January 23, 2002

January 23, 2002 | Commentary on Federal Budget

Who Killed the Surplus?

Even if you're not a fan of detective stories, you may enjoy this recently discovered Sherlock Holmes story - one that few devotees of Sir Arthur Conan Doyle even knew existed. It's called "The Case of the Missing Surplus." We join Holmes and his associate, Watson, as they discuss the particulars:

"It doesn't take much in the way of deduction to solve this one, eh, Holmes?" I said, looking up from my newspaper. "This chap, Sen. Tom Daschle, seems to have it pegged. A year ago, Washington was forecasting nothing but budget surpluses. Then Congress passed President Bush's tax cut, and what do we see? A future filled with red ink. What else could it be?"

Holmes regarded me with a bemused air as he lit his pipe. "I've cautioned you before about fashioning theories that were overly complicated, Watson, and it certainly appears you were listening," he said. "Your explanation is simplicity itself. But to those who have examined all the evidence, it's a bit … too simple."

I shifted uncomfortably in my chair. "How do you mean?"

"Start with the fact that you're blaming a tax cut that, in most respects, has yet to take place," Holmes replied. "Yes, tax-rebate checks were mailed out a few months ago. But were you aware that most of the Bush tax cut-especially the cuts in income-tax rates-won't take effect for another three years?"

I had to admit this was news to me.

"In fact, the Senate's own budget committee recently did a breakdown of how the surplus for 2001 dropped from a projected $313 billion to $1 billion," he continued. "Tax relief accounted for just 13 percent of the drop, or $41 billion.

"The biggest culprit, it turns out, was the recession, which drained $222 billion. That's logical, Watson; the government always takes in less in taxes during a recession. This one started two months before the tax cut was signed-and it was surely made worse by the attacks of Sept. 11." He drew on his pipe.

I shook my head. "That's not in the papers," I said.

"Nor is this, I'll wager," Holmes said as began pacing the floor. "The identity of another culprit - higher federal spending. Check the budget President Bush sent Congress at the beginning of 2001. It called for a $25 billion hike in federal spending. What did Congress do? Even before Sept. 11, it had doubled the proposed increase. And since then? Another $20 billion in extra spending, eliminating more of the surplus."

This put matters in a different light. "But with a war on and the prospect of budget deficits around the corner, surely these politicians are now taking a less reckless approach to the budget," I said.

"Your faith is touching, Watson, but sadly misplaced," Holmes replied. "Oh, a few elected officials want to manage the people's money wisely, but they're outnumbered by big spenders in both parties.

"Look at the bailout of the airline industry they engineered some weeks back-$15 billion, gone. Then there's the agricultural bill, which would boost federal farm subsidies by $73 billion-and most of that goes to the nation's wealthiest landowners, including members of Congress."

I was stunned. "Holmes, we must tell Sen. Daschle he's made a mistake."

He smiled. "Don't worry, old friend. It doesn't take much in the way of deduction to realize that he knows exactly what he's saying."

Edwin Feulner is president of The Heritage Foundation, a Washington-based public policy research institute.

About the Author

Edwin J. Feulner, Ph.D. Founder, Chairman of the Asian Studies Center, and Chung Ju-yung Fellow
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