Republicans Talking About the 1990s Budget Surplus Thread

[Toro]

This thread is to quote Republicans regarding the federal government budget surplus in the 1990s.

First up, Greg Mankiw, Chairman of the Council of Economic Advisers Under President Bush in a Fortune article dated March 20, 2000. He talks about what to do with the surplus and notes that there might not be a surplus going forward.

Eight years ago the federal government faced tremendous, mounting deficits, and not even candidate Bill Clinton had the temerity to promise that he would balance the budget. Today the budget is in surplus, and a major campaign issue facing George W. Bush, John McCain, and Al Gore is what to do with all that extra cash. ...

He notes that the CBO has estimated the national debt will be paid off in a decade, all things being equal.

Because of all these changes, the next President will take office with something his recent predecessors never imagined--more revenue than needed to cover current spending. The Congressional Budget Office estimates that the surplus over the next decade will total about $2 trillion. (An additional $2 billion surplus is accruing in the Social Security system, which is now off budget.) With this projection, presidential candidates can promise tax cuts with a credibility impossible in previous campaigns. Paying off much of the national debt, now $3.6 trillion, is more than an election-year fantasy.

Mankiw doubts - correctly - that the budget surplus will be there in the future. Interestingly, he notes that one reason why tax receipts are so high is because both Bush I and Clinton raised taxes.

Federal taxes are now at a historic high as a percent of GDP. This is partly because the elder George Bush broke his campaign promise of no new taxes, and partly because Bill Clinton kept his campaign promise of even more new taxes.

http://www.economics.harvard.edu/files/faculty/40_mar00.html

 

[Toro]

Next up, former Senate Majority leader proposes what to do with the budget surplus. This is in the Republican response to the 1998 State of the Union address.

Professing his commitment to "family, faith and freedom," Senate Majority Leader Trent Lott (R-Miss.) said Tuesday night that the projected budget surplus should go toward the national debt or back to taxpayers--not spent on new social programs or, as President Clinton proposed, saved to strengthen the Social Security system.

In the Republican Party's official response to Clinton's State of the Union address, Lott called for an overhaul of the tax code and elimination of the Internal Revenue Service, signaling the GOP's plan to focus on this popular issue in an election year.

GOP Differs on Use of Budget Surplus - Los Angeles Times

 

[Toro]

Candidate George W Bush promises to return the budget surplus to the voters in the form of tax cuts during the 2000 election.

"Governor Bush believes that roughly one-quarter of the surplus should be returned to the people who earned it through broad tax cuts -- otherwise, Washington will spend it. His plan will promote economic growth and increase access to the middle class by cutting high marginal rates. It will also double the child credit, eliminate the death tax, reduce the marriage penalty, and expand Education Savings Accounts and charitable deductions. The largest percentage cuts will go to the lowest income earners. As a result, 6 million families will no longer pay federal income tax."

George W. Bush on the Issues

 

[Toro]

Publisher Stephen Forbes says that the budget surpluses should not be used to increase spending. From 1999.

Forbes strongly opposes repealing the budget spending caps. The budget caps were put in place to limit government spending. Congress should not repeal them. Forbes believes it would be a huge mistake for Congress to break the caps before we save Social Security, simplify the tax code and reduce taxes. “Don’t back down in the face of mounting surpluses. Hold the line. Keeping the budget caps is the right way to provide a dramatic tax cut and to save Social Security.”

Steve Forbes on Budget & Economy

 

[NYcarbineer]

George W. Bush, Feb. 2001:

You see, the growing surplus exists because taxes are too high, and government is charging more than it needs. The people of America have been overcharged, and, on their behalf, I'm here asking for a refund.

President Bush's 2001 Address to Congress | Feb. 27, 2001 (washingtonpost.com)

 

[Toro]

The Cato Institute writes about the budget surplus.

The fiscal 2001 surplus of $158 billion is the second largest in history indicating that despite the recent tax cut, taxpayers continue to be substantially over-charged.

Most policymakers are saying that these large budget surpluses are being `saved' for Social Security. In fact, no part of the on-budget or off-budget surplus is currently being saved for Social Security. All excess Social Security taxes are simply going towards paying down the federal debt.

New Budget Surplus Projections Indicate Room for More Tax Cuts | Chris Edwards | Cato Institute: Daily Commentary

 

[Toro]

The Heritage Foundation talks about the "myths" of the budget surplus. However, these "myths" are not that there was no surplus. Rather, they argue, the surplus was not due to Clinton and the Republican Congress.

MYTH #1: The 1998-2001 budget surpluses resulted from courageous sacrifices by President Clinton and the Republican Congress.

Fact: The end of the Cold War and the tax receipts from an economic and dot-com boom balanced the budget.

A popular narrative credits President Bill Clinton's tax and spending policies with finally balancing the federal budget from 1998 through 2001. In reality, the deficit was temporarily eliminated by two factors largely outside the control of the President and Congress: the end of the Cold War and the late-1990s economic and stock market boom.

The Clinton presidency saw a budget deficit of 3.8 percent of gross domestic product (GDP) transformed into a 1.3 percent of GDP budget surplus. Nearly this entire 5.1 percent of GDP shift occurred among tax revenues, defense spending, and net interest costs.[1]

1. Tax revenues rose by 2.2 percent of GDP. While President Clinton's 1993 tax increases increased revenues somewhat, they did not fully take off until 1997 when the economy began booming, triggered in part by capital gains tax relief.
2. defense spending dropped by 1.4 percent of GDP. The end of the Cold War brought a "peace dividend" that temporarily reduced defense spending from 4.4 percent of GDP to an under-funded 3.0 percent-a reduction of one third.
3. Net interest spending fell by 1.0 percent of GDP. This was a residual of the lower debt ratio resulting from the revenue and defense movements. Slightly lower interest rates were also a contributing factor.

Other spending across the government dropped by 0.5 percent of GDP, with most savings attributed to a reduction in the cost of unemployment benefits as the economy grew.

President Clinton and the Republican Congress did not play a leading role in the stock market and dot-com boom (nor the subsequent bust), and did not cause the 1991 collapse of the Soviet Union.[2] Yet those two variables explain the vast majority of the swing from deficits to surplus. To the extent that lawmakers deserve credit, it is for staying out of the way. Spending on other programs was generally held in check, free trade was promoted, and Washington resisted urges for additional tax increases or regulations that would have killed the goose laying the economic golden egg.

Ten Myths About Budget Deficits and Debt | The Heritage Foundation

OK, I'm not going to argue with that. I had known that the stock market boom increased capital gains receipts. In fact, I had read that this increase was the reason why we had a surplus.

But I'm not looking at ascribing responsibility for the surplus. I'm just showing that everyone acknowledged there was a surplus, particularly by people with no vested interest in making Democrats look good.

 

[Toro]

Here is an interview with Milton Friedman on what to do with the budget surplus.

ROBINSON: From 1962 all the way through 1997 the federal budget ran a deficit. Then in 1998 the federal budget went into surplus. This year, according to the latest budget forecasts, the surplus could top $280 billion. What changed?

FRIEDMAN: The circumstances were different. In the first place you had a tremendous economic boom going on in the 1990s, which was raising incomes. And we have a tax system under which a 10 percent rise in income yields more than a 10 percent increase in taxes. People are shifted into higher brackets, so that without passing a law the taxes go up more than proportionately to income. So receipts went up as a result of the very rapid economic expansion.

But second of all, we had gridlock. We had a Democratic president, a Republican House and Senate. If we had had an all-Democratic House and Senate we would not have a surplus now. It would have been spent. If we had had an all-Republican House, Senate, and White House, it would either have been spent or it would have been returned in lower taxes. But because we had the divided government—we had gridlock—the money was not spent. That’s the only reason we have a surplus.

ROBINSON: So this is temporary? An anomaly that arises from a very good economy with money gushing in while the principal actors in Washington are unable to agree on what to do with it?

FRIEDMAN: Exactly. And it will not last once we have—as we do now—a Republican president, a Republican House, and a Republican Senate.

Friedman on the Surplus | Hoover Institution

 

[Toro]

Paul O'Neill, Bush's first Secretary of the Treasury, talks about the budget surplus he inherited.

Paul O’Neill: When I moved into the Treasury as the 72nd secretary, what we inherited from the Clinton administration was an economy that had been rolling itself into a modest recession for a year and a half. By that time, the dot-com bubble had burst and the economy had slowed down, and we actually had some negative quarters that we didn’t really know about until Clinton was gone and Bush 43 was in charge. But on the fiscal policy front we were in a condition where we had, for the first time in a long time, a budget that was in surplus.

I have to hasten to add that while it was in surplus, it was not in surplus on a federal funds basis. It was only in surplus because the trust funds were bringing in a lot of money and together, with federal funds and the trust funds, the Clinton administration was able to claim three years of budget surpluses, which we hadn’t seen since 1969. That was a year where we were in budget surplus with the use of the trust funds. The last year I think that we were actually in surplus on a federal funds basis, without using trust fund money, was in 1960, so we’d been at this now for 47 years of basically living beyond our means – especially if you think federal funds ought to be in surplus without using the trust fund money to calculate balance.

So in 2001, when Bush 43 took over and I took over at the Treasury, we were in a total surplus condition, and arguably (I think this was a correct argument) we needed to reduce taxes because taxes had crept up to the point where something like 20 or 21 percent of the GDP was being effectively taken by federal government. ...

An Interview with Paul O'Neill

O'Neill notes that the reason why we were in a surplus was because of a surge in payroll taxes, which is what occurred when the trust funds were in surplus. He notes that without this increase in the trust fund surpluses, there would not have been a fiscal budget surplus. That's fine.

 

[Toro]

Here is a 2000 Republican ad criticizing Al Gore's plan to spend away all the surpluses.

The Living Room Candidate - Commercials - 2000 - $2.2 Trillion

 

[Toro]

In a 2000 article, Thomas Sowell says we should use the budget surplus to reduce taxes.

The 'costs' of goverment - Page 1 - Thomas Sowell - Townhall Conservative

 

[Toro]

Then President of the Club for Growth, Stephen Moore, said that the budget surplus wasn't really a budget surplus but a "tax overpayment." Whatever. He acknowledged that the government took in more than it paid out.

Mostly due to the growing economy, those federal budget deficits are now history, but the higher tax rates remain, diverting billions of dollars from the private sector to a federal treasury that’s no longer in the red. Indeed, properly understood "these are ‘tax overpayments,’ not budget surpluses," argued Club for Growth President and economist Stephen Moore in a recent National Review article.

"The primary explanation for massive forthcoming surpluses is that we are still collecting revenues from the Cold War," wrote Moore. "This is the first post-war period in U.S. history that has not brought with it a substantial reduction in tax bills. The average effective tax burden — combined federal income and payroll taxes as a share of wages and salaries — has risen from 23 percent to 28 percent in the past six years."

How to Spend the Surplus -- 07/17/2000 - MediaNomics

 

[LordBrownTrout]

I'm confused.

 

[Toro]

I'm confused.

Aren't we all?

 

[Toro]

Mitch Daniels, W's first budge director, governor of Indiana and one-time prospective GOP nominee acknowledging the surplus. People took issue with what he said, but not that there was a surplus.

"It was the president and a Republican Congress and the Reagan peace dividend and a bubble economy, we later learned, that produced that surplus ... I was proud to serve in that administration, but that surplus was going away and it wouldn't have mattered who was president, let alone in the supporting role of budget director."

Fact Checker - Mitch Daniels's memory lapse on the budget surplus

 

[Quantum Windbag]

I guess it is a good thing I am not a Republican who ever talked about the surplus like it was real.

 

[Soggy in NOLA]

There never was any surplus. Although, Clinton did get close... thanks to spending cuts forced upon him by the Republican Congress. Remember the cries of "the Republicans are going to shut down Medicare"?

And here we are 16 years later and they're still squawking about the same tired old shit refusing to cut the bloated bureaucracy.

 

[Toro]

Glenn Hubbard was Bush's first chair of the Council of Economic Advisers. Kevin Hassert is a well-known conservative economist for the American Enterprise Institute. They wrote an article in 2001 saying that the surplus should be used to reduce taxes.

Growing Surplus Shrinking Debt The Compelling Case For Tax Cuts Now | The Heritage Foundation

 

[Trajan]

I thought we had settled this...

 

[Toro]

Alan Greenspan was the Chairman of the Federal Open Market Committee, originally appointed by Ronald Reagan and eventually re-affirmed by George Bush. Greenspan on the surpluses.

In 2000.

"The current gap between the growth of supply and demand for goods and services, of necessity, has been reflected in an excess in the demand for funds over new savings from Americans, including those savings generated by rising budget surpluses. As a consequence, real long-term corporate borrowing costs have risen significantly over the past two years.

http://www.bog.frb.fed.us/BoardDocs/Speeches/2000/20000306.htm

Also in 2000

In contrast, the experience of the past five to seven years has been truly without recent precedent. The doubling of the growth rate of output per hour has caused individuals' real taxable income to grow nearly 2-1/2 times as fast as it did over the preceding ten years and resulted in the substantial surplus of receipts over outlays that we are now experiencing. Not only did taxable income rise with the faster growth of GDP, but the associated large increase in asset prices and capital gains created additional tax liabilities not directly related to income from current production.

The most recent projections from the OMB indicate that, if current policies remain in place, the total unified surplus will reach $800 billion in fiscal year 2011, including an on-budget surplus of $500 billion. The CBO reportedly will be showing even larger surpluses. Moreover, the admittedly quite uncertain long-term budget exercises released by the CBO last October maintain an implicit on-budget surplus under baseline assumptions well past 2030 despite the budgetary pressures from the aging of the baby-boom generation, especially on the major health programs.

http://www.federalreserve.gov/boarddocs/testimony/2001/20010125/default.htm

In 2002

But over the past year, some of the firmness of long-term interest rates probably is the consequence of the fall of projected budget surpluses and the implied less-rapid paydowns of Treasury debt.

FRB: Speech, Greenspan -- The economy -- January 11, 2002