Marc Weisbrot

This

commentary is for those who really want to understand the debate that has been

raging over what to do with the projected Federal budget surpluses over the next

10 years. It’s not as difficult as it seems. What makes it so confusing is that

politicians in both parties are generating a lot of fog, and most of the pundits

and commentators are just shining their brights on it, making it that much

harder to see what’s in front of us.

Here’s

the story: over the next ten years, the Federal government is expected to take

in about $3 trillion more than it expects to spend. Now this is a big number,

but not as big as it seems when you compare it to our national income over this

period: it comes out to about 2.7% of our income.

What

to do with this windfall? The Republicans want to allocate $792 billion (about a

quarter of the surplus) to tax cuts, mostly to two groups of people: the rich

and the filthy rich. President Clinton and most Democrats say we can’t afford

it.

Both

parties want to reserve $2 trillion for paying down the national debt. They say

that since $2 trillion of the surplus comes from Social Security payroll taxes,

it can’t be spent without endangering future Social Security benefits.

When

both political parties agree on something, it’s a good time to run a fact check.

As it turns out, this $2 trillion can be spent on anything we choose, or it can

be used to pay down the national debt, but it won’t affect Social Security

either way.

To

understand this, think about what happens when you loan money to the government

by buying a U.S. Treasury bond. The government then spends that money on housing

subsidies for poor families. Has your money been "raided"? Hardly. You

will be paid back when the bond matures, and get interest payments on the bond

until that time.

The

same is true for the money that Social Security loans to the Treasury–

including the $2 trillion that it will loan to the Treasury over the next 10

years. And this is true regardless of whether that money is spent on health care

or education, or whether it is used to pay down the national debt held by the

public.

So

why pay off the national debt? Some argue that it will lower interest rates and

therefore stimulate growth. This rests on a number of dubious assumptions, but

even if we accept them all, the effect turns out to be so small that it can

hardly be measured: paying off the whole debt over the next 15 years would only

increase our national income in 2015 by about one half of one percent.

Using

the surplus to pay down the debt makes about as much sense as a family paying

off its mortgage loan, and thereby not having enough money to send the children

to the dentist or doctor. This analogy is quite real, since we have about 11

million children without health insurance.

Of

course the Democrats are correct to point out that the $1 trillion of surplus

that does not come from Social Security is mostly fictional: it depends on

massive spending cuts on everything from meat and poultry inspection to national

parks, to the preschool Head Start program. These cuts are not going to happen,

and everyone in Washington knows it. But the question of whether this part of

the surplus will materialize is not all that important, unless we swallow the

story that the other $2 trillion of projected surpluses must go to debt

repayment.

The

Democrats reason that they’re not going to get any spending on programs that

would help poor or average income Americans, so long as the Republicans control

Congress. So they figure it is better to pretend that we need to "save

Social Security," and pay down the debt, rather than see the surplus

squandered on yet another tax cut for the rich.

But

this is short-sighted, to say the least. Polls show that most Americans are

against the tax cuts, and the Republicans don’t have the votes in Congress to

override a Presidential veto on the issue.

This

is clearly one of those times when it is better to fight for what you want and

lose, than fight for what you don’t want and win. Promoting the nonsensical

notion that we must pay off the national debt before we can do anything about

America’s real economic problems– poverty, education, or health insurance for

the 43 million uninsured Americans– is a dangerous game. We may all live to

regret it.

Mark

Weisbrot is research director at the Preamble Center, in Washington, D.C.

Name:

Mark Weisbrot E-mail: <weisbrot@preamble.org> Preamble Center 1737 21st

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