>>> Heck, just look at the surplus they are crowing about. THAT is misleading financials.<<<
It's time to blow the froth off the latte and make some prudent plans. Otherwise, the Government is going to find itself three or four years from now in the same jam as its citizens: pacing fretfully at 2 o'clock in the morning through a $100,000 kitchen renovation, wondering how on earth it talked itself into the delusion that it was going to finance its obligations with a big, soggy mass of Surplus.com shares.
The Amazing Vanishing Surplus
By DAVID FRUM
<Picture: W>ASHINGTON -- The United States Government has a very 90's problem. Although it is taking in vastly more revenue than it ever imagined possible (almost $2 trillion a year!) it is having surprising difficulty buying all the things it thinks it needs.
There's that new four-wheel-drive prescription drug program and the summertime excursion in Yugoslavia. The children ought to attend better schools, and the F-15's in the home-security system are sounding awfully wheezy. But after paying all the country's current expenses, there is barely anything left over, $99 billion in 1999, and we did promise we'd put it all into the retirement account. . . .
It's embarrassing to imagine what Grandpa Ike would have had to say about all this. His annual income never exceeded $100 billion, and yet he still managed to save democracy from Communism, build the Interstate System and pay down the national debt.
Fortunately, there's a plan to pay for it all, and in the trademark 90's style. Not with money in the bank -- who has that? -- but with the bonuses and options the Federal Government is expecting down the road, a total of $1 trillion in budget surpluses over the next 15 years. The Government may not have sufficient cash to restock the cellar with cruise missiles after firing off that batch in May, but as soon as those surpluses vest, it will be rich, rich, rich.
The trouble is, the surpluses are largely imaginary. President Clinton is exploiting the delusion of wealth to come to lure Americans into making commitments to major new programs -- including that new prescription drug Medicare benefit -- that the country cannot afford.
Most of the doubts about the surpluses have thus far focused on the sunny economic assumption they rest on: that growth will continue strong and steady until the year 2008 at about 2 1/2 percent a year, uninterrupted by any major recession. Yet what's really wobbly about the surpluses is not economic, but political.
The foundation of the surpluses is the 1997 budget deal, which vowed to impose squeaky tight controls on the growth of non-Social Security, non-Medicare, non-defense spending, or what Washingtonians call "discretionary domestic spending." This discretionary spending includes the Federal Bureau of Investigation, meat inspection, enforcement of immigration laws, disaster relief, aid to education and jaunts by the First Lady to New York State.
In other words, just about everything the Federal Government does other than pay pensions. The United States spent $285 billion on those items in 1998. The 1997 deal promises that it will spend no more than $316 billion in 2009, an 11 percent increase over 11 years.
How realistic is that promise? Well, over the previous 11 years, from 1987 to 1998, discretionary domestic spending jumped 75 percent. Congress is in effect saying that it will raise this spending over the next 11 years by almost 90 percent less than it raised it over the past 11 years. Factor in inflation and the promise becomes even more exacting. Congress will have to cut the F.B.I., meat inspection, aid to education, etc. by more than 20 percent in real dollars over the next 11 years.
You can already hear the squeaks of distress from Capitol Hill. Representative John Porter, the liberal Republican from Illinois who is chairman of the subcommittee that decides how much to spend on health and education, is demanding that the limit on his segment of the budget be raised. A menacing number of his colleagues support him.
If Mr. Porter and those who think like him prevail, the projected surpluses will dwindle away. Domestic spending will rise, and interest payments on the debt will fail to fall. Interest payments are now projected to tumble to $71 billion in 2009 from $243 billion in 1998 as the surpluses retire big chunks of the Federal debt. But if those surpluses dwindle, then the debt does not shrink so quickly, and interest payments stay high.
This whole game of 15-year economic forecasts has been a sham from beginning to end, intended to divert attention from facts to dreams. The facts are that the Federal Government cannot afford at anything like current rates of taxation to pay the pensions and health care expenses of the baby boom generation after it starts to retire in 2013. The facts are that there is not a lot of room to raise those current rates of taxation, which are already crushingly high: the 15 percent payroll tax and the 40 percent maximum rate of Federal income tax today gobble up a higher proportion of the national income than Federal taxes did during World War II.
Like a 90's paper millionaire getting ready to lock himself into a mortgage on a monster chateau on Lake Washington, President Clinton is proposing to lock the country into vast new spending commitments on the strength of a notional income source.
This is an irresponsible, even reckless distraction from the task that Mr. Clinton has repeatedly set himself: to salvage the already badly overextended Social Security and Medicare programs from their imminent crises. It is likewise a distraction from what ought to be the Republicans' top priority: reducing tax rates to something like peacetime levels.
It's time to blow the froth off the latte and make some prudent plans. Otherwise, the Government is going to find itself three or four years from now in the same jam as its citizens: pacing fretfully at 2 o'clock in the morning through a $100,000 kitchen renovation, wondering how on earth it talked itself into the delusion that it was going to finance its obligations with a big, soggy mass of Surplus.com shares. |
