The United States is enjoying the longest peacetime
expansion of the economy in its history, and with it a record surge
of tax revenues that has lifted the federal budget into surplus.
The question of what to do with this extra revenue consumes public
discourse. How the Congress and the President choose to use the
surplus can, in fact, undermine the very prosperity that produced
Washington should not launch new
entitlements or other spending, as the Administration seems
determined to do. Many experts warn that the economic boom may not
continue to sustain such new spending. The more prudent course
would be action now to (1) hold down spending and establish
priorities while eliminating waste and inefficiency, (2) reduce
taxes and expand global markets through free trade to provide a
foundation for continued growth, and (3) use the extra revenue to
modernize and strengthen Social Security. Americans want to see
this level of prosperity sustained for many years to come.
Washington must take steps to make sure that this happens.
Today's robust economy has little to do
with what the federal government is doing and more to do with what
it is not doing. The high-technology sector--a sector that has
remained largely untouched by government--is the real driving force
behind the record growth. But as this new sector gains momentum,
bureaucrats seem eager to impose new regulations and to keep taxes
high. This will siphon off resources that could create new jobs and
increase wages and retirement income.
addition, while Americans worry about the long-term viability of
Medicare and Social Security, the President proposes to squander
some $2 billion of next year's surplus on pork-barrel,
high-technology projects and at least an additional $22 billion
next year to launch new entitlements and programs. This is the
quickest way to jeopardize future economic growth.
budget surplus, which could run as high as $4.2 trillion over the
next 10 years, cannot continue without leadership from Washington.
There is no better time than now to make the right decisions to
help American workers and businesses invest in the future and to
get federal spending under control. Specifically, Washington
- Hold discretionary spending in fiscal
year (FY) 2001 to FY 2000 levels.
The federal government operates too many programs and wastes
too many tax dollars. Since 1990, entitlement spending has surged,
and non-defense discretionary spending has increased by more than
50 percent. Now the White House and Congress want new programs and
entitlements. Although it is politically easier to make new
commitments during good economic times, supporting them during
economic downturns is costly and painful. No sensible parent who
has earned overtime pay this year would use that extra income to
purchase a larger house and mortgage and risk putting the family on
the street when the overtime pay dries up. Congress and the
President should be no less responsible.
Projected surpluses are just
that--projected. Irresponsible spending habits and a slowing
economy can easily cause them to evaporate. If Washington allows
non-defense discretionary spending to rise as fast as it has over
the past three years, projected surpluses could be eliminated
entirely. To protect and sustain the strong economy, Washington
should act during this temporary budget breathing space to avoid
future deficits and fund appropriate federal priorities, such as a
Lay the foundation for continued
economic growth and opportunity with tax cuts and the elimination
of trade barriers.
As every successful business knows, it is precisely when sales
revenues are high that investments must be made for the future. An
era of surpluses is the time for Washington to encourage business
to create the next wave of products and jobs. This means taking
such steps as ending the double taxation of savings, reducing
capital gains taxes, ending the pernicious death tax, and removing
trade barriers. Government also should encourage Americans to save
for the costs associated with raising children, retirement,
long-term care, and other family obligations. This means such
things as repealing the marriage penalty, expanding individual
retirement accounts, and providing other tax cuts to empower
Americans with more resources and the freedom to choose their own
priorities--such as saving or paying for education and health care.
Enacting these tax cuts would still leave a majority of the surplus
for other purposes.
- Protect and reform Social
Workers should be free to plan for their retirement income by
placing some of their Social Security payroll taxes in private
investments. Social Security's trustees have said that the program
will not have the projected funds it needs to pay all the promised
benefits. Most young workers will get a meager retirement income in
return for the taxes they pay into the program. A portion of the
surplus could be used to ensure full funding of promised benefits
while giving younger workers the option of putting some of their
payroll taxes into personal retirement accounts.
The right way to shrink the debt
Some policymakers suggest that the surplus should be used to pay
down the national debt. This seemingly sensible suggestion would be
a mistake, both strategically and economically. Any effort to pay
down the debt inevitably will be thwarted by the tendency of
politicians to spend every available dollar. The best way to pay
down the debt is to keep the economy growing through such steps as
reducing taxes and reforming Social Security.
fact, the best option is Social Security reform. The program is
running a long-term deficit in today's dollars of nearly $20
trillion. Allowing workers to place some of their payroll taxes
into private accounts would reduce that long-run deficit
dramatically, since they would retire with bigger nest eggs.
Reckless spending will jeopardize the nation's future
prosperity. Today's surplus offers Washington an opportunity to
address some of America's most pressing needs by giving families
greater control and choice about their resources devoted to health
care, education, retirement, and personal and community
is a former Director of the Thomas A. Roe Institute for Economic
Policy Studies at The Heritage Foundation.