Fight the Splurge Urge

Federal coffers will be flush with cash this year, thanks to soaring tax revenues and fiscal discipline. The national budget is expected to be in the black by a splendid $39 billion--the first surplus since 1969 and the largest in 40 years. Washington will be tempted to prematurely promise tax cuts and spend lavishly on favored programs. But tax reductions and big new outlays should be contemplated only after the Social Security issue is fully addressed; threats to the solvency of this essential program would prove far more costly to deal with later.

As good as the news is--the Office of Management and Budget forecast a surplus of $148 billion by 2002--it is no time to abandon the fiscal discipline that got us to this happy place. The U.S. economy’s bright prospects could dim amid the continuing Asian economic crisis and jittery global markets. If the U.S. stock market heads south for a prolonged slump, the hefty capital gains receipts that account for much of the tax largess this year could vanish. Should an economic recession occur, much of the projected surpluses could be wiped out. And the nation still needs to keep paying down the $5-trillion federal debt.

But, blinded by growing piles of cash, Congress is already getting a little reckless. It has stacked the federal transportation bill with pork, shooting well above the figure in last year’s budget agreement. How soon Washington forgets lessons of the past.

President Clinton is trying to protect this year’s surplus from the GOP’s short-term schemes for tax cuts aimed at helping members of Congress to reelection this November. The economy does not need the stimulus of a tax cut, but election years do cloud judgment. The president has said he will consider a tax cut next year. That is not unreasonable.

Clearly, the No. 1 priority this year should be Social Security. There is bipartisan agreement on the need to shore up the system to accommodate the vast number of baby boomers who will be retiring before long. Efforts are underway to work across party lines to come up with a solution that would spare workers an increase in payroll taxes and may allow them to put a small percentage of their payroll deductions in private investments. The budget surplus may be needed to weather a transition period.

After years of deficits, the temptation is to luxuriate in a string of anticipated surpluses. But it is much too soon for such indulgence.