No More Budget Deficit? OK, Now What Do We Do?

The federal budget deficit is over, and politicians don’t know what to do. The deficit has been an enormous force shaping American politics for 29 years. Now what?

It’s like the end of the Cold War. Politicians still don’t know what to do in a post-Cold War world, so they continue to operate on the assumption that somebody, somewhere threatens us.

What will they do without a deficit threat? Last month, the Treasury Department surprised everybody by announcing that the federal government has been in surplus for the past year. Just a puny $2.5 billion in the black, but it’s the first budget surplus in almost 30 years. And it’s likely to get bigger this year--as high as $30 to $40 billion.

The surplus presents the biggest test yet for President Bill Clinton’s “middle way.” Some Democrats want to revert to the formula, “Tax, tax; spend, spend; elect, elect.” That’s the old Democratic philosophy, and Clinton has been trying to wean Democrats away from it. The “tax, tax” part always was getting Democrats in trouble.

But now that the government’s in surplus, Democrats can do “spend, spend” without “tax, tax.” Democrats have no trouble coming up with spending ideas. “You need to look at things that help people, like education and health-care spending,” said Rep. Martin Frost (D-Texas), chairman of the Democratic Congressional Campaign Committee.

Last month, both House Minority Leader Richard A. Gephardt (D-Mo.) and Sen. Edward M. Kennedy (D-Mass.) tried to put fairness on the national agenda. Kennedy said, “In the past two decades, America has been growing apart. A disproportionate share of the gains of our continuing prosperity has flowed to those at the top.” When Democrats talk about fairness, a call to “tax, tax; spend, spend; elect, elect” is usually not far behind.

The president claims his “New Democratic” formula works better: “target, target; invest, invest; elect, elect.” He wants to target tax cuts to reward good behavior--like giving businesses tax breaks if they are energy efficient. Last month, White House economic advisor Eugene B. Sperling called for “targeted, progressive government in the areas of education and the environment and health care.”

The administration’s line is never to talk about government spending. Always call it “investment.” Sperling said, “We are doing what we can on the public investments that are as important to this nation’s long-term productivity” as private investment and the budget deficit.

Republicans, too, have big plans for the surplus. Their formula? “Cut, cut; elect elect.” They want big tax cuts--surplus or no surplus. GOP consultant Ralph Reed expressed his party’s consensus when he said, “I am a big believer that as long as there is a Republican Congress, the American people should get a tax cut every single year.”

But what kind of tax cut? On that, Republicans are divided. Supply-siders want a tax cut for business and investors, to spur economic growth. Starting with their long-standing proposal to index capital-gains taxes. Social conservatives want a tax cut to encourage family values. Starting with their long-standing proposal to end the “marriage penalty” in the income-tax code.

Some big government conservatives want to spend the surplus. Big government conservatives? Isn’t that an oxymoron? Nope. Ronald Reagan believed in big military spending, and some loyal Reaganites want to use the surplus to reverse the defense cuts made since the end of the Cold War.

Some Republicans also believe in public-works spending. They know their suburban constituencies. Rep. Bud Shuster (R-Pa.), chairman of the House Transportation and Infrastructure Committee, has proposed $103 billion in new spending on highways and bridges.

We seem to be in familiar territory. Democrats want government to spend--oops, invest--the surplus in programs to help the disadvantaged. That’s a category that makes the middle class nervous. Does it mean “us” or “them”? Republicans want to give the surplus back to taxpayers and investors. Except for some public works and defense spending that does not imply social change.

Occasionally, a prudent voice is heard. Speaker Newt Gingrich (R-Ga.) has suggested establishing a “rainy day” fund, in case the economy goes into recession and the deficit starts to climb again. And once in a while, someone brings up a fact that most politicians would like to forget: The deficit may be gone, but what about the $5.5 trillion in debt the country has accumulated as a result of previous deficits? Rep. Mark W. Neumann (R-Wis.) is sponsoring a bill that would earmark two-thirds of any budget surplus to retire the federal debt. “Washington has borrowed from our children for too long,” Neumann says, “and it is time they are paid back.”

Probably so, but they don’t vote. 1998 is an election year, and politicians need a formula that ends with, “elect, elect.” We know people vote for candidates who offer tax cuts and popular spending programs. The question is, will people vote for a candidate whose top priority is to retire the national debt?

Meanwhile, Democrats are fighting back pressure from Republicans to support a broad-based tax cut. They’re afraid that what happened in 1981 could happen again. In 1981, Congress passed a big tax cut without cutting spending. The deficit skyrocketed. The result was 16 years of pressure to cut back government.

It could not have worked better if Republicans had planned a big deficit. In fact, some Democrats suspect that’s what Republicans are trying to do now, with their clamor for another big tax cut.

Because the truth is, while it lasted, the deficit was good for the GOP cause, like the Cold War. Both issues forced Democrats to compete on GOP terrain: smaller government and strong national defense. Now Republicans are in uncharted territory. And the White House is pressuring Democrats to move in their direction.

None of this bothers American voters, however. They’ve settled into a comfortable rut. They like divided government. It works. Why spoil a good thing?

Which is why it’s not really in Vice President Al Gore’s interest for the Democrats to win control of Congress this year. Not only would it make Gephardt, his chief rival for the nomination, speaker of the house, but it would make it much harder for Gore to win the election.

The election, not the nomination, is Gore’s big problem. Sitting vice presidents usually win their party’s nomination and then lose the election. George Bush was the only exception in 150 years.

A GOP Congress gives Gore something to run against in 2000. He can make the blank-check argument: Electing a GOP president would be like giving Gingrich and the GOP Congress a blank check.

Republicans used that argument at the end of the 1996 campaign, when it became clear Clinton was going to get reelected. The GOP ran ads warning voters that electing a Democratic Congress would be like giving Clinton a blank check.

It worked. But if Congress goes Democratic this year, it would take away Gore’s best issue, and give it to the GOP. Republicans could say to the voters, “Do you really want to go back to a Democratic president and a Democratic Congress? Remember Clinton’s first two years in office?”

After that experience, followed by the GOP’s “contract with America,” voters have come to a firm conclusion: No more big agendas. Leave us alone. And the best way they know to ensure that is to vote for divided government.

The budget surplus invites politicians to do exactly the opposite. It’s “found money.” And politicians can’t resist the temptation to come up with a big agenda to do something with it.