[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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