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Capitol Comment 263 – Lessons From This Year’s Budget Debacle

In the heat of the debate over Congress’s $792 billion tax relief plan, Bill Archer, Chairman of the House Ways and Means Committee, guaranteed his colleagues that unless they fought to return the $1 trillion in general fund surpluses to hard-working Americans, “the politicians will spend every dime of it on more government programs. They always have, and they always will.”

Lawmakers shamelessly used the pretense of meeting Clinton’s demands as cover for filling this year’s spending bills with hundreds of pork barrel projects.

With the FY 2000 budget now signed into law – eight weeks behind schedule – it’s sad to say that Archer vastly underestimated his colleagues’ ability to spend the money that was to have been reserved for tax cuts. What’s worse, all the conditions are in place for this fiasco to repeat itself next year unless the Republican leadership takes early steps to head it off.

Any pretense of maintaining fiscal discipline ended when Bill Clinton vetoed Congress’s tax cut plan. With a stroke of a pen, he freed the “Congressional Pork Caucus” – led by members of the Appropriations Committee – from their responsibility to cut wasteful and obsolete spending in order to protect the surplus for tax relief. Once liberated from that duty, they unabashedly colluded with Clinton to spend every dollar of the surplus, and then some.

The final tally shows that Congress and the President approved a staggering $46 billion in new spending. Of that total, $31 billion was approved for this fiscal year, an amount well above the legal cap levels required by the 1997 balanced budget plan, and about seven times the amount of money Congress had reserved for tax cuts in this fiscal year. The remaining funds, roughly $15 billion, is actually “advanced” funding for fiscal 2001.

The net effect of this new spending is that Clinton and the Congress squandered all of the $14 billion non-Social Security surplus projected for this year and nearly half of the $35 billion general fund surplus projected for next year. And it’s very likely that the spending spree would have been worse had it not been for the Republican leadership’s public commitment not to dip into the Social Security surplus to fund new programs. While both sides now claim they protected all of the Social Security surplus, the truth is that they “unofficially” spent $17 billion of that surplus, but “officially” papered over the fact with budgetary gimmicks and accounting “offsets.”

What did taxpayers get in exchange for their lost tax cut? Precious little, except for the chance to hear politicians boast about what concessions they extracted from the other side.

For example, Clinton will certainly brag about the $1.3 billion in funding he got to put an additional 100,000 teachers in America’s classrooms. The reality is that the lion’s share of the financial burden for hiring those new teachers will fall on local taxpayers. Look at the elementary-level math: $1.3 billion in funding, divided by 100,000 teachers, equals $13,000 per teacher – about $6.25 per hour.

Since the average compensation for teachers is $40,742, the real cost of 100,000 teachers is $4.07 billion – a mere $2.77 billion more than what Clinton actually delivered. Now unless unionized teachers have suddenly agreed to work for $6.25 an hour, that $2.77 billion will have to be financed by local taxpayers. As always seems to be the case, Clinton goes for the political points, but taxpayers get the bill.

Lawmakers also shamelessly used the pretense of meeting Clinton’s demands as cover for filling this year’s spending bills with hundreds of pork barrel “earmarked” projects, including: $900,000 to the City of Hot Springs, Arkansas for the construction of a parking facility; $900,000 to Providence, Rhode Island for the renovation of the Providence Performing Arts Center; $500,000 to redevelop the Sioux City Stockyards in Sioux City, Iowa; and $200,000 to Trenton, New Jersey for the renovation of the YMCA’s indoor swimming pool. Every bill was rife with this kind of junk.

There are two lessons to be taken away from this year’s budget debacle. First, as Ronald Reagan proved, cutting taxes is the only way of blunting politicians’ hunger for new spending. In other words, you have to starve the beast, especially in an era of budget surpluses.

Next, the only way to truly protect the Social Security surplus is to allow workers to keep those extra FICA tax dollars in personal retirement accounts owned and controlled by them. Not only would personal accounts prevent the surplus from being spent on bigger government, it would also allow workers to accrue real assets for their retirement as opposed to the phony IOUs now piling up in the Social Security trust fund.

This year’s spending binge, which squandered the general fund surplus and a portion of the Social Security surplus, will repeat itself next year unless the Republican leadership in Congress takes early steps to ward it off. Preferably, they should announce before Clinton releases his budget in February, that they will: (1) give workers personal retirement accounts in order to protect the Social Security surplus; and (2) deliver a sweeping tax reform plan in order to move the rest of the budget surplus out of Washington before it is spent by politicians.

Does this strategy bear risks? Sure. But the risk of looking like the big-spending Democrats they replaced is not something they will likely recover from.