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Budget Surplus Politics: The Money is Ours

Opinion pieces and speeches by EPI staff and associates.


Budget Surplus Politics: The Money is Ours

by Jeff Faux

In their campaign to use the projected federal budget surplus to finance a massive tax cut, Congressional Republicans argue that they are merely giving back to the people money that is rightfully theirs. “Whose money is this?” thundered Republican speakers during the debate on the House floor. Their answer: “The taxpayers, not the government’s.”

Unfortunately, Democrats ducked the issue – instead merely objecting that uncertainty of the forecasts dictate smaller cuts, more equitable tax reductions.

Thus, the country missed an opportunity to hear an important debate about the sources of our national wealth. According to the GOP leadership, economic growth is the product of the efforts of private individuals. In the words of Congressman Bill Archer of Texas, the author of the tax bill, “We believe the people know best how to spend their own money. What this is all about is downsizing the power of Washington and upsizing the power of people.”

Indeed, it is. Seventy percent of the projected non-Social Security surplus that will finance the tax cuts come from projected draconian cuts in the non-defense discretionary part of the federal budget – which supports education, health care, environmental protections, scientific research, and other activities that are at least as crucial to the generation of income and wealth as the stock market trading that has created so many individual millionaires in the past decade.

To be sure, individual initiative is an indispensable force in the process of economic growth. But in a modern economy, growth is largely a social phenomenon. Like a seed needing water, sun, pruning, and proper soil, individuals – no matter how talented – cannot prosper without the right environment, much of which must be provided collectively through democratic government.

Trace the origins of the expansion of income in America over the last decade and you will find the helping hand of government – often “big” government everywhere. For example, the cornerstone of our economic success has been public mass education, which despite its critics provides the United States with the largest share of college-educated workers of any advanced economy on earth. And the immense expansion of computer technology which has become the basis for the generation of riches from Silicon Valley to Wall Street had its origins in spending on research and development supported by the Pentagon, NASA, and the National Science Foundation. The private sector would never have invested in these activities because the risks were too high and the returns too far into the future. Other examples are clean air and water, government inspectors that make food and elevators and airplanes safe, regulators enforcing rules that allow us to trust banks and stock exchanges. The list goes on and on.

In the world’s richest mass market, Americans thrive because of other Americans. The individual entrepreneurs who have done so well over the past decade did not create their customers or their educated workers or the public that buys their stock. Indeed, markets are not found in a state of nature. They are constructed by governments of one sort or another. As we have learned from the Asia crisis, where governments are weak, the rules are weak. And when rules are weak, markets self-destruct.

It so happens that the American society has been designed for the creation of individual wealth. Many societies are not. Imagine that the stock market geniuses of the last decade were born into and had to make their financial way in the economy of rural Bangladesh. How many would end up being driven to work in limousines?

The fact that wealth is created in the interaction between the individual and society does not tell us exactly how much spending ought to be public and how much private. But domestic investments as a share of GDP have been declining for a decade, and the massive cuts required to finance the tax cuts will tilt the balance so far that future wealth creation will surely suffer. Already, for example, the enormously successful HeadStart program can support only 40 percent of the poor children who qualify. Given that one child in five is born into poverty, this neglect will surely retard growth in the coming century.

America has the most successful economy in the world precisely because we the people have used government as a collective instrument to make the investments and enforce the rules of the market that we cannot do as individuals. The notion that individuals make the wealth and an elected government just consumes it, is both bad economics and an affront to democracy.


Jeff Faux is the president of the Economic Policy Institute. He is the author of The Party’s Not Over.

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