The Surplus Vanished
President Bush claims that war and recession
wiped out the projected federal budget surplus, but his massive
tax giveaway to the wealthy deserves the bulk of the blame.
by John Miller
Dollars and Sense magazine, March / April 2002
"Whew, four trillion gone," muttered Sen. Paul Sarbanes
(D-Maryland) upon receiving the Congressional Budget Office's
(CBO) January 2002 report. The "bipartisan" CBO found
that, of the $5.6 trillion in federal budget surpluses that it
had projected for the next decade (fiscal years 2002 to 2011)
the previous January, just $1.6 trillion remained. Worse yet,
the remaining surplus was not on-budget-that is, available for
new program initiatives or tax cuts-but rather in the Social Security
trust fund, which presidential candidates Bush and Gore had promised
to leave untouched. So much for a decade of unlimited surpluses.
What did the damage ? The CBO report is crystal clear. The
number-one culprit was Bush's $1.3 trillion tax giveaway to the
wealthy, which accounted for over two-fifths of the lost surplus.
The recession shaved another $929 billion from the surplus projection,
or about one-quarter of the loss. Increased expenditures (both
domestic and military) and technical adjustments (principally
increased health care costs) accounted for the rest of the shrinkage,
in nearly equal amounts.
And all of this happened before the Bush administration's
"guns and tax cuts" budget for fiscal year 2003 reached
Congress. That budget calls for the biggest increase in military
spending in two decades (a 15% jump over last year) and a doubling
of expenditures on "homeland security." Plus there's
yet another round of tax cuts. This time, the Bush team wants
to cut an additional $591 billion in taxes over ten years, $344
billion of which would go to making permanent the $1.3 trillion
tax cut Bush pushed through Congress last June. (For example,
the inheritance tax is now slated to be reduced over eight years,
repealed in the ninth, and then, curiously enough, reinstated
in the tenth. Under the new plan, the tax will not be reinstated.)
Much of the rest of the new tax cut will go to large corporations.
Combined with the $4 trillion of the surplus already lost,
the Bush plan saddles the federal budget with a deficit this fiscal
year, as well as for fiscal years 2003 and 2004 (even according
to Bush's own overly optimistic projections). And the federal
government will be borrowing from the Social Security trust fund
to cover its on-budget deficits throughout the decade (as it did
throughout the 1970s, 1980s, and much of the 1990s). After 2011,
the budget picture will only get worse: Federal revenue losses
from the fully phased-in Bush tax cuts will mount, Social Security
outlays will ratchet upwards as the baby boomers begin to retire,
and the federal budget will hemorrhage red ink.
None of this-turning surpluses into deficits, raiding Social
Security, and courting the possibility of sustained deficits after
2011-would be a problem had the surplus been put to good use.
For instance, the portion of the surplus that went to pay for
the Bush tax cut could have gone instead for the $1.3 trillion
in new spending that the American Society of Civil Engineers says
we need to bring our schools, roads, sewers, airports, mass transit
systems, and other vital infrastructure up to acceptable levels.
Besides meeting important needs, these public investments would
increase economic growth, private-sector productivity, and government
revenue-things the Bush tax cuts are unlikely to do.
But there is precious little of that much needed public spending
in the Bush budget. For example, the Bush crowd has slashed the
Labor Department budget by 7%, with job training taking one of
the biggest hits-a strange move from a president who told the
nation, "My economic security program can be summed up in
one word: jobs." Also singled out for cuts are the Environmental
Protection Agency, infrastructure spending on roads, dams and
bridges, low-income heating aid, and support for teaching hospitals.
Even the Bush education budget, which will increase (but by less
than the rate of inflation), cuts special education spending and
federal aid to schools in poor neighborhoods.
While the President toured the country touting his budget
and arguing that more spending for guns and the recession forced
him to cut the butter out of his budget, the CBO report said otherwise.
The Bush tax cuts have done the greatest damage.
Bush, like a lot of people, has said that everything changed
after September 11. Well, not exactly. In this time of recession
and war, the Bush budget asks not an ounce of sacrifice from the
country club set; instead it rewards them with yet more tax cuts.
But for low-income and working Americans, sacrifice remains the
order of the day.
John Miller teaches economics at Wheaton College and is a
member of the Dollars & Sense collective.