Real World Budget Politics
Let’s go through some history:
1981: President Reagan pushes through a budget-busting tax cut. This can’t be blamed on Social Security surpluses, as there aren’t any.
1982: Social Security is on the verge of running out of money. David Stockman, Howard Baker, and Bob Dole convince Reagan to adopt a deficit-reducing package. The deficit at the time was “$200 billion as far as the eye can see,” as David Stockman put it. Hardly anybody, certainly not the plan’s sponsors, said it would solve the problem. It was just the most they could get President Reagan to accept.
1983: The Social Security rescue package puts the program into surplus and, at current estimates, finances it for more than the following half century.
A period of budget misery followed. The deficit greatly constrained all other initiatives, such as tax reform of 1986 and the Medicare Catastrophic Coverage law. Consensus said the deficit was too big; but it was so big that nobody imagined it could be addressed all at once. Every deficit-reduction package worked by making the target less than an immediate balanced budget. Shrinking the target made it possible to hit the target; making it possible to hit the target meant there could be credit for doing something.
Everyone who participated must know this. But few have drawn the obvious conclusion: if the deficit was already too big anyway, and agreement on reducing it even in stages was always exceedingly hard, there is no way that making it bigger would have helped. Participants felt there was a limit to the pain they could inflict, and those limits defined the deficit-reduction packages. There was never a point when the package was “too small” because politicians thought it didn’t need to be any bigger.
Consider what happened after the Reagan administration ended. George H.W. Bush campaigned on a promise not to raise taxes. Because he cared about the deficit, he broke his promise. He also alienated his base, presided over a disappointing economy (in spite of deficit hawks’ claims) and lost re-election. Bill Clinton then proceeded to see his stimulus and job-creating agendas blocked by deficit worries. His health -care reform prospects were badly hamstrung by deficit concerns and he lost control of Congress for doing as much as he did to reduce the deficit. Why would anyone think either Bush or Clinton could have done more? Why would anyone think the Social Security surplus kept politicians from doing more? There clearly were very, very strong other reasons to do no more than they did!
In 1997, partly through good luck, the budget was finally balanced. Did the Social Security surplus then encourage budgetary irresponsibility? Not at all. President Clinton and the Democrats promoted balancing the budget without counting the surplus. That was the policy until the Republicans took office in 2001.
So, would George W. Bush have pushed for smaller tax cuts, or more spending cuts, if the Social Security funds had smaller or no surpluses? To believe that, you have to believe that the Bush administration actually cared about the amount of the deficit (or surplus). There is amazingly little evidence for that claim.