FAKE SURPLUS: TAX CUTS STILL A GOOD IDEA

Despite President Clinton's State of the Union address in January that announced a federal-budget surplus -- and dozens of ways to spend it, the truth of the matter is that the surplus is a fiction, a deception and, in the long run, a dangerous fiscal lie.

Then why are so many supposedly intelligent people inside the administration and in Congress still talking about ways to "spend" something that doesn't exist?

Perhaps it is because the nation has lived quite comfortably with the lie for so long. In truth, the federal government has been borrowing from the Social Security Trust Fund since 1968, when President Lyndon Johnson found he could mask much of the financial drain of the Vietnam War. After the fall of Saigon, there were plenty of other spending priorities that were made possible because Social Security taxes continued to produce more revenue than was needed to pay benefits to the elderly.

So when President Clinton announced a $70 billion surplus for fiscal 1998, he was simply doing the same creative accounting that every president since Johnson has been doing. The federal budget -- income and expenses -- produced a $29 billion deficit in fiscal 1998. But Social Security had a $99 surplus. Do the math. The so-called $70 million surplus is the difference between the real deficit and the Social Security surplus.

So what's wrong with borrowing from Social Security as long as it continues to have sizable surpluses?

Just this: By 2021, Social Security is expected to start paying out more than it takes in. There won't be any more Social Security surplus for the federal government to borrow from. And to keep Social Security solvent, the federal government will have to start paying back what it has borrowed from the old-age pension program. With interest.

The national debt currently stands at $5.6 trillion. The federal government expects to spend $231 billion on interest on that debt this fiscal year.

Fortunately, if the economy remains strong, the federal government is expected to produce a real surplus -- $6 billion -- in fiscal 2001.

Meanwhile, there are all kinds of ideas floating around in Washington about how to spend the surplus that really isn't a surplus. Clinton magnanimously proposed spending two-thirds of the fake surplus on -- what a deal! -- saving Social Security. In other words, he wants to give Social Security what belongs to Social Security in the first place.

Saving Social Security makes the president -- and others who jumped on this bandwagon -- look good. But it's as much of a fraud as the borrowing from Social Security for more than 30 years.

Calls for tax cuts are being opposed by some because the national debt is so huge and because we need to save Social Security. Both of those issues certainly need to be addressed. But don't confuse tax cuts with spending the nonexistent surplus. Time and time again it has been proven that federal tax cuts stimulate the economy, resulting in more revenue for the federal government, not less.

The problem with the current thinking in Washington is the lack of understanding back home in congressional districts and in states where budgets are constitutionally required to be balanced -- really balanced -- every year. There are efforts in Washington to impose the same constitutional mandate on the federal budget. It isn't likely to get very far, because passing constitutional amendments on the federal level is a tough and time-consuming process.

What's needed is simple honesty: Acknowledge that there is no real federal surplus, let Social Security keeps its money, cut taxes to keep the strong economy going, start paying back Social Security when there is a real federal surplus and then start reducing the national debt.