The Surplus Vanished

President Bush claims that war and recession wiped out the projected federal budget surplus, but his massive tax giveaway to the wealthy deserves the bulk of the blame.

John Miller

This article is from the March/April 2002 issue of Dollars and Sense: The Magazine of Economic Justice available at

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This article is from the March/April 2002 issue of Dollars & Sense magazine.

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"Whew, four trillion gone," muttered Sen. Paul Sarbanes (D-Maryland) upon receiving the Congressional Budget Office's (CBO) January 2002 report. The "bipartisan" CBO found that, of the $5.6 trillion in federal budget surpluses that it had projected for the next decade (fiscal years 2002 to 2011) the previous January, just $1.6 trillion remained. Worse yet, the remaining surplus was not on-budget—that is, available for new program initiatives or tax cuts—but rather in the Social Security trust fund, which presidential candidates Bush and Gore had promised to leave untouched. So much for a decade of unlimited surpluses.

What did the damage? The CBO report is crystal clear. The number-one culprit was Bush's $1.3 trillion tax giveaway to the wealthy, which accounted for over two-fifths of the lost surplus. The recession shaved another $929 billion from the surplus projection, or about one-quarter of the loss. Increased expenditures (both domestic and military) and technical adjustments (principally increased health care costs) accounted for the rest of the shrinkage, in nearly equal amounts.

And all of this happened before the Bush administration's "guns and tax cuts" budget for fiscal year 2003 reached Congress. That budget calls for the biggest increase in military spending in two decades (a 15% jump over last year) and a doubling of expenditures on "homeland security." Plus there's yet another round of tax cuts. This time, the Bush team wants to cut an additional $591 billion in taxes over ten years, $344 billion of which would go to making permanent the $1.3 trillion tax cut Bush pushed through Congress last June. (For example, the inheritance tax is now slated to be reduced over eight years, repealed in the ninth, and then, curiously enough, reinstated in the tenth. Under the new plan, the tax will not be reinstated.) Much of the rest of the new tax cut will go to large corporations.

Combined with the $4 trillion of the surplus already lost, the Bush plan saddles the federal budget with a deficit this fiscal year, as well as for fiscal years 2003 and 2004 (even according to Bush's own overly optimistic projections). And the federal government will be borrowing from the Social Security trust fund to cover its on-budget deficits throughout the decade (as it did throughout the 1970s, 1980s, and much of the 1990s). After 2011, the budget picture will only get worse: Federal revenue losses from the fully phased-in Bush tax cuts will mount, Social Security outlays will ratchet upwards as the baby boomers begin to retire, and the federal budget will hemorrhage red ink.

None of this—turning surpluses into deficits, raiding Social Security, and courting the possibility of sustained deficits after 2011—would be a problem had the surplus been put to good use. For instance, the portion of the surplus that went to pay for the Bush tax cut could have gone instead for the $1.3 trillion in new spending that the American Society of Civil Engineers says we need to bring our schools, roads, sewers, airports, mass transit systems, and other vital infrastructure up to acceptable levels. Besides meeting important needs, these public investments would increase economic growth, private-sector productivity, and government revenue—things the Bush tax cuts are unlikely to do.

But there is precious little of that much-needed public spending in the Bush budget. For example, the Bush crowd has slashed the Labor Department budget by 7%, with job training taking one of the biggest hits—a strange move from a president who told the nation, "My economic security program can be summed up in one word: jobs." Also singled out for cuts are the Environmental Protection Agency, infrastructure spending on roads, dams and bridges, low-income heating aid, and support for teaching hospitals. Even the Bush education budget, which will increase (but by less than the rate of inflation), cuts special education spending and federal aid to schools in poor neighborhoods.

While the President toured the country touting his budget and arguing that more spending for guns and the recession forced him to cut the butter out of his budget, the CBO report said otherwise. The Bush tax cuts have done the greatest damage.

Bush, like a lot of people, has said that everything changed after September 11. Well, not exactly. In this time of recession and war, the Bush budget asks not an ounce of sacrifice from the country club set; instead it rewards them with yet more tax cuts. But for low-income and working Americans, sacrifice remains the order of the day.

John Miller teaches economics at Wheaton College and is a member of the Dollars & Sense collective.

Office of Management and Budget, The FY2003 Budget; Congressional Budget Office, The Budget and Economic Outlook, Fiscal Years 2003-2012.