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Behind the Balanced Budget

Reconsidering America's Financial 'Surplus'

Most Americans were relieved that the President avoided broaching the Monica Lewinsky scandal in his State of the Union Address. With the country prospering, citizens have chosen to forgive the Commander-in-Chief for his alleged misconduct. As long as the nation is fiscally healthy, the moral character of its leadership, according to polls, is irrelevant. Clinton has maintained popular approval despite his legal troubles by emphasizing America's booming economy and touting the balanced budget.

Clinton's critics express concern about the legacy of his presidency, worrying about the upcoming generation's response to having witnessed a leader of questionable integrity hold onto office. In a nation that gives more credence to Dow Jones than Paula Jones, however, those who care about the future would do well to probe beneath the rhetoric of today's budget bonanza.

As the President has bragged, this year's budget is deficit-free. But the accounting underlying this result is less than sound. Although the deficit has been eradicated, the federal debt will increase, at least until 2003. This means the cumulative disparity between the government's revenue and spending will continue to grow while the President boasts of paying America's outstanding bills.

Clinton can claim a budget surplus even as the nation sinks deeper into red ink because federal bookkeeping allows counting the assets in government trust funds, predominantly surplus Social Security revenue, as part of the nation's spending pool.

America's pay-as-you-go Social Security system takes in more money through Taxes than it doles out to current recipients, and the extra money is stored in a trust fund. Budget allocations for federal spending make use of the yearly additions to this accumulated revenue.

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"The government regularly raids its so-called trust funds," Steve Forbes explains in a recent Forbes magazine column. "Imagine looting your employees' pension plan each year and treating the ill-gotten moneys as operating receipts." The trust fund only exists because the ratio of workers to retiree is high. A Social Security crisis will arise when the baby boomers retire. Then, the government will require more revenue to pay retirement benefits than it will accrue by taxing the nation's reduced work force.

By declaring a budget surplus and allocating it is preserving Social Security, the President accomplishes a policy coup: he does nothing while claiming to have ameliorated a major problem. Clinton will simply restore to its coffers the Same money that allowed him to proclaim a surplus. His mantra of "sav[ing] Social Security first" has widespread political appeal, says Paul Gigot of The Wall Street Journal, because "few Americans know how Social Security works."

Foresighted politicians on both sides of the aisle--especially those with an eye toward permanently rescuing the program instead of just postponing its demise--have proposed a meaningful way to salvage retirement benefits. Sen. Bob Kerrey (D-Neb.) has long urged offering workers as tax incentive to devote part of their salaries to incentive to devote part of their salaries to individual retirement accounts.

Returns to this capital from compound interest collection or prudent stock investment would allow workers themselves to provide for their retirements. According to a recent Heritage Foundation study, a 30-years-old, average- income family with dual wages can expect 1.2 percent per annum in gains from Social Security. An identical family that invests in a conservative mutual fund would earn as much as 5 percent annually. Over a lifetime of working, the difference between government and private retirement planning amounts to $500,000.

In the face of such inefficiency, jubilation over the budget surplus bears reconsidering. The disappearing deficit signals neither an end to overextended government nor a solution to the coming Social Security crisis. President Clinton's suggestion of "reserving" extra revenue does not address the long-term solvency of the federal retirement benefits program.

Although he continues to postpone offering any substantive plan to save Social Security, the President has already committed prospective tobacco money for new government spending. As Sen. Pete Domenici (R-N.M.) has insisted, any windfall from anti-smoking litigation ought to be used to shore up Medicare. Preventing the dissolution of both Social Security and Medicare-care constitutes a national priority. Expansion of the federal government, even in good economic times, remains an ill-conceived prerogative.

American who defend Clinton from the Lewinsky allegations only because their pocketbooks are fat ought to rethink their position, if not out of the demands of conscience, then out of the realization that the nation's financial state might not be so secure after all.

Jacqueline A. Newmyer '01, a Crimson editor, is vice-president of the Harvard-Radcliffe Republican Alliance, She lives in Hurlbut Hall.

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