Budget Battles: Just don't do it

An open letter to Congress, the White House, all presidential candidates, all House and Senate candidates and anyone else who might be interested:

Don't do it.

The Office of Management and Budget this week released its latest update showing that the federal budget surplus could be $75 billion or more higher in fiscal 2001-and perhaps as much as $1 trillion higher between 2001 and 2010-than had originally been estimated. This will create substantially increased pressure for either a big tax cut or spending increases.

Don't do it. Please resist all of the primal urges that have become so embedded in the U.S. political system.

Instead, listen to Federal Reserve Board Chairman Alan Greenspan, the person you prefer to venerate for the record-breaking economic growth of the past nine years rather than give any possible credit to your opponents. Greenspan has said consistently and unambiguously that the best thing than can be done with the surplus in the current economic environment is to reduce federal debt.

Greenspan's judgment has been so right up to now-and you have been so quick to make him into a cross between a deity, guru and icon-it would be foolish to reject his wisdom now.

Alternatively, listen to your current or soon-to-be constituents. Public opinion polls continue to show that the overwhelmingly preferred policy is to use the surplus to reduce federal debt. Voters are far more worried about Congress and the White House making a mistake by changing fiscal policy and messing up what they now have going for them than they are interested in a few extra dollars coming their way.

Or listen to the financial markets. Interest rates have been rising in recent months because of concerns about the U.S. economy overheating. Those concerns will grow if you enact a big tax cut or spending increase at the absolute wrong time and create even more buying power when it is not needed. More than two-thirds of Americans now live in homes they own, and so are exceedingly sensitive to interest rate increases. A definitive decision to use the higher-than-expected surplus to reduce debt will be a pleasant surprise to the bond market and the Federal Reserve, and that should create more downward pressure on rates than would otherwise be the case. Your homeowner constituents, and those who would like to own a home-essentially everyone-will love you for it.

(Note: A tax cut or spending increase might be more palatable if you were willing to cut spending or increase revenues to offset the net impact on the economy. But no one seems interested in making that tradeoff. To the contrary, everyone seems interested in cutting taxes and increasing spending without considering the bottom line.)

I know this will be hard for you. Not doing something is tough for elected officials, most of whom ran for office thinking there was a need for big changes. But please keep in mind that this is an exceptional time in U.S. history-the record growth, the continuing large surpluses and the underlying changes in the economy have combined to create a situation for which there is literally no parallel. We have no analogous political, historical, procedural or economic precedents to guide what, if anything, should be done. As a result, not doing "it," whatever that may be, is the far safer course at the moment.

Any worries you might have about becoming irrelevant as far as economic policy is concerned are completely unfounded. At some point, perhaps even soon, the overall situation will change and Washington will have to respond by using the budget tools at its disposal. In addition, at some point, again perhaps soon, a debate will take place and answers will be found to some of the questions the surplus is creating and that will allow policy changes like tax cuts and spending increases to be considered for more than just political purposes.

For example, even if the extraordinary economic growth continues, at this point we don't know whether it will always be better to reduce federal debt than to do something else with the surplus. If the debt were mostly or completely paid off, would surpluses still make sense? And at what point does an extra dollar of debt reduction not mean as much for the economy as that same dollar being invested in research, education, plant and equipment, etc.?

It should not surprise you if these questions are hard to answer right now. Frankly, until recently they could not even be asked with a straight face.

There will be plenty of opportunities and many reasons to cut taxes and increase spending in the future. But for now, the correct thing to do is to be grateful for the chance to both reduce publicly held federal debt and take credit for not doing something. Few of the federal elected officials who have come before you have had a similar opportunity.

Sincerely,

"Budget Battles"

Question Of The Week

Last Week's Question. The Office of Management and Budget is required by section 1106 of Title 31, USC, to submit the mid-session review "before" July 16 each year. Although in many years this has meant that the target date was July 15, this means that, as it seems will happen this year, OMB can send the report to Capitol Hill much earlier. The winner of the "I Won A Budget Battle" T-shirt, who was selected at random from the many correct responses, is Hazen Marshall, who is deputy chief of staff to Senate Assistant Majority Leader Don Nichols, R-Okla.

This Week's Question. An athletic shoe manufacturer tells its customers to "Just Do It," kids considering using drugs are told to "Just Say No," and a fast food company used to tell its customers "You Deserve A Break Today." The question: What tag line should be used for federal budget users/watchers/analysts or taxpayers? Send your response to scollender@nationaljournal.com, by 5 p.m. EDT on Saturday, July 1, and you could win an "I Won A Budget Battle" T-shirt of your very own. Please include the address to which you want the shirt sent if you win. If there is more than one correct response, the winner will be selected by random drawing.

Special Note To All Readers: If you want some help in answering the technical budget process questions that "Budget Battles" sometimes asks, you might want to get a copy of the updated version of "Compilation of Laws and Rules Relating to the Congressional Budget Process." Copies can be purchased from the U.S. Government Printing Office. The House Budget Committee document is Serial No. CP-4 (May 2000) and ISBN 0-16-060544-X.