President George W. Bush and his Social Security Commission are under fire because of new budget forecasts that show a "smaller" (nearly $160 billion) surplus. All the hype over the "small" surplus ignores the fact that even the revised surplus is the second largest in history. The shrinkage, it's worth noting, is entirely in the non-Social Security part of the revenue stream.
The Democrats blame the tax cut, while Republicans blame Democratic spending hikes. Both are wrong: The surplus is dropping solely due to the rapidly falling rate of economic growth, here and around the world.
The "budget surplus" is merely an estimate of what's left in government revenues after all government spending is subtracted. Revenues are a function of economic fundamentals interacting with tax policy, and the government has "coasted" in the expectation that the high-tech boom would keep filling the government's coffers. The Federal Reserve Board's tight monetary policy, coupled with a tax and regulatory burden that is still rising too rapidly, made our economy and the world's sink like a rock.
Nevertheless, the president and his bipartisan commission should stick to their guns. They have their sights on the right target - improving the dismal rate of return on workers' payroll tax investment in the Social Security program. All other issues are secondary.
Economic growth is the right answer because it creates surpluses, not the other way around. Any "surplus" is always an overpayment by the taxpayers. We need deeper tax-rate cuts to eliminate that surplus, including at least a one-third cut in capital gains rates, accelerated depreciation and an immediate end to the death tax.
Whether the issue is Social Security, revenues or jobs, or fighting poverty, growth is the answer. There's no virtue in government accumulating surpluses at high tax rates. Lower tax rates are essential to generating the long-term growth path we need to give workers both jobs and opportunity and the fair rate of return on Social Security they've been denied for too long. There's no way to do that without giving workers a private investment option, with full ownership and control over their retirement accounts under the auspices of Social Security.
The danger now, on both the tax and Social Security fronts, is that the sluggish economy will scare folks away from doing the right thing. Democratic congressional leaders, led by Tom Daschle, Bob Byrd and Dick Gephardt, make it abundantly clear they're ready to go after the tax rebate cut while the ink on it is barely dry. Gephardt says the Social Security Commission is "trying to undermine public confidence in Social Security." Daschle adds that "Social Security benefits will be cut under the commission by nearly one-half."
Unfortunately, both parties are gripped by "lockbox mania." Republicans are afraid of being accused of "raiding the trust fund," but both Democrats and Republicans have been "raiding" Social Security for decades, even while running deficits and keeping tax rates high. Both parties seem too willing to defend the surpluses for their parochial political interest to the detriment of the national. "Lockboxes" are a bit of legerdemain designed to give both parties political cover.
These fiscal follies can't be allowed to constrain Bush as he seeks to fulfill his commitment to reinvent Social Security for the 21st century. The stakes are just too high. As policy analyst Peter Ferrara recently observed, individual Social Security accounts "offer special benefits to African-Americans, Hispanics, women and other
minorities who lose out under the current system."
Whether we're talking about Social Security or the federal budget, it should always be about treating people fairly, letting them control their own destinies, making sure they're not hampered by oppressive tax rates and fostering stable growth with a stable monetary policy, anchored by real-world indicators like gold. To argue about whether the last dollar of surplus depends on Social Security revenues or time-shifting of corporate tax payments or falling energy prices is to deliberately obfuscate the issues that really matter.
The prosperity of the American nation and the freedom of the American people to control their own economic destiny are at stake. On both counts we need individual control and ownership of Social Security investments and a low-rate, pro-growth tax system that rewards risk-taking, entrepreneurship and saving and investment.
Those who are trying to scare the president away from Social Security reform and more tax cuts should note that this year's surplus is projected to grow even more as a percent of GDP in each of the next seven years. Instead of holding on to so much extra revenue, let's return that surplus right now by creating private accounts under Social Security and enacting sweeping, permanent tax rate reductions.
We have a chance to improve the lives of all working Americans. Let's seize the mantle of opportunity.