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Potomac Crossings
--By George Mason
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The Surplus Manifesto
The danger of modern liberty is that, absorbed in the enjoyment
of our private independence, and in the pursuit of our particular interests, we should surrender our right to share
in political power too easily.
The holders of authority are only too anxious to encourage us to do so. They are ready to spare us all sorts of
troubles, except those of obeying and paying.
- Benjamin Constant, 1833
We cannot judge what is right if we cannot discern what is true.
On New Year's Eve we are shown a televised picture of a famous anchorman at Times Square. We are told that the
broadcast is live. In the scene of Times Square there is an enormous neon sign flashing the initials of the anchorman's
network. What is wrong with this picture? If you were standing in Times Square you would see that the neon sign
actually contains the initials of a rival network. The call letters have been electronically altered before the
picture was broadcast. You can't trust what you see.
Last Wednesday the CBO announced three alternative federal budget projections for the coming decade. One assumption
shows nearly $2 trillion in surplus. Another assumption is not even one-half that size. The next night the President
of the United States proposes new spending at the rate of $1.6 billion per minute of speech. It lasts 89 minutes.
On Monday, buried in a column way inside the newspaper, it is revealed that the Republican House leader says that
he wants to "cooperate" on this year's budget. "Cooperation" is defined as accepting budget
proposals in which a program is funded at last year's level plus a factor for inflation. That scenario makes the
lowest CBO forecast budget surplus the maximum that might be attained. You can't trust what you read.
A television pundit compares two polls. One was taken among all adults. The other was taken only of previous voters.
The results are compared to each other but the viewer is not told that the universe studied was different. You
can't trust what you hear.
In this age of relentless high tech propaganda, the choices are to become an information entrepreneur by assembling
your own list of reliable sources, probably from the Internet, or, as Monsieur Constant reminds us, forget it:
Just Obey and Pay.
What is the truth about the federal budget? First, how are your federal tax dollars being spent? The FY1999,
which began October 1, 1999 allocates one tax dollar this way:
-
|
cents |
| Social Security |
23.0
|
| Medicare/Medicaid |
20.0
|
| National Defense |
15.4
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| Entitlements |
14.4
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| Interest on Debt |
14.0
|
| All other |
5.0
|
| Ed/Training |
3.4
|
| Transportation |
2.4
|
| Vet Benefits |
2.4
|
To see the trend over years, healthcare expenditures have risen from 9.5 cents to 20.0 cents since FY79. Defense
spending has fallen during the same time from 28.0 cents to 15.4 cents. In FY69, mandatory spending was about 30
cents. In FY99, mandatory spending is about 74 cents. In constant dollars, per capita federal taxes will be $6,277
compared with $5,150 in FY89. Adding all other taxes, state and local, the per capita tax burden is $10,298.
The federal government expects to collect $22.8 trillion in revenue over the next decade. In spite of everything,
the federal government is getting smaller relative to the gross domestic product. In FY82, the federal budget was
about 24% of gross domestic product. This year it will be 19.3%. While the federal budget has grown 132% since
1982, the GDP has grown 176%. America's financial wealth has grown from $7 trillion to $32 trillion, four times
faster than federal expenditures. (That is what supply side theory is all about.)
Is there a surplus? What the headlines say is a $1.9 trillion surplus is not likely to be more than $100-200 billion.
To realize more than that, Congress would have to adhere to the 1997 budget caps, something it has failed to do
the past two years. It would have to freeze domestic spending for ten years. Simply allowing expenses to be indexed
for inflation reduces the $1.9 trillion to $838 billion. If defense spending is allowed to grow at the rate of
inflation, the surplus will be down to $300 billion.
Against that $300 billion there will be three old claims plus any new claims. The CBO assumes that 21 provisions
of the tax code would not be renewed when they expire. They are always renewed. The renewals will cost $100 billion.
The Alternative Minimum Tax is not indexed for inflation. As a result, the 1.3 million households to which the
AMT now applies will grow to 17 million households over the next ten years. Relief of that "unintended consequence"
will cost $60 billion or more. Adjustments to aid to farmers and Medicare providers will add another $50 billion.
Finally, there is the poison pill on Social Security slipped into the State of the Union address.
President Clinton called for a down payment on Social Security reform by crediting the interest savings from debt
reduction to the Social Security Trust Fund. When, as in the past two years, there are budget surpluses, the national
debt is paid down. The government's annual interest payment decreases as well. By the unprecedented crediting of
this savings from general revenues to the Trust Fund, the government extends the fund's life without addressing
its financial problems. From the President's point of view, debt reduction becomes linked politically with the
solvency of Social Security. Tax cuts, on the other hand, become linked with damaging Social Security. Thus any
tax cut proposal can be plausibly linked with threatening Social Security in this fall's election.
Can the surplus pay down the debt? It could, if there was one. The total debt is $5.6 trillion. The actually, realizable
surplus may prove to be something like one-tenth the size of the numbers floating around the media. There are numerous
plans to really spend a theoretical number. Nothing produces a fever in a politician more than the idea that there
is additional money to spend without having to ask the voter for a tax hike. Few will admit what it would take
to produce the extra funds. To see how realistic the political talk is, ask yourself what it would take to produce
a genuine surplus.
Efficient government. Implementing Knowledge Age technology
can cut the cost of the way both business and government is run by 50%, some estimate. That would imply a freeze
on all existing government programs until they are re-evaluated, re-prioritized and the ineffective ones reduced
or eliminated.
Devolving government. A general reduction of the size and
scope of the federal government so that its annual budget is less than 15% of GDP.
Sustainable growth. A complete overhaul of the tax system
with the view that the highest marginal rate would not exceed 30% and capital would only be taxed once. Wages rise
when productivity rises. Productivity rises when a laborer has more efficient tools. Tools come from investments.
Strategic disengagement. A reduction of our military to
a status consistent with defending our nation and its satellite communications systems but not with the capacity
to participate in multiple local and regional conflicts among other nations.
Financial security. A whole or partial privatization of
Social Security, including an allocation from general revenue to cover the transition.
Personal responsibility. If people spent hours instead of
dollars, would they really accept being forced to work half of the time for government? A maximum of support for
voluntary associations and minimum support for coercive organizations is a part of the solution. Public education
is a 90% state monopoly. In what other circumstance do we find government monopolies doing a better job than the
free market?
An appreciation of opportunity costs. When we spend a dollar
on anything, that dollar isn't spent anywhere else. The issue isn't what happened with the expenditure, it's what
didn't happen because of the expenditure. The dollar that goes to new programs doesn't go to deficit reduction.
The dollar that goes to deficit reduction doesn't go to lower taxes. The dollar that stays with the government
doesn't go to new investment.
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| George Mason, 1725-92, was known as the Sage of Gunston Hall.
His Virginia declaration of rights, written in 1776, was the model for the first section of the Declaration of
Independence. A friend of Patrick Henry and Thomas Jefferson, Mason was an original drafter of the Constitution
and the first ten amendments to the Bill of Rights. He refused, however, to sign the final version of the Constitution
because he thought it did too little for individuals and, without the Bill of Rights, gave too much power to the
government.This column honors his memory. |
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