[Congressional Record (Bound Edition), Volume 145 (1999), Part 15]
[Senate]
[Pages 21199-21200]
[From the U.S. Government Publishing Office, www.gpo.gov]



                          THERE IS NO SURPLUS

  Mr. HOLLINGS. Mr. President, yesterday the Republican majority 
continued to try and create a strategy to embarrass President Clinton 
and those Members of Congress that opposed the so-called tax-cut bill. 
I found their strategy quite ironic that while this country is less 
than 20 days away from the end of a fiscal year when the U.S. 
Government will spend more than $100 billion than it takes in that the 
Republicans are insisting on giving tax breaks to the rich that the 
country cannot afford.
  William Greider, a former assistant managing editor of the Washington 
Post and now National Editor for Rolling Stone, explains the issue of 
the phantom surplus very well in an article headlined ``The Surplus 
Fallacy.''
  Mr. Greider has done a great job in explaining that there is no 
surplus, there is no money to give a tax break with, and more 
importantly, this country spends more than it takes in each year. I 
think this article should be required reading for any Member of 
Congress that has to vote on a federal budget in the next two months so 
they may understand where this country really stands fiscally.
  I ask unanimous consent that the article be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                          The Surplus Fallacy

                          (By William Greider)

       Leaders of both parties are gleefully finding ways to spend 
     3 trillion extra tax dollars. The only problem is, the money 
     doesn't exist.
       Fanciful claims and sly deception are common enough in 
     Washington politics, but this season, the level of gross 
     falsification on the question of the governorment's budget 
     surpluses--which were discovered this year--is awesome and 
     ominously bipartisan. It's as if the politicians, wearied by 
     nearly two decades of fighting horrendous deficits, are 
     deranged by the notion that at long last they have some loose 
     money to throw around.
       Republicans swiftly proposed giving some of this supposed 
     windfall back to the people, but their $792 billion tax-cut 
     bill, passed in early August, actually delivers most of the 
     boodle to the very rich and to major corporations. President 
     Clinton, claiming the high ground of fiscal responsibility, 
     is certain to veto the GOP measure, yet he and the Democrats 
     have their own worthy plans for spending the extra money or 
     perhaps bargaining for a smaller tax cut.
       One big idea animates both political parties: The federal 
     government, they tell us, will amass surplus revenues during 
     the next ten years totaling nearly $3 trillion--that is, $3 
     trillion more will come in than be spent. Roughly two-thirds 
     of this will accumulate from Social Security payroll taxes, 
     but the other $1 trillion in surpluses is projected for the 
     government's general operating budget, which is made up of 
     personal and corporate income-tax revenues. This happy 
     prospect reflects the robust economy--more people working and 
     paying taxes--and the long campaign to contain the growth of 
     federal spending.
       Even in Washington, $3 trillion is serious money. The air 
     is thick with self-congratulation. Reduce income-tax rates by 
     a point or two, cut capital gains again and repeal 
     inheritance taxes? No sweat. Increase the military's budget 
     by $40 billion or $60 billion? Let's do it. Suddenly, the 
     political horizon is aglow with feel-good opportunities.
       Except for this: That one big idea is false. There is no $3 
     trillion surplus ahead. In fact, the government's gross debt 
     will grow steadily over the next decade. Nor is any large 
     bonanza likely from the operating budget of the government, 
     though Clinton and Congress have made great progress in 
     eliminating the red ink. At the very most, instead of $1 
     trillion, the operating budget might realistically develop a 
     surplus over ten years of no more than $100 billion or $200 
     billion. But even that ``surplus'' will be money borrowed 
     from the government's other trust accounts.
       As conservative commentator Kevin Phillips has noted of the 
     alleged surplus, this is not pie in the sky--it's pie in the 
     stratosphere.
       Many smart players know better, and some say so aloud, but 
     dissent is brushed aside by that $3 trillion headline. A 
     careful reader of leading newspapers will find sidebar 
     stories explaining why the huge surpluses are far from 
     assured, but conventional wisdom wipes out complicated facts 
     and reasonable doubt. In this media age, mindless buzz shapes 
     the debate, and once the terms are set, both parties scurry 
     to prepare billboard slogans for the next campaign.
       Both are now playing the politics of dipping into the 
     future--dispensing virtual money that will be available only 
     if Congress also imposes dramatic and continuing pain on many 
     citizens. But why spoil the fun by mentioning reality?
       Republicans have reverted to the same feel-good assumptions 
     that Ronald Reagan introduced with his economic package back 
     in 1981. Reagan's combination of massive tax cuts and 
     mushrooming defense spending produced the runaway federal 
     deficits in the first place and eventually tripled the 
     national debt. Just when those deficits are finally 
     conquered, the GOP wants to try it all again.
       The Democrats, meanwhile, have morphed into the party of 
     rectitude, scolding the Republicans for reckless tax 
     giveaways, just as Democrats were always pilloried as big-
     government spendthrifts. This reversal in party values is 
     potentially significant, because it is really an argument 
     about the size and future of the federal government. If the 
     Democrats hold their ground and win in 2000, it could signal 
     an end to the long era of successful government bashing. If 
     Democrats yield to election-year temptations and join the 
     partying, the federal government may swiftly slide back into 
     an endless swamp of red ink.
       The other danger is to prosperity. The GOP's reward-the-
     wealthy tax bill may simply inflate the stock-market bubble 
     further and provide more stimulus to the economy just as the 
     Federal Reserve Board is trying to cool it down. That could 
     set up the same destructive collision between budget policy 
     and monetary policy that marked the Reagan era--the Fed 
     raises interest rates to counter the stimulative tax cuts. 
     Fed Chairman Alan Greenspan is pleading with his fellow 
     Republicans in Congress: Do nothing, please.
       Right now, according to various opinion polls, the public 
     thinks the Democrats have got it right. By a margin of 
     twenty-one percent, people want the surpluses to be devoted 
     to ``unmet needs,'' from education to defense, instead of to 
     tax cuts. Among younger voters (between the ages of eighteen 
     and thirty-four) the majority favors applying surplus funds 
     to Medicare rather than to tax cuts, sixty-seven percent to 
     twenty-seven percent.
       For that matter, half of the public doesn't believe the $3 
     trillion headlines and doubts that any real surpluses will 
     actually materialize. Their skepticism is well founded.
       Like any forecast of the distant future, the accuracy of 
     the official projections of vast surpluses depends upon 
     whether the forecasters are using plausible assumptions or 
     massaging the results. In this case, the Congressional Budget 
     Office, controlled by Republicans, and the White House's 
     Office of Management and Budget have produced similar 
     predictions, but both have also applied a self-indulgent 
     political spin on the future, not to mention various 
     accounting gimmicks.
       The first premise is that the prosperous economy will sail 
     forward more or less uninterrupted. The CBO foresees no 
     recessions in the next ten years nor any dire surprises, like 
     a stock-market meltdown. The OMB assumes that above-average 
     growth in productivity will continue. But economic history 
     suggests that events never cooperate with blue-sky-forever 
     forecasts.
       More important, the projections assume that while these 
     huge budget surpluses are piling up each year, Congress and 
     future presidents will continue to whack away at the size and 
     scope of the federal government. If deep cuts don't occur, 
     then the surplus in the operating budget shrinks to a mere 
     sliver. The Center on Budget and Policy Priorities estimates 
     that if Congress simply maintains spending at its present 
     dimensions--adjusted for inflation but with no real 
     increases--the trillion-dollar surplus will be $112 billion. 
     Nobody knows, of course, but the smaller number looks like a 
     better bet.
       In fact, CBO and OMB presume an amazing reversal: They 
     claim that Congress will stick to the budget caps adopted in 
     1997 for all regular spending programs, even though those

[[Page 21200]]

     caps have been bent and broken every year since they were put 
     in place. Last year Congress went over the ceilings by $21 
     billion. This summer it's already over by $30 billion and 
     will likely go higher.
       ``It's crazy,'' says Rep. David Obey of Wisconsin, Ranking 
     Democrat on the House Appropriations Committee. ``The 
     Republicans pretend they're going to make all these budget 
     cuts. They're not going to do that, and they know they're 
     not. We're already $30 billion above the caps this year, 
     because they are stuffing so much defense stuff into the 
     emergency bills. If you assume defense keeps its present 
     share of gross domestic product, the all the rest of 
     government would have to be cut almost in half.''
       Right now, domestic spending is about $1,100 per capita, 
     Obey explains, but is would fall to $640 per person under the 
     GOP vision and almost as much under Clinton's. If highways 
     and defense are to have growing budgets, as Congress has 
     already decreed, then everything else must get whacked even 
     harder, by at least twenty percent to thirty percent. It's 
     not going to happen, for reasons that are more practical than 
     ideological.
       ``You can shrink the government,'' Obey says, ``but you 
     ain't going to shrink the country. This country is going to 
     have 20 million more people a decade from now. We will have 1 
     million more young people in college, we'll have a fifty 
     percent increase in commercial-airline flights, 50 million 
     more people visiting the national parks every year. We have a 
     prosperous economy now because government has always invested 
     in science, in education and technology. Republicans are 
     pretending the country will not respond to any of this in the 
     future, that people would rather have the tax cut. The White 
     House is not nearly as bad, but they are being overly 
     optimistic as well. They're saying we can afford a tax cut of 
     $300 billion. That's true only if you assume government is 
     not going to respond to the growing population and economy.''
       The Clinton administration nobly intends to ``pay down the 
     public debt'' with the nearly $2 trillion in surpluses that 
     the Social Security trust fund will accumulate during the 
     next decade. The Treasury secretary compares this to 
     refinancing your mortgage to get a lower interest rate, and 
     in theory that may be the result. But Sen. Fritz Hollings, 
     the blunt-spoken Democrat from South Carolina, offers a 
     challenging wager to his colleague in both parties. On 
     October 1st, when the new fiscal year begins, if the federal 
     government's gross debt actually goes down, he will jump off 
     the Capitol dome. And they will jump if it doesn't.
       ``They claim we are paying down the debt, but that's 
     terribly misleading,'' Hollings complains. ``We are not 
     really paying down the debt, we're shifting it from one 
     account to another. Actually, we're looting the trust funds 
     so we can say the government's got a big surplus. It's just 
     not true.''
       Hollings' argument takes us still deeper into the mysteries 
     of federal accounting, but he has uncovered an important and 
     widely believed myth about the new surpluses. His essential 
     point is confirmed in the president's own midyear budget 
     review. Its ten-year projections show the federal government 
     steadily reducing its publicly held debts: the Treasury 
     bonds, notes and bills used to borrow money in financial 
     markets. Yet meanwhile, the federal government's total debt 
     obligations will continue to escalate over the decade--an 
     $485 billion increase by 2009.
       So what happened to the $3 trillion surplus? It is 
     something of an accounting mirage--like borrowing from the 
     rent money to pay off your credit cards. Sooner or later, you 
     still have to come up with the rent.
       In fact, aside from Social Security, the government's vast 
     borrowing from its other trust accounts--highways, military 
     and civil-service retirement, Medicare--provides the 
     underpinning for the supposed $1 trillion surplus in its 
     regular operating budget. Without those trust-fund loans, CBO 
     acknowledges, its forecast of a ten-year surplus of $996 
     billion shrinks to only $250 billion. Someday someone has to 
     come up with that money too--or else stiff those lenders.
       Social Security surpluses are not new at all: They have 
     been piling up since 1983, when the payroll tax was 
     substantially increased to prevent insolvency. This money 
     belongs to future retirees, not Congress or the White House, 
     but it was not locked away for them. Instead, it was spent 
     every year to cover the swollen deficits generated by the 
     rest of the government--and IOUs were given to the trust 
     fund. The government still owes all that money to the Social 
     Security trust fund, and it intends to borrow lots more.
       All that is really new is the promise, now that budget 
     deficits are vanishing, that the government will stop using 
     Social Security money to pay its yearly operating costs and 
     instead use it only to pay back the public borrowings in 
     financial markets. That's admirable, but it doesn't pay off 
     the actual debt obligations of the government to Social 
     Security retirees. The Treasury is still giving more IOUs to 
     the trust fund--money it will have to pay back one day hence.
       Some will insist that because the government is essentially 
     borrowing from itself, none of this matters. But it does. The 
     suggestion that any of Social Security's long-term financial 
     problems are somehow being remedied by these transactions is 
     utter fiction. A nasty day of reckoning remains ahead for 
     American taxpayers--when Social Security recipients expect to 
     get their money back and someone gets stuck with the burden.
       The choices for a future president and Congress will be 
     stark: They can go back to the financial markets and borrow 
     trillions again. They can raise income taxes. Or they can cut 
     Social Security benefits and screw the retirees.
       Such duplicitous evasions have prompted an angry Hollings 
     to denounce his colleagues. ``This a shameful sideshow out 
     here,'' he thundered in debate. ``There is no dignity left in 
     the Senate. No responsibility.''
       Indeed, none of his colleagues has taken up Hollings' 
     proffered bet, though doubtless some of them would love to 
     see him jump off the Capitol dome.

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