
     economy slows, incoming revenues will drop and the surplus 
     could be reduced or eliminated altogether. Even an average-
     sized recession could mean a $100 billion budgetary shortfall 
     for a year or two.
       There's a second reason to be careful with these surpluses. 
     Long-range forecasts can be quite unreliable. The forecast of 
     a surplus five or ten years from now is not much better than 
     an educated guess. Early last year, for example, the 
     Administration was forecasting a $121 billion deficit for 
     1998; now they are forecasting a sizable surplus. If we cut 
     taxes or increase expenditures now, that will be very hard to 
     reverse if the forecasts are wrong.
       A third reason to be cautious is that the surpluses are to 
     some degree an illusion. They occur because the tallying of 
     federal spending and receipts includes the surpluses in 
     Social Security. If the Social Security accounts are removed, 
     the remaining tax payments fall tens of billions of dollars 
     short of covering the full cost of providing government 
     services.
       The fourth reason for caution about the surpluses is a 
     longer-term one. When the baby-boom generation begins to 
     retire in about ten years, the whole demographic structure of 
     our population changes. Between now and the year 2030 the 
     number of people aged 65 or older will double, but the number 
     of people ages 20 to 64 will increase by only about 15%. As 
     the baby-boomers become eligible for Social Security, 
     Medicare, and Medicaid, that will put an enormous strain on 
     federal spending. The biggest chunk of federal spending, by 
     far, currently goes for programs for older Americans, and 
     that will only increase in the years ahead.


                             Policy Options

       The surpluses put us into an altogether new policy field, 
     and there are many proposals in Washington today to cut taxes 
     or increase spending. Yet I think a very strong case can be 
     made for using the emerging surpluses to pay down the federal 
     debt.
       Despite the bright projections for the budget, the short-
     term uncertainties and the future imbalances due to the baby-
     boomers' retirement are cause for major concern. A key issue 
     before Congress and the President is how to begin to prepare 
     for the budgetary shortfalls that will surely arise. I find 
     it helpful to think about this problem of the immediate 
     surpluses in terms of ourselves and our children and 
     grandchildren. If we cut taxes or increase spending now we 
     can certainly provide benefits for ourselves. On the other 
     hand, if we keep the surpluses to pay down the country's 
     debt, that will boost the supply of private savings and 
     investment and provide higher incomes for the next 
     generations. Passing on a huge debt burden, which today 
     requires interest payments of almost $250 billion each 
     year, is quite unfair to our

[[Page E1084]]

     children and grandchildren and it is a poor way to prepare 
     for the next century.
       We cannot count on the favorable trends continuing; the 
     wise thing to do is to wait and see what happens. We should 
     also wait until Congress takes steps to shore up Social 
     Security. We should not be spending the surpluses until the 
     government's revenue and spending excluding Social Security 
     are in balance and Social Security's long-term fiscal 
     imbalance has been addressed. It is certainly premature to 
     talk about spending a surplus when we have huge entitlement 
     costs looming before us in the near future. We shouldn't 
     spend money we may not have. Moreover, I don't see the 
     American people crying out for government action, either on 
     the spending side or the revenue side. And, with the economy 
     performing quite well, I see little reason for changing the 
     government's fiscal approach at the present time. So I think 
     we should resist the proposals calling for new tax cuts or 
     increased government spending. I believe we will get a higher 
     economic return from future surpluses by using them to 
     whittle down the $3.8 trillion in federal debt held by the 
     public.
       I understand that it is possible to use the surplus to 
     carefully craft tax cuts or new spending programs that deepen 
     the nation's long-term capital base and encourage economic 
     growth. But I am not at all sure that those sound proposals 
     would emerge from the legislative process. On balance debt 
     reduction probably makes more sense.


                               Conclusion

       So my preference is to leave the budget surplus alone, and 
     if sizeable surpluses do in fact arrive they should be 
     committed to our future, not to the present. It seems clear 
     to me that those who want to reduce the surpluses, whether by 
     tax cuts or spending increases, will be impairing the incomes 
     of our children and grandchildren. They are making a clear 
     choice, preferring our generation to future generations.

     

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