The Congressional Budget Office recently estimated that the federal budget deficit for fiscal year 2007 will be about $158 billion, $90 billion less than last year. At that rate, we might well have a budget surplus within two years. Of course, that depends on many different factors, including the extent to which Congress and the President control spending and whether the economy continues to grow. Since a surplus seems likely, conservatives should be prepared for it. In that spirit, let me propose what I call “Balanced Budget Conservatism.”
Balanced Budget Conservatism starts with the premise that any surplus should first be used to create personal savings that will be used to stave off the coming entitlement crisis. When the surplus returns, many conservatives will have a noble desire to use the surplus to cut taxes. (And by “tax cuts” I do not mean extend the Bush tax cuts. Those should be extended regardless. By tax cuts I mean going beyond the Bush tax cuts.) And, surely, a good argument can be made for that course of action. But a better case can be made for using the surplus to create personal savings.
If we use the surplus for tax cuts, those tax cuts could easily prove ephemeral. We might have to give them back at a future point in order to pay for the coming shortfalls in Social Security and Medicare. Thus, to preserve the tax cuts we have now, we should use any surplus to save for the coming entitlement crisis.
Politicians and pundits should emphasize that the surplus belongs to the American people, and the best way to ensure that they have it is by using the surplus to create personal accounts. The surplus should be used to create two personal accounts for every working American under age 55, one for Social Security and one for Medicare. Money would only go into the accounts as long as the government was running a surplus. Individuals would have the choice of different index funds in which to invest these accounts.
If this is sounding a lot like Bush’s abortive attempt at Social Security reform in 2005, you are right. But there are some key differences this time. First, it will not require any “carve out” from the current payroll tax to create the accounts. Second, we do not have to discuss any future benefit adjustments at this point, such as moving from wage indexing to price indexing for Social Security benefits. Indeed, conservatives should avoid any discussion of benefit cuts for the time being. They should only emphasize that the personal accounts are to empower the American people, their children, and their grandchildren to create savings that will protect them against the coming entitlement crisis. Finally, using a budget surplus avoids deficit funding of the accounts.
Using the surplus to create accounts will have the added benefit of putting downward pressure on spending. If spending takes off, it will eat up the surplus resulting in no money for personal accounts. It will be easy for conservatives to criticize more liberal politicians for spending money that should be going into people’s individual accounts. Unless politicians want to face the wrath of voters who are no longer seeing funds going into their accounts, they will be far more hesitant to increase spending beyond reasonable levels.
In order to sell Balance Budget Conservatism to the public, politicians and pundits on the right must emphasize that the accounts create ownership, personal property and savings for individuals. For the time being, they should avoid talking about benefit cuts. That is a discussion for a future date, one that will be made much easier when individuals have accumulated savings to rely on.
If and when surpluses return, conservatives need to be ready with a game plan. Balanced Budget Conservatism provides us with one.
Final Note: This is my last column in The American Spectator for the foreseeable future. I am taking a job on Capitol Hill, working on many policy issues including health care. With health care policy likely to be a major issue for the next two years, a chance to work on the inside of the policy process is an opportunity I cannot pass up. It’s been a great run, and I am forever appreciative of the editors at the Spectator for taking a chance on me five years ago. I have also enjoyed the camaraderie with my fellow Spectator writers. And, finally, thanks to all the readers who have ever taken time out of their day to read one of my columns. I’ll miss you all.