THE BUDGET SURPLUS
Oct. 29, 1999

Budget deficits are rapidly becoming a thing of the past. In the 1998 fiscal year, the federal budget surplus was $69 billion. In the recently-ended fiscal 1999, it was a whopping $123 billion. One would think that such rosy numbers would impart a spirit of bonhomie to Washington -- after all, both President Clinton and the Congressional Republicans can claim credit for this stunning reversal in budgetary fortunes.

But discontent is rife in the capital. The Prez and the Congress cannot seem to agree on the budget for fiscal 2000. Each seeks to protect its cherished programs while decrying the excesses of the other. Each claims to hold Social Security sacrosanct: Trust us, they say, we will not let the other guy touch Social Security.

Despite his lame-duck status and all his troubles, President Clinton finds himself in a surprisingly strong position. The provisions of the budget, as they appear now, have largely been on Clinton's terms. Clinton's ace up the sleeve? The threat of a government shutdown.

The prospect of a government shutdown terrifies Republicans. They shudder to recall the grim episode of a few years ago when, following a budget impasse, government offices were shut down repeatedly -- and voter disaffection rained down on the Republicans. Clinton and the Democrats escaped unscathed.

Seeking to avoid deja vu all over again, the Republicans have made sure that the various government departments remain funded while budget negotiations continue. And thus, the GOP and Clinton edge increasingly closer, with the Republicans having given up all hopes of consummating their fondest desire – cutting taxes.

It's a tough pill for them to swallow. A budget surplus of $123 billion, and they could not cut taxes! To make matters worse, the American public doesn't seem to care. The polls indicate that the voters don't give a damn about tax cuts. They are more worried about the solvency of Social Security and Medicare, and they want the government to use the surplus for shoring up these programs rather than frittering it away on foolish tax cuts or big spending programs.

The American public has good reason to think this way. A cut in taxes or an increase in government spending will boost aggregate expenditure on goods. With the economy already enjoying brisk economic growth and strikingly low unemployment, the likely outcome is a surge in inflation. Rising prices, in turn, will prod a nervous Fed into raising interest rates causing, in all likelihood, a slowdown in economic activity, perhaps even - gasp - a decline in the stock market.

The present budget impasse may not be so bad, after all. At least while they are negotiating, the President and the Republicans are not inflicting any harm on the economy....