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Copyright 2000 The Kansas City Star Co.  
THE KANSAS CITY STAR

September 6, 2000, Wednesday METROPOLITAN EDITION

SECTION: BUSINESS; Pg. C1 ;JERRY HEASTER

LENGTH: 588 words

HEADLINE: Veto alibi, like surplus, is fairy tale

BYLINE: JERRY HEASTER; The Kansas City Star

BODY:
President Clinton's explanation of his veto of death-tax-repeal
legislation exemplifies how Washington works its fiscal scams.

He characterized it as part of a grand Republican tax-cutting
scheme that would undermine the benefits of Washington's fiscal
probity. The cumulative effect of the GOP initiative, he said, would
be to "take us back to the bad old days of deficits (and) high
interest rates."

This reasoning ignores reality.

The trend of interest rates, for instance, has been up since the
era of federal budget surpluses was proclaimed a couple of years ago.
If there is any relationship between the budget and interest rates,
in fact, it appears to be inverse. This is to say that rates often
have been at their lowest when the budget deficits were their
highest, and vice versa.

As for the "bad old days of deficits," here's a news flash: The
national debt is higher today than it was a year ago. The
"government finances" table appearing today on Page C-7 shows $5.58
trillion in total federal debt outstanding a year ago. As last month
drew to a close, the table shows, total debt was $5.67 trillion.

How can the national debt be expanding when Washington claims to
be spending less than it's taking in? July's budget results showed
not only a rare surplus for this particular month, but also $181
billion in black ink for the first 10 months of this fiscal year. The
administration is now forecasting a total surplus of $224 billion for
fiscal 2000.

Without putting too fine a point on it, the much ballyhooed
surplus involves accounting sleight of hand. Most of the exercise has
to do with taxes collected for specific purposes such as Social
Security, road construction and airport facilities.

Not all of the specifically dedicated revenues collected are
spent for their intended purpose, and what's left goes into the
budget to finance general budget outlays so Uncle Sam can pay for
whatever goods and services are needed. Meanwhile, the trust fund
established as a parking place for revenues not used as intended gets
an IOU in the form of a nonmarketable Treasury security. In the real
world, it's called an unfunded liability.

The illusion of the surplus is created by what appears to be the
"saving" of dedicated revenues by putting them in the trust funds
when indeed liabilities have been created. Total debt is rising
because trust fund debt is expanding faster than debt held by the
public is being paid down.

To be fair, the recent annual increases in the national debt are
extremely modest compared with the increases of the '80s and '90s,
which means Washington really is closer to a balanced budget.

Nevertheless, Americans shouldn't fool themselves. The fact that
outstanding debt is rising means there is no surplus in a form any
self-respecting accountant would recognize.

In accounting reality, a real surplus can't exist because current
law doesn't provide Uncle Sam any means to save and invest in assets
with real market value.

This little inconvenience is also what makes the "lockbox"
concept for protecting Social Security and Medicare an artifice, but
that's grist for another day's mill.

- Jerry Heaster's column appears Wednesdays, Fridays, Saturdays
and Sundays. To reach him, write the business desk at 1729 Grand
Blvd., Kansas City, MO 64108. To share a comment on StarTouch, call
(816) 889-7827 and enter 2301. Send e-mail to jheaster@kcstar.com

LOAD-DATE: September 7, 2000




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