Left and Right start buzzing round honey pot
July 11, 2000
by Irwin Stelzer
SUNDAY TIMES (LONDON), June 25, 2000
The American government is about to announce that it has once again seriously underestimated its budget surplus.
That surplus, projected until recently to total $ 3trillion (Pounds 1.9trillion) over the next 10 years, is now projected to total $ 4 trillion.
This change is more than a matter of numbers. Put a huge pot of money - or, more precisely, the forecast of a huge pot of money – in front of politicians, and their priorities become obvious.
In Britain, that pot contains the billions garnered from the sale of third-generation communications licences and some stealthy tax increases.
The Left wants to spend that money on social services; the Right wants to return it to the taxpayers in tax cuts.
The chancellor, Gordon Brown, in this instance neatly positioned in the center, wants to use it to reduce the national debt.
The situation in America is more complicated. Britain's Treasury is sure of collecting the huge sums bid for the licenses; America's Treasury has only a forecast of future untold riches upon which to rely. And that forecast depends on economists' guesses that the American economy will remain recession-free for 10 years, that the inflation rate will be modest and that politicians will not find ways to spend the surplus before it ever gets into the Treasury's coffers.
No matter – most observers expect there will be a big surplus, which means the November elections are about which party will get to dispose of some trillions of dollars.
Vice-president Al Gore and the Republican presidential candidate, George W. Bush, have big plans for the projected surplus.
Both would use a portion in a partial bail-out of the troubled government pension system. Both would use some of the surplus to shore up the government-sponsored Medicare system. Both would use some of the money to finance tax cuts.
Those are the similarities. It is the differences that matter most.
Bush would have the remaining shortfall in the social-security system filled by allowing workers to invest a portion of their contributions to the pension fund in shares - shares of their own choosing. The higher return on those portfolios would, he reckons, enable most people to retire in a modicum of comfort.
Gore, in the tradition of the tax-and-spend Democrats, who have been moping on the political sidelines during the reign of the somewhat more prudent "new Democrat", Bill Clinton, would have any additional shortfall in pension funds covered by tax increases.
The nice thing from his point of view is that those increases will not be needed for about 10 years, long after he will have left the White House after his hoped-for eight years as president.
The differences do not stop there. Gore is promising to devote a portion of the surplus to helping old folks meet the rising cost of prescription drugs, a programme that even the liberal-leaning New York Times concedes would be "costly".
Bush, on the other hand, sees defence spending as a more important priority. Most experts agree that the American military has been starved of funds by the Clinton administration and that it no longer is able to meet the agreed military objective of fighting two wars at the same time.
Indeed, in Kosovo the military ran out of missiles, military pay is now so low that many families in the armed forces must rely on food stamps to make ends meet, and training missions have been curtailed to save money. That worries the Republicans a lot more than it does the Democrats.
Gore's people are asking President Clinton to veto the spending bills now emerging from Congress because they fall some $ 23 billion short of what the Democrats want to spend on teachers, health care, national parks and a variety of social benefits.
Defence spending just does not appeal to them as much as funding the projects of the party's important traditional constituency groups - the teachers' unions, greens and pensioners.
An even bigger difference between the philosophies of the parties relates to tax cuts.
Bush has proposed a tax cut that Gore labels "risky" and excessive.
Even more revealing, Gore, who has been forced by the rising surplus to offer a modest tax cut of his own, nevertheless continues to refer to such reductions in the government's exactions as "spending the surplus", as if the money originated in the government and is its to spend.
Bush, in line with the tradition established by Ronald Reagan, says taxes belong to the people, not to the government, and a tax cut merely leaves the money where it was earned in the first place. And that prevents sticky fingered politicians from spending the surplus.
So money talks. And both candidates are listening.
The surplus is telling Gore and the Democrats they can expand the welfare state.
It is telling Bush and the Republicans they can rescue the military from penury and let the people keep more of their hard-earned money.
In short, it is telling both candidates the age of austerity is over and there is plenty of money with which to pursue their very different philosophies of government.
This prospect is so delicious that neither Bush nor Gore wants to question whether the money will be there when actual figures replace current projections and when all of the government's obligations to future generations are fully funded.
Since the surplus is no sure thing, it would seem that Bush is on firmer ground. Gore's spending plans, once enacted, are likely to prove irreversible, whereas the Bush tax cuts can be deferred or reversed if necessary.
Prudence dictates hedging one's bet. Bush has done just that, while Gore has left himself exposed to any unpleasant surprises the economy might have in store for the government's forecasters.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.