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The Myth of the Clinton Surplus

Discussion in 'Political Zone' started by trickblue, Feb 5, 2008.

  1. trickblue

    trickblue Old Testament...

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    I think this thread holds great promise... :D


    [SIZE=+1]The Myth of the Clinton Surplus[/SIZE]

    Time and time again, anyone reading the mainstream news or reading articles on the Internet will read the claim that President Clinton not only balanced the budget, but had a surplus. This is then used as an argument to further highlight the fiscal irresponsibility of the federal government under the Bush administration.

    The claim is generally made that Clinton had a surplus of $69 billion in FY1998, $123 billion in FY1999 and $230 billion in FY2000 [IMG]. In that same link, Clinton claimed that the national debt had been reduced by $360 billion in the last three years, presumably FY1998, FY1999, and FY2000--though, interestingly, $360 billion is not the sum of the alleged surpluses of the three years in question ($69B + $123B + $230B = $422B, not $360B).

    While not defending the increase of the federal debt under President Bush, it is aggravating seeing Clinton's record promoted as having generated a surplus. It never happened. There was never a surplus and the cold hard facts support that position. In fact, far from a $360 billion reduction in the national debt in FY1998-FY2000, there was an increase of $281 billion.

    Verifying this is as simple as accessing the U.S. Treasury website where the national debt is updated daily and a history of the debt since January 1993 can be obtained. Considering the government's fiscal year ends on the last day of September each year, and considering Clinton's budget proposal in 1993 took effect in October 1993 and concluded September 1994 (FY1994), here's the national debt at the end of each year of Clinton Budgets:


    As can clearly be seen, in no year did the national debt go down, nor did Clinton leave President Bush with a budget surplus that Bush subsequently turned into a deficit. Yes, the budget was almost balanced in FY2000 (ending in September 2000 with a deficit of "only" $17.9 billion), but it never reached zero--let alone a positive number. And Clinton's last budget proposal for FY2001, which ended in September 2001, generated a $133.29 billion deficit. The growing deficits started in the year of the last Clinton budget, not in the first year of the Bush administration.

    Keep in mind that President Bush took office in January 2001 and his first budget took effect October 1, 2001 for the year ending September 30, 2002 (FY2002). So the $133.29 billion deficit in the year ending September 2001 was Clinton's. Granted, Bush supported a tax refund where taxpayers received checks in 2001. However, the total amount refunded to taxpayers was $38 billion [IMG]. So even if we assume that $38 billion of the FY2001 deficit was due to Bush's tax refunds which were not part of Clinton's last budget, that still means that Clinton's last budget produced a deficit of 133.29 - 38 = $95.29 billion.

    Clinton clearly did not achieve a surplus and he didn't leave President Bush with a surplus.

    So why do they said he had a surplus?

    As is usually the case in claims such as this, it has to do with Washington doublespeak and political smoke and mirrors.

    Understanding what happened requires understanding two concepts of what makes up the national debt. The national debt is made up of public debt and intergovernmental holdings. The public debt is debt held by the public, normally including things such as treasury bills, savings bonds, and other instruments the public can purchase from the government. Intergovernmental holdings, on the other hand, is when the government borrows money from itself--mostly borrowing money from social security.

    Looking at the makeup of the national debt and the claimed surpluses for the last 4 Clinton fiscal years, we have the following table:


    Notice that while the public debt went down in each of those four years, the intergovernmental holdings went up each year by a far greater amount--and, in turn, the total national debt (which is public debt + intergovernmental holdings) went up. Therein lies the lie.

    When Clinton (and others) said that he had paid down the national debt, that was patently false--as can be seen, the national debt went up every single year. What Clinton did do was pay down the public debt--notice that the claimed surplus is relatively close to the decrease in the public debt for those years. But he paid down the public debt by borrowing far more money in the form of intergovernmental holdings.

    Interestingly, this most likely was not even a conscious decision by Clinton. The Social Security Administration is legally required to take all its surpluses and buy U.S. Government securities, and the U.S. Government readily sells those securities--which automatically and immediately becomes intergovernmental holdings. The economy was doing well due to the dot-com bubble and people were earning a lot of money and paying a lot into Social Security. Since Social Security had more money coming in than it had to pay in benefits to retired persons, all that extra money was immediately used to buy U.S. Government securities. The government was still running deficits, but since there was so much money coming from excess Social Security contributions there was no need to borrow more money directly from the public. As such, the public debt went down while intergovernmental holdings continued to skyrocket.

    The net effect was that the national debt most definitely did not get paid down because we did not have a surplus. The government just covered its deficit by borrowing money from Social Security rather than the public .
    An overall "downsizing" of government and a virtual end to the arms race have contributed to the surplus, but the vast majority is coming from excess Social Security taxes being paid by the workforce in an attempt to keep Social Security benefit checks coming once the "baby-boomers" start to retire. [IMG]
    Of the $142 billion surplus projected by the end of 2000, $137 billion will come from excess Social Security taxes.[IMG]
    When these unified budget numbers are separated into Social Security and non-Social Security components, however, it becomes evident that all of the projected surplus throughout this period is attributable to Social Security. The remainder of the budget will remain in deficit throughout the next decade.[IMG]
    Are intergovernmental holdings really debt?

    Absolutely! The intergovernmental debt is every bit as real as the public debt. It's not "a wash" simply because you owe the government owes the money to "itself."

    As I explained in a previous article, Social Security is legally required to use all its surpluses to buy U.S. Government securities. From Social Security's standpoint, it has a multi-trillion dollar reserve in the form of U.S. Government securities. When the Social Security system starts to falter due to insufficient contributions to pay for all the benefits of retiring baby-boomers, probably around 2017, it will start cashing those securities and will expect the U.S. Government to pay it back, with interest. The problem is, the government doesn't have the money. The money has already been spent--in part, effectively, to pay down the public debt under Clinton.

    The Federal Government cannot just wave a magic wand and somehow "write off" the intergovernmental debt. Essentially, citizens invested money in Social Security and Social Security invested that money in the Federal Government. Now Social Security effectively owes you money (in the form of future retirement benefits) and won't be able to pay you that money if the Federal Government just cancels the intergovernmental debt. The only way the Federal Government can "write off" intergovernmental debt is if it simultaneously eliminates the Social Security system. That might very well be a good idea, but it isn't likely. And Social Security will go bankrupt in about 2017 if the Federal Government doesn't honor those intergovernmental holdings as real debt.

    In short, if the government doesn't pay back intergovernmental holdings, other government agencies (like Social Security) will fail. Since allowing Social Security to fail is not a politically viable option, the debt represented by intergovernmental holdings is just as real as the public debt. It can't just be eliminated by some fancy accounting trick or political maneuvering. If it were possible, believe me, politicians would have done it already and taken credit for reducing the national debt by trillions of dollars.

    Does a Budget Surplus Automatically Pay Down The Debt?

    The concept of a "budget surplus" or a "balanced budget" is of very tenuous importance. A budget is simply a plan on how to spend money which normally also factors in expected income. Anyone can present a "balanced budget" or have a "budget surplus" if they use inflated estimates of income or deflated estimates of expenses. In the end, a budget is nothing more than a plan. Reality is a completely different matter.

    As a simple example, if I start 2008 with a job that pays $50,000/year, I can plan a budget that takes into account the $50,000 I expect to make and divides that up amongst all the expenses I expect to make over the course of the year. If my expected expenses are less than my expected earnings, I have a budget surplus. If, however, over the course of the year I lose my job and get a new job that only pays $40,000/year while at the same time it just so happens I have a variable-rate mortgage that adjusts and increases my mortgage payment, by the end of year the reality may very well be that my expenses exceeded my income. I had a budget surplus but reality had different plans and I ended up further in debt.

    A balanced budget or a budget surplus is a great thing, but it's only relevant if the budget surplus turns into a real surplus at the end of the fiscal year. In Clinton's case, it never did.

    The reality of the national debt

    The only debt that matters is the total national debt. And the national debt went up every single year under Clinton. Had Clinton really had a surplus the national debt would have gone down. It didn't go down precisely because Clinton had a deficit every single year. The U.S. Treasury's historical record of
    the national debt verifies this.

    Edit History
    Nov. 13, 2007 - Added material to "Are intergovernmental holdings really debt?" section and added "Does a Budget Surplus Automatically Pay Down The Debt?" section.
    Nov. 27, 2007 - Added three embedded quotes/citations that further support that the surplus really came from Social Security.

    Jan. 13, 2008 - Added a sentence to the first paragraph on the section about intergovernmental holdings.
  2. zrinkill

    zrinkill Diamond surrounded by trash

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  3. jterrell

    jterrell Penguinite

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    Clinton and a Republican Congress passed a balanced budget Amendment that Bush repealed.

    This is pure, and raw spin.

    When you are in debt you pay down that debt in many ways.

    We have NEVER stopped borrowing form Social Security but we DID have a balanced budget and Clinton did suggest using the budget surplus cash to pay down the Social Security loans.

    When you owe lots of money you draw more in interest than you can repay.
    Even if you are paying on it you may well end up owing more than you did prior to making payments. That is known and is no ever disputed.

    But every President has used the same budget terminology as Clinton did. it wasn't LIES, it was the same means of looking at our budget that Reagen and Bush Sr and yes even Bush junior use.


    Clinton Unveils His Balanced Budget

    WASHINGTON (AllPolitics, Feb. 2) -- Touting its zero deficit at every turn, President Bill Clinton on Monday unveiled his $1.7 trillion 1999 spending proposal for the federal government.

    "This budget marks the end of an era," Clinton said, "an end to decades of deficits that have shackled our economy, paralyzed our politics and held our people back. It can mark the beginning of a new era of opportunity for a new American Century." (224K wav sound)

    The budget contains no giant surprises. It is four volumes and 2,514 pages of legal language formally proposing the programs that Clinton has been talking about for weeks, and which he summarized in his State of the Union address last week.

    Major initiatives include a new $21 billion child-care initiative, more than $7.3 billion in new education spending, controversial new proposals to expand Medicare and a challenge to the states to aggressively sign up poor children who are eligible for Medicaid but not now enjoying its benefits.

    Clinton several times emphasized his State of the Union pledge to apply every penny of any surplus to bolstering Social Security, though many congressional Republicans are eyeing tax cuts instead. (160K wav sound)

    Clinton's budget also proposes roughly $25 billion in "loophole closers" -- otherwise known as tax increases -- including eliminating tax breaks enjoyed by banks, real estate investment trusts and multinational corporations.

    The new Clinton budget also envisions raising more than $65 billion over the next 10 years through a national tobacco settlement; that translates into roughly a $1.50-a-pack increase in cigarette taxes.
  4. jterrell

    jterrell Penguinite

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    the other tragedy is this:

    Not only do conservatives have such an inferiority complex that they can not admit Clinton was right they ignore the relevant data.

    The 1999 Budget: 1.7 trillion.
    The 2009 Budget: 3.1 Trillion.

    That is almost double for cripessakes yet we want to go back and rewrite history to deride Bill Clinton?????

  5. trickblue

    trickblue Old Testament...

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    It's not just Republicans... :rolleyes:

    And if you had read the article, it was critical of Bush as well, but I guess that means I'll vote Republican, anyway...
    Cooking the Books

    The "surplus" charade raises some troubling questions. During fiscal 1999, for example, Mr. Clinton forecasts a budget surplus of $9.5 billion, meaning that $9.5 billion of the gargantuan national debt (the total owed by the federal government) should be eliminated — right? Wrong! According to Mr. Clinton’s own fiscal 1999 budget document touting the $9.5 billion surplus, the national debt would increase from $5,544 billion to $5,738 billion during the fiscal year. How can the national debt increase by $194 billion when the federal government spends $9.5 billion less than it takes in?

    It gets worse, as can readily be seen by examining the chart on page 11. Beginning with the fiscal 1999 surplus, Mr. Clinton forecasts an unbroken series of annual surpluses totaling $219 billion through the year 2003. Yet, during this new era of budget surpluses, the national debt would increase from $5,544 billion to $6,336 billion, for an additional $792 billion in red ink. The overall discrepancy between the claimed surpluses and the projected increase in the national debt during 1999-2003 is $1,011 billion, not exactly pocket change even for Washington spendaholics. (Keep in mind too that these projections come from Mr. Clinton’s own budget and are based on rosy economic projections, meaning that the increase in the national debt, and therefore the overall discrepancy, could be much greater.) Again, how can this be with the federal government enjoying a string of budget surpluses?

    The answer seems to lie in gimmickry that allows federal trust fund surpluses to be counted as revenue in the budget. Federal law requires that such surpluses be invested in federal securities, at which time they become debt that the government (Treasury) owes itself (trust fund). As a component of the budget, these borrowed funds mask the actual deficit. As "revenue," they are expended on current government operating expenses extraneous to the trust fund activities for which they were originally collected. Such shenanigans in the private sector (i.e., the looting of pension plans by corporate officers) regularly lead to prison terms for the perpetrators.

    When the trust accounts no longer show a surplus, and securities must be cashed in to continue paying beneficiaries or financing other trust-related projects, Congress, having squandered the borrowed funds, may respond by defaulting, increasing taxes, augmenting deficits, slashing spending, or (most likely) a combination of the latter three alternatives.

    The Congressional Budget Office initially pegged the fiscal 1998 deficit at $146 billion, but when surplus trust funds were included, the "official" deficit plummeted to $22 billion. Similarly, if Social Security and Postal Service trust funds are expunged from the President’s fiscal 1999 budget, the vaunted $9.5 billion "surplus" suddenly morphs into a $100 billion deficit.

    In a February 5th Washington Post op-ed piece, Senator Ernest Hollings (D-SC) explained that "the deficit is not eliminated" from the President’s fiscal 1999 budget, but "is merely moved from the general fund into the Social Security trust fund or the highway trust fund," or whatever other trust funds may have been raided. It is, the senator bluntly asserted, "a fraud" that misleads people into thinking that "the government is finally on a pay-as-you-go basis. But in reality, the politicians continue to spend, running huge deficits in the trust funds."

    According to Senator Hollings, the following trust funds will be in deficit for the amounts indicated as of fiscal 1999:

    • Social Security, $845 billion (including $113 billion now part of the new Clinton budget).
    • Medicare, $148 billion.
    • Military Retirement, $140 billion.
    • Civilian Retirement, $490 billion.
    • Unemployment Compensation, $81 billion.
    • Highways, $35 billion.
    • Airports, $15 billion.
    • Railroad Retirement, $21 billion.
    • All others, $58 billion.

    The amounts total up to more than $1.8 trillion.

    Counting trust fund surpluses as revenue is not merely devious, but apparently illegal as well when Social Security funds are involved, as they are in the fiscal 1999 Clinton budget. Federal law specifically requires that the spending and revenues of both programs be excluded from on-budget totals. But Senator Hollings adds that "in 1990, the Senate Budget Committee … reported legislation requiring that Social Security be removed from the unified budget [which combines both on-budget and off-budget items]. Congress overwhelmingly approved and President Bush signed into law … Section 13301 of the Budget Act forbidding the President or Congress from reporting a budget using Social Security trust funds." But that stricture is regularly violated, and "even today, submitting a budget with a projected $9.5 billion surplus, the President is in violation of Section 13301."

    Martin Gross, author of The Government Racket, has labeled the trust-fund revenue ruse "the single biggest lie by the U.S. government in its history." During his State of the Union address, President Clinton urged that "every penny of every surplus" be earmarked for Social Security. Senator Hollings suggests that, if he is serious, "the first way to save Social Security is to stop looting it."
  6. jterrell

    jterrell Penguinite

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    He may well have done so but he wrote that book in 1992.


    And there was not even a link on this page....

    Great sourcing.
    I'd love to read these Hollings quotes and see just how far taken out fo context they were....
  7. jterrell

    jterrell Penguinite

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    Wow, clearly critical... yea.

    Good job of being unbiased.


    Try using the find and Bush feature in Firefox.

    Bush didn't get left a Surplus, not to defend Bush... even if Bush did hand out 38M in tax rebates....

    All it does is excuse Bush as politely as possible while talking about how we can nopt possibly consider what Clinton did balancing the budget even if he was 300M closer than Bush has been since...lol.

    The truth is real simple...

    Draw numbers for the last 30 years on a graph as I previously posted here by non-partisan economists and you will see quite clearly who spent the most money and had the highest deficits... Republican Presidencies.

    There is no excusing that.

    Do you even read these articles or just post them because they bash Clinton even if completely done out of a fairly poorly disguised intent to defend conservatives?

    If you have two kids and one makes B's and the other F's are you really going to spend all your time harassing the one making B's?

    And I must agree you have clearly proven yourself wholly bi-partisan and even liberal. "Liberal" trick is so much more fitting.

  8. Vintage

    Vintage The Cult of Jib

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    I thought Republicans were fiscally conservative.

    (And no, CajunCowboy, just because I took a shot at Republicans in this thread....it doesn't make me a Democrat.)
  9. iceberg

    iceberg nothing is nothing Zone Supporter

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    and not only are you more 1 sided than something without a 2nd side, (whatever that would be) but if someone said hillary farted funny you'd feel some inner need to come to her rescue.

    and JT continues his way to being the most extreme person i know and putting sassy back into the land of the reasonable. you're now far more extreme than any other poster in this forum, dude.
  10. theogt

    theogt Surrealist Zone Supporter

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  11. iceberg

    iceberg nothing is nothing Zone Supporter

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    since when has being 'unbiased' ever been a requirement for you? you're the most biased person in here today.

    and good to know you still laugh at people, their thoughts, and so forth. all secure people are that jr. high i suppose.
  12. iceberg

    iceberg nothing is nothing Zone Supporter

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    jt got tired of me reminding him of such things so instead of finding a middle ground, he just ignroed me. it was a happy iceberg day when that happened. : ) good to know i can be just as frustrating to those who are so frustrating themselves.
  13. theogt

    theogt Surrealist Zone Supporter

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    No, they didn't. And no, he didn't.

    You didn't dispute a single thing in the article.

    Actually, when you take into account inflation, it's only about a 30% increase, which seems about right considering there's a war going on. I'd much prefer that it would have decreased tremendously, but let's not distort the facts.
  14. jterrell

    jterrell Penguinite

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    That is the rumor.

    But most hardcore fiscal conservatives have found the general nominee of the Republican Party lacking for some time and end up endorsing someone like Alan Keyes.

    I do not by any means think Dems have the fiscal thing down but Bill Clinton did a particularly good job of it with a Republican congress.

    I tend to prefer a Dem president and Repub Congress based on historical fiscal data.
  15. jterrell

    jterrell Penguinite

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    rofl. We have had a 70% inflation increase???
  16. BrAinPaiNt

    BrAinPaiNt Backwoods Sexy Staff Member

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  17. ConcordCowboy

    ConcordCowboy Mr. Buckeye

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  18. Mavs Man

    Mavs Man All outta bubble gum

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    Though I'm not arguing that the amount of spending doesn't disturb me, his math is correct.

    For one thing, 3.1 trillion is not an exact double of 1.7 trillion; it's roughly an 82% increase.

    If you search for 'inflation calculator' and plug in a basic number for 1997 and pop out another for 2007 it should read about 30% higher (I used 1997-07 because obviously we don't have a figure for 2008 inflation yet). Not too scientific, but it gives us a rough estimate for inflation during the last 10 years.

    The inflation rate was higher than normal last year so that 30% figure could be a bit higher (or a bit lower) but we'll keep it at 30. This means if the budget had stayed exactly the same as it was in 1999, then we would expect the 2009 budget to be around 2.23 trillion.

    3.1 trillion is a 39% increase over 2.23, which is the real growth (again, a very rough estimate on my part) in spending during the current Bush Administration.
  19. jterrell

    jterrell Penguinite

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    "Conservative" Bush Spends More than "Liberal" Presidents Clinton, Carter


    by Veronique de Rugy and Tad DeHaven

    This article appeared on cato.org on July 31, 2003.

    The Bush administration's newly released budget projections reveal an anticipated budget deficit of $450 billion for the current fiscal year, up another $151 billion since February. Supporters and critics of the administration are tripping over themselves to blame the deficit on tax cuts, the war, and a slow economy. But the fact is we have mounting deficits because George W. Bush is the most gratuitous big spender to occupy the White House since Jimmy Carter. One could say that he has become the "Mother of All Big Spenders."

    The new estimates show that, under Bush, total outlays will have risen $408 billion in just three years to $2.272 trillion: an enormous increase in federal spending of 22 percent. Administration officials privately admit that spending is too high. Yet they argue that deficits are appropriate in times of war and recession. So, is it true that the war on terrorism has resulted in an increase in defense spending? Yes. And, is it also true that a slow economy has meant a decreased stream of tax revenues to pay for government? Yes again.

    Veronique de Rugy is a fiscal policy analyst and Tad DeHaven a policy researcher at the Cato Institute.

    But the real truth is that national defense is far from being responsible for all of the spending increases. According to the new numbers, defense spending will have risen by about 34 percent since Bush came into office. But, at the same time, non-defense discretionary spending will have skyrocketed by almost 28 percent. Government agencies that Republicans were calling to be abolished less than 10 years ago, such as education and labor, have enjoyed jaw-dropping spending increases under Bush of 70 percent and 65 percent respectively.

    Now, most rational people would cut back on their spending if they knew their income was going to be reduced in the near future. Any smart company would look to cut costs should the business climate take a turn for the worse. But the administration has been free spending into the face of a recessionary economy from day one without making any serious attempt to reduce costs.

    The White House spinmeisters insist that we keep the size of the deficit "in perspective." Sure it's appropriate that the budget deficit should be measured against the relative size of the economy. Today, the projected budget deficit represents 4.2 percent of the nation's GDP. Thus the folks in the Bush administration pat themselves on the back while they remind us that in the 1980s the economy handled deficits of 6 percent. So what? Apparently this administration seems to think that achieving low standards instead of the lowest is supposed to be comforting.

    That the nation's budgetary situation continues to deteriorate is because the administration's fiscal policy has been decidedly more about politics than policy. Even the tax cuts, which happened to be good policy, were still political in nature considering their appeal to the Republican's conservative base. At the same time, the politicos running the Bush reelection machine have consistently tried to placate or silence the liberals and special interests by throwing money at their every whim and desire. In mathematical terms, the administration calculates that satiated conservatives plus silenced liberals equals reelection.

    How else can one explain the administration publishing a glossy report criticizing farm programs and then proceeding to sign a farm bill that expands those same programs? How else can one explain the administration acknowledging that entitlements are going to bankrupt the nation if left unreformed yet pushing the largest historical expansion in Medicare one year before the election? Such blatant political maneuvering can only be described as Clintonian.

    But perhaps we are being unfair to former President Clinton. After all, in inflation-adjusted terms, Clinton had overseen a total spending increase of only 3.5 percent at the same point in his administration. More importantly, after his first three years in office, non-defense discretionary spending actually went down by 0.7 percent. This is contrasted by Bush's three-year total spending increase of 15.6 percent and a 20.8 percent explosion in non-defense discretionary spending.

    Sadly, the Bush administration has consistently sacrificed sound policy to the god of political expediency. From farm subsidies to Medicare expansion, purchasing reelection votes has consistently trumped principle. In fact, what we have now is a president who spends like Carter and panders like Clinton. Our only hope is that the exploding deficit will finally cause the administration to get serious about controlling spending.
  20. jterrell

    jterrell Penguinite

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    Published on Sunday, September 2, 2001 in the Los Angeles Times
    Clinton's Budget Legacy Lives On
    by Robert L. Borosage

    WASHINGTON -- "I hate to say I told you so, but we told you so," crowed Senate Majority Leader Tom Daschle (D-S.D.) when it became clear that President Bush will dip into the Social Security and Medicare surpluses to pay for his programs. Democrats are indeed salivating. The budget surplus is evaporating, a victim of the slowing economy and Bush's tax cut. The administration is using budget tricks to avoid admitting that Bush broke his pledge not to raid the Social Security surplus. "This could be junior's 'read-my-lips,"' predicts Democratic advisor Paul Begala.

    Only two problems with this Democratic offensive: It's both bad policy and bad politics. It dangerously distorts fiscal reality and slights the global economic slowdown. It cedes Bush credit for the tax rebate, which was a Democratic initiative. Instead of urging action to aid working families in economic distress, Democrats are attacking Bush for not paying down the national debt fast enough. With the economy in deepening trouble, they sound like Calvin Coolidge, not Franklin D. Roosevelt. In exposing Bush's bad judgments and fuzzy math, Democrats are suggesting that fiscal austerity is a commandment of biblical import. They are insisting that the surpluses in Medicare and Social Security be "walled off" for paying off the national debt. Last week, House Democratic leader Richard A. Gephardt (D-Mo.) called on Bush to present a new budget that won't touch those surpluses--and pledged to help make the spending cuts necessary, even if it required cutting investment in education or health care. That is simply goofy.

    The global economy is tottering on the edge of recession. Japan is sinking. Europe is slowing. The "Asian tigers" are already in decline. The U.S. economy is stalled. Manufacturing has been in a depression for a year. The stock market has tanked. U.S. companies are cutting jobs and investments.

    State governments are slashing spending to keep budgets in balance. The Federal Reserve has lowered interest rates repeatedly, but the slowdown continues. Consumers, burdened with record debt and growing insecurity, are starting to tighten their belts. The "bust," as Business Week calls it, is serious.

    It is precisely in these conditions that the federal government should act to help generate demand--and run deficits, not surpluses. Yet, even the revised figures project the federal government with a $150-billion surplus next year, the second largest in history. Democrats should be flailing Bush for enforcing austerity in the midst of the economic slowdown, for turning his back to working families. They should be pushing for greater tax relief for middle-and low-income earners, expanded unemployment benefits, wage supports for older workers who are losing their jobs and special assistance to families of poor mothers, who are the first to be laid off.

    For the medium term, Democrats ought to be making the case for badly needed public investments: affordable health care; a real prescription-drug benefit; significant investment in schools, preschool and after-school programs; mass transit; toxic-waste clean-up; and affordable housing. These investments will put people to work, generate demand and help get the economy going again.

    Some Democrats understand this. The tax rebates that taxpayers now enjoy weren't part of the Bush tax plan. Democrats argued, correctly, for front-loading a rebate to help kick-start the economy. Keynesian economists, admittedly an endangered species, are suggesting that significant deficit spending might be necessary to get us out of this downturn. At the very least, government shouldn't be running a surplus in the midst of a global downturn.

    Sure, what is left of the surplus comes from Social Security and Medicare payroll taxes, but so what? Spending the surplus doesn't "raid" Social Security and Medicare. The trust funds are credited with government bonds for every dollar of surplus, no matter what is done with the money. Both parties "raided" the trust-fund surpluses for years without anyone saying a word.

    The Democrats' conversion to austerity is a perverse legacy of former President Bill Clinton. Struggling to fend off Republican tax cuts when the surpluses first showed up, Clinton called for "saving Social Security first." This quickly turned into a bipartisan commitment to "lock" trust-fund surpluses into a "box" and devote them to debt reduction. With the economy growing rapidly and unemployment low, debt reduction had some economic rationale. But even then, Clinton was booting the best opportunity in a generation to make the case for long-deferred public investments in programs like education and health care and transportation.

    Clinton's tactical ploy has become a bipartisan totem, observed with greater and greater fervor even as it makes less and less sense. Paying down debt is wrongheaded when the economy is tanking. Bush already has his tax cut, so the pressure to lock away the surplus pushes against spending, not against tax cuts. Worse, the misleading rhetoric about "raiding Social Security" only makes people think that Social Security is in dire straits, the big lie Bush needs to huckster people into trading deep cuts in guaranteed benefits for private accounts.

    Under Clinton, bad policy was often the price of political survival. But this current "austerity forever" posture is also likely to be bad politics for Democrats. Democrats win as the party of working people. When the economy gets in trouble, they benefit by championing the concerns of working families. Until Ronald Reagan, Republicans were the hairshirt party of balanced budgets, as befit their base, what Bush calls the "haves and the have mores." They stood against "big government" even when people were in distress. For years, Democrats won elections, while Republicans held onto fiscal probity.

    Some Democrats are donning Republican garb. They're arguing that debt reduction is more important than meeting social needs. They say this is the way to challenge Bush's tax cuts, but Democrats won't win elections by promising debt reduction instead of tax cuts. They'll win by contrasting Bush's tax cuts for the wealthy with investments in schools, in prescriptions drugs, in making college affordable. Democrats won't benefit if they insist on austerity in a time of trouble. If their rhetoric ends up handcuffing government as more layoffs spread across the country, they not only won't win, they won't deserve to win.

    Copyright 2001 Los Angeles Times

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