Gore, Bush, the ‘Budget Surplus’ and Other Misconceptions

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By NAT WEINSTEIN

The Democratic and Republican candidates for president of the United States, Al Gore and George W. Bush, have focused their election campaign platforms on how much of an alleged $4.2 trillion budget surplus predicted over the next 10 years should be handed over to the country’s richest capitalists.

Bush promises the rich a $1.3 trillion windfall and Gore, the self-described “friend of the working family,” promises only $500 billion to relieve the suffering of billionaire taxpayers. Leaving aside the matter of what to do with the alleged budget surplus bonanza, how real is it?

Starting with the 1998 U.S. Treasury report of a $70 million budget surplus for that year, the news media began reporting an alleged reversal of 67 years of virtually uninterrupted budget deficits.

However, the claimed budget surpluses are highly suspect. For instance, the Treasury reports that while there was a Social Security surplus of $124 billion for 1999, a U.S. budget deficit of $1 billion has been reported for the same year!

But before we get further into the myth of alleged budget surpluses, let’s take a quick glance at U.S. budget history. In June 1930, the public debt stood at just $16.1 billion. Since then the debt, with just a few exceptions, has increased yearly through 1997.

Moreover, the rate of increase began accelerating without interruption starting in September 1981 and continued its rapid rise through September 1997. The total rise in the debt for that 16-year period alone more than quadrupled, from $997.9 billion in 1981 to $5.4 trillion in 1997-averaging out to a $707 million daily increase in the national public debt during those 16 years.

Meanwhile, the U.S. National Debt Clock* shows that the public debt rose to around $5.67 trillion on Aug. 8 and is continuing to rise at a rapid rate.

Leaving aside, for the moment, the accuracy of the claimed budget surpluses for 1998 and 1999, the mass news media has featured predictions of further humongous budget surpluses in each of the next 10 years. But even if the currently claimed budget surpluses were indeed real, no evidence is provided to support this fantastic prediction of manna from heaven.

Furthermore, let’s assume for the sake of argument that the budget surplus recorded in 1998 and 1999, referred to earlier, is real. But the expectation of trillions of dollars in surpluses from now to 2010 being bandied about is based on the fantastic assumption that the already record-breaking nine-year long economic expansion will extend for another 10 years!

This appears to be a classic case of counting chickens before they are hatched.

We can get some idea of the reliability of the projected surpluses, however, by taking a look at a New York Times editorial (July 9, 2000) on the matter of the predicted budget surpluses captioned, “Less Money Than Meets the Eye.” The editors scale down its size somewhat, but accept the basic premise of an uninterrupted decade of budget surpluses:

“A trillion-dollar gift from the productive American economy has presented both the presidential candidates and voters with the possibility of addressing a number of competing national problems or political demands.

“According to revised budget estimates released last month, the government can expect an extra $1.3 trillion in revenue over the next 10 years, bringing the official surplus estimate to an astounding $4.2 trillion.”

The Times’s editors note that the expected windfall has triggered a “war of promises” between Democrats and Republicans. The war is ostensibly about whether to use the expected windfall to reduce the public debt, increase social security benefits and other desperately needed social benefits, or give the long-suffering rich what they arrogantly call “tax relief.”

The Times, playing along with the game of counting imaginary chickens before they hatch, is nevertheless compelled to note that “some critical subtractions” need to be made from this anticipated bonanza: “About $2.3 trillion of the $4.2 trillion surplus comes from the Social Security program.”

That’s a “subtraction” with immense significance since the $2.3 trillion “surplus” is really a negative quantity. That is, while Social Security taxes are paid directly into the U.S. Treasury along with all other government receipts each year, the government, until two years ago, had been spending every penny of this “surplus”-including the Social Security surplus-to pay for such things as the military budget and other regular and unbudgeted government expenditures.

That means that there is no Social Security surplus accumulating in the U.S. Treasury, since it has already been spent to pay debts incurred for other purposes. And to make up the shortfall between all income and all expenditure, the government borrows the difference from banks and other lenders.

Thus, all Social Security taxes collected go into the Treasury and appear as a number on the plus side of the ledger. But both the Social Security benefits paid out and the “surplus” left over also appear as a number on the minus side of the ledger-along with all other government funds paid out. In other words, the trillions of dollars in surplus Social Security funds received exist only on paper preceded by minus signs-that is, as IOUs.

But these IOUs, which appear on the debit side of the ledger, are not imaginary; they are embodied in U.S. Treasury notes of one kind or another. Thus, they are very real debts upon which interest is paid to bankers and other lenders.

Just imagine what would happen if capitalist politicians were to decide to pay down the public debt. We can already see the look on the faces of bankers should the Secretary of the Treasury hand them an IOU representing the trillions of dollars owed by the government to the Social Security fund in “payment” for the amount owed to the owners of U.S. Treasury bonds.

This would be exactly like trying to pay off an IOU to a bank with another IOU to the Social Security fund!

More Social Security cuts planned

Despite all the hype about the miraculous successes of the U.S. capitalist economy and the cornucopia of benefits-to-come flowing from the great “budget surplus bonanza,” the attacks on Social Security entitlements continue and accelerate.

In fact, the July 3 edition of Newsweek magazine features a replay of the theme we have been hearing since the end of the 1980s about the inevitable bankruptcy of the Social Security system unless either workers are taxed more heavily or benefits are curtailed.

The fact is that, on the one hand, Social Security benefits are already falling ever faster behind rising prices and, on the other, the retirement age has been gradually lengthened from 65 to 67 for those born after 1959.

Present and future pensioners have already been shortchanged with cuts in the buying power of their benefit checks, and more postponements in the retirement age are coming down the pike.

The Newsweek article, “The Social Security Crackup,” is a remarkable refutation of the budget surplus myth. But this magazine’s intent is primarily to justify further cuts in benefits and higher taxes for working people.

The article sums up its deceitful rationalizations for cutting Social Security benefits on the title page of the report: “The $400 billion-a-year government program is tottering under the weight of an aging population. How to reinvent the ailing system is suddenly one of the election year’s hottest issues.”

Newsweek features a two-page spread graphically citing what it calls the “Seven Myths” concerning Social Security and, in passing, directly contradicts the biggest myth of all, the claimed budget surplus bonanza.

Newsweek says among other things that there is no “pension fund to handle the payments.” Rather, it states, “the trust fund is an accounting gimmick with no economic significance.” And that it’s a myth that “your Social Security tax payments are set aside to pay your benefits.” (That’s tantamount to saying that Social Security surpluses are routinely spent to pay for military and other annual federal expenditures.)

The Newsweek piece also repudiates the myths that “putting Social Security money into stocks will solve the system’s looming problems,” or that “George W. Bush’s Social Security plan will solve the problem,” or that “Al Gore’s Social Security plan will solve the problem.”

Newsweek’s solution is short and sweet: “Fixing Social Security is painful and expensive. You [that is, the workers] will pay more. You will get less. Or both!”

As you can see, The New York Times and Newsweek are each merely playing their part in the big confidence game systematically being played on America’s workers by the capitalist media monopoly.

But in regard to the conflicting assertions of massive Social Security surpluses on the one side, and the imminent bankruptcy of Social Security on the other, it’s safe to conclude that these contradictory claims are both true and false.

That is, there is a large surplus of Social Security income over expenditures each year. And because of the practice of spending these annual surpluses on other than the cost of benefits paid out, the capitalists will indeed do as Newsweek predicts-make workers pay more and get less!

 

*The U.S. National Debt Clock can be accessed on the World Wide Web by typing Debt Clock into the location window on your computer. Your search engine will take you to it.

Socialist Action News

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