[Congressional Record Volume 145, Number 18 (Tuesday, February 2, 1999)]
[House]
[Pages H281-H282]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
{time} 1315
INJECTING REALITY INTO THE DEBATE ON THE BUDGET SURPLUS
The SPEAKER pro tempore (Mr. Barrett of Nebraska). Under the
Speaker's announced policy of January 19, 1999, the gentleman from
Florida (Mr. Foley) is recognized during morning hour debates for 5
minutes.
Mr. FOLEY. Mr. Speaker, I rise today because I want to inject a
little bit of reality, I hope, into the ongoing budget debate on the
surplus that we continually hear around this Capitol.
I know my home State has Disney World, and I know we have Universal
Theme Park, and I know a lot of those expectations in those things are
about not reality but about enjoying yourself.
It seems with this apparent flush of revenues for years to come,
fiscal responsibility in Washington, D.C. has become a thing of the
past. Indeed, the Administration's fiscal year 2000 budget seems to
promise a new government program for just about anybody you can think
of.
To be fair to the President, he does not propose using future surplus
dollars for these new programs, but the assumption seems to be that
with a healthy U.S. economy and a balanced budget in the black for the
first time in decades, the government, the Federal Government, can
afford to grow again.
We take out of account any potential downfalls in the economy. In
fact, everybody in this Capitol is now so rosy and so full of
optimistic projections they do not assume that there is going to be a
hiccup in the road at any time.
I have to challenge this assumption. I have to bring some clarity to
the debate. First, the fact that the U.S. economy is the envy of the
world is due in large part to the fact that U.S. consumers are, indeed,
confident, and armed with that confidence, they are spending in record
numbers. That simply cannot last forever.
The other thing we have to look at is why and how are they spending
money: dead instruments, credit cards, second mortgages, refinanced
first mortgages, or a gain in stock values in the sale of equities
yielding capital gains to themselves.
Today's editorial in the USA Today makes something very clear. I will
include the entire editorial for consumption by those who would read
the Journal.
Mr. Speaker, the problem is, Americans are not saving enough to
support their spending. Household saving rates last year were the
lowest since the Great Depression, and Americans are relying on the
stock market to maintain their living standards. Many analysts,
including Federal Reserve Chairman Alan Greenspan, maintained that
stock values may be too high, and the bubble can burst at any time in
the near future.
What happens then? Consumer spending will take a nosedive. We all
know what will happen after that. The U.S. economy will go into a
recession, government revenues will dry up, and all of a sudden, that
rosy picture of the healthy economy and multiyear budget surpluses
vanish. It vanishes. Again, that is where fantasy ends and reality
picks up.
We have to understand that this is not a static economy; that things
change. If we look at Asia, look at Brazil, look at Latin America, look
at Mexico, look at Canada, look at the economies of all our major
trading partners, we see deficiencies growing, problems with currencies
growing. So the United States cannot be the savior of the entire world.
My point is this. While President Clinton may be able to make a case
that the Federal Government can afford all of his new initiatives in
the fiscal year 2000 budget, and I am skeptical of that, he certainly
cannot guarantee that the U.S. taxpayers can afford them in the future.
We need to act responsibly in the good times to ensure that they last
for future generations. We need to save social security now so we can
afford to boost the national savings rate to maintain our strong
economy. If we do the right thing we can do both at the same time, and
the projected surpluses will in fact materialize.
There are two approaches that can accomplish this goal. I would
personally prefer that all future surpluses be dedicated to retiring
the debt to shore up social security. In the surplus years we should
guarantee social security recipients their full benefits, and at the
same time we should create personal retirement accounts for future
generations. These accounts will not only offset the long-term costs of
social security, but they will also provide much-
[[Page H282]]
needed capital to keep the U.S. economy healthy.
Barring this approach, however, Congress should provide tax relief,
and I understand tax relief. This is what Chairman Greenspan said to
our Committee on Ways and Means last week in a hearing: ``If we have to
get rid of the surpluses, I would prefer reducing taxes rather than
spending it. Indeed, I don't think it's a close call.''
That question was posed to him because there was a notion somehow
that all of the money should go to surplus to retire the debt. Mr.
Greenspan clearly agreed with that premise. But then as he looked at
the budget unfolding as produced by President Clinton that we are now
reviewing, we see that all surpluses are going out the window. All
programs are expanding. All are growing past the rate of inflation. All
are looking at solving the world's and our national crises by infusing
more dollars here in Washington, rather than sending it home.
Mr. Greenspan took strong exception, saying if there are surpluses
and they are not to be used or will not be used for deficit reduction,
then clearly they should go for tax reduction. I stand on the side of
Mr. Greenspan.
Mr. Speaker, I include for the Record the article previously
mentioned.
The article referred to is as follows:
Spending Budget Surpluses: Wait Until They're Real
President Clinton's proposed $1.77 trillion budget released
Monday, with its projections of $2.4 trillion surpluses over
the next 10 years, has both parties ready prematurely to
abandon fiscal prudence in exchange for votes in the year
2000 election.
Even the GOP's last holdout against huge tax cuts, Sen.
Pete Domenici, R-NM, has joined the parade. While he
condemned Clinton's budget as a return to an ``era of really
big government,'' the chairman of the Senate Budget Committee
has signed on to across-the-board tax cuts pushed by party
leaders.
But just as stock market seers warn that market catastrophe
usually follows the coaxing of the last pessimist to buy in,
so may today's golden surpluses turn to lead. There's ample
reason for caution, as the surpluses everyone is counting on
aren't yet real.
the phony surplus
While both Clinton and Republicans pretended Monday that
there is a surplus now, the general fund budget isn't
predicted to be in balance until 2001.
Until then, the only surplus the government will be running
is in Social Security.
It's an old trick. Government has for years covered up huge
deficits by borrowing billions from excess payroll taxes paid
into Social Security for baby boomer retirements and using
them for daily operations.
The only difference over the next 10 years is that the $1.8
trillion in Social Security surpluses will make government's
anticipated overall surpluses appear larger. That's how
Clinton's budget achieves most of the supposed $2.4 trillion
surplus.
The bottom line of the equation, though, is the same. Any
spending increases or tax cuts will be paid by borrowing from
Social Security, increasing the burden on future taxpayers
when baby boomers retire.
Real general fund surpluses will be put off for years, and
that's if forecasts are correct, unlikely considering past
performance.
The Reagan administration, for instance, in its first
budget in 1981 forecast a $29 billion surplus by 1986. A deep
recession and fiscal irresponsibility by the administration
and Congress produced a $221 billion deficit instead.
Since 1980, budget-surplus or deficit predictions have been
off by an average $54 billion a year, or nearly 5%. Five-year
predictions are even more iffy, being off an average 13%.
Counting on surpluses that haven't arrived thus amounts to
a big gamble, especially in current economic conditions.
a bubble economy?
Last month, the economy set a peacetime record for an
expansion, eclipsing the mark set in the 1980s. But there are
signs of bumpy times ahead. The rest of the globe continues
to suffer from slow or falling growth. Asia remains in
crisis, with Japan in recession. And teetering on the brink
of another fiscal chasm is Brazil, key customer to Latin
American economies to which U.S. exporters look for $240
billion in annual sales.
As a result, U.S. exports, which had been the key to U.S.
growth through much of the 1990s, aren't likely to grow much.
And as in the past two years, the U.S. and world economies
will continue to depend on U.S. consumers buying more and
more.
The problem: Americans aren't saving much to support their
spending. Household savings rates last year were the lowest
since the Great Depression. People are relying on stock
market gains to maintain living standards.
Many market analysts, though, worry that current stock
values, up threefold since 1993, aren't sustainable. And if
the bubble bursts, consumer spending may head south.
For the budget, that could spell disaster. Capital gains
tax receipts on stocks have jumped 130% since 1994,
contributing heavily to a 50% increase in personal income
taxes. Future surpluses rely on stock market gains leading to
big, taxable pension payouts.
A fall in the market, a decline in consumer demand and a
resulting recession would leave the government depending on
Social Security to cover up its own deficits once again.
A year from now, with the world crisis eased or worsened,
the picture will be clearer. But that doesn't fit the
political calendar, which remains focused on the 2000
elections.
budget bloat
The push to use up the surplus also would ease pressure on
government to spend its money more efficiently.
Business leaders who looked into Defense operations, for
example, found $30 billion in annual savings that would
improve performance. But the reforms face tough sledding in
the Defense bureaucracy and Congress if Clinton and Congress
ease spending caps.
Similarly, the General Accounting Office of Congress has
pinpointed billions in savings in agencies handling
everything from food inspections to housing to
transportation. They may not see the light of day if Clinton
and Congress no longer have to pay for new programs by
achieving savings in old ones.
The possibility of huge budget surpluses is not a reason to
return to old spendthrift ways that built up the $5.6
trillion national debt.
As Federal Reserve Chairman Alan Greenspan said last week,
the best thing government can do with any extra money is pay
down that debt. The proposed budget, though, continues to
fund the debt with Social Security surpluses, not eliminate
it as celebrants suggest.
To really pay it down, the government needs to run a real
surplus. And that simply hasn't happened yet.
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