Putting the Surplus, if Any, to Work

Robert D. Reischauer
Robert Reischauer Headshot
Robert D. Reischauer Distinguished Institute Fellow; President Emeritus - Urban Institute

January 9, 1998

The Federal budget picture is suddenly not the grim splotch of red that it once was. The Congressional Budget Office said this week that the budget “is likely to be essentially balanced for the next 10 years if current policies remain unchanged” and that surpluses should start piling up soon.

So rosy is the picture that Democrats and Republicans have already begun suggesting ways to spend the money. Some envision new Government programs. Others see tax cuts. Here, some leading experts offer their recommendations: Robert D. Reischauer, a fellow at the Brookings Institution and former director of the Congressional Budget Office.

The budget surpluses projected for the next decade are an illusion. They occur only because the budget includes the surpluses in Social Security. Apart from Social Security, tax payments will still fall tens of billions of dollars short of covering the full costs of providing Government services.

Debates over how to spend these surpluses should be shelved until the Government’s revenue and spending—excluding Social Security—are in balance and Social Security’s long-term fiscal position has been bolstered.

Until then, we should husband the surpluses, not spend them.

Surpluses will increase the nation’s capital stock, boost worker productivity and expand the economic pie. That larger economy, in turn, will ease the burden when the baby boomers begin to draw their Social Security and Medicare benefits.

Furthermore, the projected surpluses are both small and uncertain. They rest on economic and political assumptions that, while reasonable, are by no means certain. A recession of average depth and duration could transform a balanced budget into one with a $100 billion to $150 billion deficit.

And policy makers may not have the political will to cut discretionary spending as the Balanced Budget Act of 1997 requires. Most cuts would have to come out of civilian programs now that the Pentagon has been cut by more than one-third.