- The Washington Times - Wednesday, February 28, 2001

In his address to Congress last night, President Bush laid out the moral and economic case for tax relief: taxpayers have earned it, continued prosperity growth demands it. But one argument alluded to in the president's speech merits fuller discussion. Indeed, it ought to be emblazoned across the sky in giant letters: Excessive surpluses threaten the economy.
If more than two trillion dollars in excessive tax surpluses flow into Washington over the next decade, as the Congressional Budget Office now projects, and the money is not spent, then the federal government will pay off all payable debt that is payable within 10 years. Suddenly, a "surplus surplus" will be pouring in and there will be no place to put it. What happens then?
What happens then is the Treasury, having no other option, starts investing in private assets. Automatically and silently, Uncle Sam will become the largest owner of stocks, bonds, and private real estate in the nation.
Federal Reserve Chairman Alan Greenspan finds this prospect so disturbing that he has called it "the critical" issue in long-term fiscal policy. He warns Congress that if not addressed soon, the impending buy-up could result in "sub-optimal performance by our capital markets, diminished economic efficiency, and lower overall standards of living."
Ever the master of understatement, the chairman urges us to "eschew private asset accumulation, because it would be exceptionally difficult to insulate the government's investment decisions from political pressure."
Actually, it would be impossible. There would be irresistible pressure in Washington to steer the Treasury's investments back home to favored constituencies-with strings attached, of course.
The very relationship between public and private, federal and state governments, and even between government and citizen could all be altered for the worse. And the problem is fast upon us. Uncle Sam could start buying up private assets as early as 2006, before the total debt is zero, once all currently outstanding short-term debt is paid off. This is because, as the Treasury Department starts trying to buy back costlier long-term Treasury notes, it will find it more fiscally sensible to buy private assets instead.
Can we avert this problem? Yes. By cutting taxes. And quickly. This is one of the reasons why Congress must and will pass the president's full tax-relief plan, starting with rate reductions, and make it retroactive to January 1, 2001. Better to err on the side of paying the debt down more slowly than to permit the serious problems Mr. Greenspan warns against.
Just as we needed to manage the debt wisely as it grew, so we need to manage it wisely as it shrinks. The glide path to minimal debt should also be a glide path to minimal surpluses. Indeed, a large tax cut is precisely what's needed to get our fiscal house in order. If anything, the president's proposed $1.6 trillion worth of tax relief over 10 years is too small. Making it more stingy, as some suggest, would only exacerbate the pending fiscal imbalance and more quickly force the federal government to become the nation's largest owner of private assets.
Now, Democrats may respond: There's another way to forestall the nightmare scenario you describe, and that's to boost government spending.
True. But that would simply expand government at the private sector's expense by other means, and by staggering amounts, on the order of $200 billion to $300 billion per year.
At a time when tax revenues as a percentage of the economy are at their peacetime high, surely the American people have earned meaningful tax relief?
America has faced a problem like this once before, in the 1830s. Then, as now, a flood of revenue was wiping out the national debt. Then, as now, the president's congressional opponents wanted to spend the excess funds (back then on internal improvements, nowadays on social welfare programs). Then, as now, the president had to decide where to put the money.
Famously, President Andrew Jackson chose to put the money into state banks "pet banks," they were called. This action was soon followed by wild speculation, which, together with a wave of inflation, destabilized the entire financial system. Trying to salvage the currency, Jackson went too far the other way, issuing his famed "Specie Circular" of 1836, which simply drained the state banks and almost certainly fueled the subsequent panic and depression.
To be sure, today's looming government "investments" would not boost inflation, as Jackson's did, because they would not increase the money supply. But like his "investments" in the "pet banks," the coming buy-up of the private sector will surely lead to political manipulation and economic disruption.
Happily, President George W. Bush has available to him a policy tool for dealing with "surplus surpluses" that Old Hickory simply lacked income tax cuts. For the sake of our future, we should enact the Bush tax plan and then some ASAP.

Rep. Dick Armey, Texas Republican, is House majority leader.

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