The joys and perils of salad days

Surplus fever: Care must be taken to avoid big commitments at a moment of startling prosperity.

July 01, 2000

EVEN IN THE flush of a long-running economic boom, many Americans still expect to read the word "deficit" after "federal budget."

But surplus it is and -- at an estimated $1.9 trillion over the next 10 years -- almost double the sum projected by President Clinton just four months ago. That figure would be a staggering $4.2 trillion if Social Security funds were included, as they were before the money began to flow so freely.

At a such a breathtaking moment, national political leaders need special discipline to avoid both locked-in spending and premature tax cutting.

So far, the temptations have proved too great. Politicians are tripping over one another to spend or give away this projected surplus.

Mr. Clinton wants a legacy; George W. Bush and Al Gore, the presumed major party candidates, have decided where the money would do them the most good with voters in November.

Tax cuts, say Mr. Bush and the Republicans in Congress.

Silly, says Mr. Gore, who wants to shore up Social Security and expand social programs.

But here the economy, which should be helping Mr. Gore, tends to help the Republican: It's harder to call tax-cutting imprudent when so much money is flying into treasury accounts.

Congressional Republicans want to end the tax code's "marriage penalty," a quirk in the system that makes couples filing jointly pay more than if they could file separately. The cost: $250 billion over 10 years.

President Clinton suggests a deal: If Republicans support a bigger, government-run prescription-drug program for Medicare recipients ($250 billion over ten years), he'll support the GOP's marriage-penalty repeal measure.

That's $500 billion worth of future commitments on just two issues.

An opportunity brought by the boom? Perhaps. The two parties have agreed to use the Social Security trillions to bolster that perpetually imperiled program. Political suspicions alone, if not prudent examination of long-term commitments, should force both sides to go slowly on everything else.

Yet all this depends on the accuracy of statistical models used to predict the economic future.

How risky is that? The money is only "there" in the projections, as the president quickly pointed out. He proposed a $500 billion reserve fund as one hedge against the uncertainty of projections.

That's not nearly enough.

Washington's economists are notoriously inaccurate in long-range budget forecasting: Their estimates just six months ago were off by a mere trillion dollars.

And what if there's a recession or military conflict overseas or weather emergencies? Those 10-year surplus figures would shrivel in a hurry.

The main goals must be cautious financial management and gradual elimination of the national debt. But you aren't likely to hear that from Candidates Gore and Bush. They're too busy trying to turn Washington's expectations of extra cash into election-day gold.

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