Clinton’s Budget Legacy Lives On

“I hate to say I told you so, but we told you so,” crowed Senate Majority Leader Tom Daschle (D-S.D.) when it became clear that President Bush will dip into the Social Security and Medicare surpluses to pay for his programs. Democrats are indeed salivating. The budget surplus is evaporating, a victim of the slowing economy and Bush’s tax cut. The administration is using budget tricks to avoid admitting that Bush broke his pledge not to raid the Social Security surplus. “This could be junior’s ‘read-my-lips,”’ predicts Democratic advisor Paul Begala.

Only two problems with this Democratic offensive: It’s both bad policy and bad politics. It dangerously distorts fiscal reality and slights the global economic slowdown. It cedes Bush credit for the tax rebate, which was a Democratic initiative. Instead of urging action to aid working families in economic distress, Democrats are attacking Bush for not paying down the national debt fast enough. With the economy in deepening trouble, they sound like Calvin Coolidge, not Franklin D. Roosevelt.

In exposing Bush’s bad judgments and fuzzy math, Democrats are suggesting that fiscal austerity is a commandment of biblical import. They are insisting that the surpluses in Medicare and Social Security be “walled off” for paying off the national debt. Last week, House Democratic leader Richard A. Gephardt (D-Mo.) called on Bush to present a new budget that won’t touch those surpluses--and pledged to help make the spending cuts necessary, even if it required cutting investment in education or health care. That is simply goofy.

The global economy is tottering on the edge of recession. Japan is sinking. Europe is slowing. The “Asian tigers” are already in decline. The U.S. economy is stalled. Manufacturing has been in a depression for a year. The stock market has tanked. U.S. companies are cutting jobs and investments.

State governments are slashing spending to keep budgets in balance. The Federal Reserve has lowered interest rates repeatedly, but the slowdown continues. Consumers, burdened with record debt and growing insecurity, are starting to tighten their belts. The “bust,” as Business Week calls it, is serious.

It is precisely in these conditions that the federal government should act to help generate demand--and run deficits, not surpluses. Yet, even the revised figures project the federal government with a $150-billion surplus next year, the second largest in history. Democrats should be flailing Bush for enforcing austerity in the midst of the economic slowdown, for turning his back to working families. They should be pushing for greater tax relief for middle-and low-income earners, expanded unemployment benefits, wage supports for older workers who are losing their jobs and special assistance to families of poor mothers, who are the first to be laid off.

For the medium term, Democrats ought to be making the case for badly needed public investments: affordable health care; a real prescription-drug benefit; significant investment in schools, preschool and after-school programs; mass transit; toxic-waste clean-up; and affordable housing. These investments will put people to work, generate demand and help get the economy going again.

Some Democrats understand this. The tax rebates that taxpayers now enjoy weren’t part of the Bush tax plan. Democrats argued, correctly, for front-loading a rebate to help kick-start the economy. Keynesian economists, admittedly an endangered species, are suggesting that significant deficit spending might be necessary to get us out of this downturn. At the very least, government shouldn’t be running a surplus in the midst of a global downturn.

Sure, what is left of the surplus comes from Social Security and Medicare payroll taxes, but so what? Spending the surplus doesn’t “raid” Social Security and Medicare. The trust funds are credited with government bonds for every dollar of surplus, no matter what is done with the money. Both parties “raided” the trust-fund surpluses for years without anyone saying a word.

The Democrats’ conversion to austerity is a perverse legacy of former President Bill Clinton. Struggling to fend off Republican tax cuts when the surpluses first showed up, Clinton called for “saving Social Security first.” This quickly turned into a bipartisan commitment to “lock” trust-fund surpluses into a “box” and devote them to debt reduction. With the economy growing rapidly and unemployment low, debt reduction had some economic rationale. But even then, Clinton was booting the best opportunity in a generation to make the case for long-deferred public investments in programs like education and health care and transportation.

Clinton’s tactical ploy has become a bipartisan totem, observed with greater and greater fervor even as it makes less and less sense. Paying down debt is wrongheaded when the economy is tanking. Bush already has his tax cut, so the pressure to lock away the surplus pushes against spending, not against tax cuts. Worse, the misleading rhetoric about “raiding Social Security” only makes people think that Social Security is in dire straits, the big lie Bush needs to huckster people into trading deep cuts in guaranteed benefits for private accounts.

Under Clinton, bad policy was often the price of political survival. But this current “austerity forever” posture is also likely to be bad politics for Democrats. Democrats win as the party of working people. When the economy gets in trouble, they benefit by championing the concerns of working families. Until Ronald Reagan, Republicans were the hairshirt party of balanced budgets, as befit their base, what Bush calls the “haves and the have mores.” They stood against “big government” even when people were in distress. For years, Democrats won elections, while Republicans held onto fiscal probity.

Some Democrats are donning Republican garb. They’re arguing that debt reduction is more important than meeting social needs. They say this is the way to challenge Bush’s tax cuts, but Democrats won’t win elections by promising debt reduction instead of tax cuts. They’ll win by contrasting Bush’s tax cuts for the wealthy with investments in schools, in prescriptions drugs, in making college affordable. Democrats won’t benefit if they insist on austerity in a time of trouble. If their rhetoric ends up handcuffing government as more layoffs spread across the country, they not only won’t win, they won’t deserve to win.