Page 781 - The Principle of Economics

CHAPTER 34 FIVE DEBATES OVER MACROECONOMIC POLICY 803
IN THE NEWS
The Budget Surplus
WHEN POLICYMAKERS FACE GOVERNMENT budget surpluses, they have three op- tions: cutting taxes, increasing spend- ing, or reducing the government debt. Choosing is not easy.
Lawmakers Discover That Surpluses
Can Be as Vexing as Deficits
BY DAVID WESSEL AND GREG HITT WASHINGTON—It took politicians 15 con- tentious years to eliminate the biggest federal budget deficits since World War II. Now, they are having nearly as much difficulty deciding what to do with the roughly $3 trillion in surpluses pro- jected over the next 10 years.
The sudden emergence of a budget windfall larger than anticipated just six months ago is forcing into fast-forward a longstanding debate over fiscal policy and the role of government.
On the surface, lawmakers face a simple multiple-choice question: Should the surplus be saved, spent, or devoted to tax cuts? But at its core, the debate is about profound issues that were long suppressed by the deficit-reduction imperative:
How big should government be? Do Americans prefer to pay less in taxes or have government do more? How much should younger workers sac- rifice to support baby-boomer parents and grandparents in retirement, and how much should baby-boomers set aside in advance? How much should government interfere with the workings of the market to spread the benefits of today’s pros- perity? Is paying off debt incurred in the 1980s and 1990s more or less important than raising spending on education and health or lowering taxes?
With something less than unanimity, Republicans make the case for bigger tax cuts and smaller government. “Re- publicans believe it’s a matter of principle to return excess tax money in Wash- ington to the families and workers who sent it here,” House Ways and Means Chairman Bill Archer, a Texas Republi- can, said on the floor of the House of Representatives during last week’s tax- cut debate. “Republicans believe that Americans have the right to keep more of what they earn.”
Where Republicans see an over- taxed populace, however, liberal Democ- rats in Congress see “unmet needs.”
“The question,” says Rep. Barney Frank, a Massachusetts Democrat, “is not whether the surplus should be spent according to people’s wishes. Of course it should. The question is whether it should be spent on private goods or public goods.” . . .
The public is split, but a new Wall Street Journal/NBC News poll suggests that the GOP is having trouble selling its call for tax cuts. . . . Asked to pick just one option for using the surplus, 46
percent of the 1,007 respondents opted for spending on social programs such as education or a prescription-drug benefit for Medicare recipients, 22 percent picked paying down the federal debt, and only 20 percent picked tax cuts. (The rest picked defense or didn’t make a choice.)
“We are not in a period like the late 1970s when people really despised government,” says Republican pollster Robert Teeter, who conducted the poll with Democrat Peter Hart. “The elec- torate is saying there are serious le- gitimate issues that the government should address, and they are willing to use some of their money to do it,” Mr. Teeter adds. . . .
Fed Chairman Greenspan continues to preach the virtues of debt reduction. Although he doesn’t admit to as much, he sees virtue in gridlock. If Congress and Mr. Clinton can get appropriations bills enacted this year, but agree on nothing else, then the surplus will auto- matically go to reducing the government debt.
SOURCE: The Wall Street Journal, July 29, 1999, p. A1.