Enjoy the Surplus

It is an odd situation.

The United States government is urging Japan to bust its budget, boost spending, cut taxes, raise an already huge deficit.

Meanwhile, the US is glorying in what could well be a budget surplus this year. Woe to the politician who threatens that happy fiscal scene.

So, at a year-end press conference, President Clinton all but ruled out introducing any tax cuts in his State of the Union address in late January. "There are a lot of tax cuts that might be desirable, but how would you pay for them?" Mr. Clinton asked. "How would you not increase the deficit?"

From an economist's standpoint, the difference between the two nations is perfectly logical.

Japan's economy is in the doldrums. Interest rates are close to zero. A bigger budget deficit is seen as essential to stimulate the economy. It would not only help the Japanese people, it would aid other Asian nations in their current financial crisis.

In the US, the economy is thriving. Output grew at a real 3.1 percent annual rate in the third quarter, federal statisticians estimate. The fact their number was slightly less than the 3.3 percent calculated a month ago was seen as good news. A slower economy should encourage the Federal Reserve to refrain from raising interest rates.

Thus the US economy needs no help from government coffers.

Guesses on the federal budget balance in fiscal 1998 differ. Stanley Collender, a budget expert with Burson-Marsteller, a Washington public relations group, predicts a surplus of $25 billion to $40 billion.

Susan Hickok, chief economist of Prudential Economics, expects a tiny $15 billion deficit. She forecasts a decidedly slower economy in 1998.

Many factors influence the budget. When a corporate executive cashes in a lucrative stock option, Uncle Sam takes his share. Washington also reaps a good chunk of the billions in bonuses enjoyed this year by Wall Street. It takes a piece of the action whenever a mutual fund or an individual reaps capital gains on investments. And the Treasury will love the falling interest rates on its debts.

If there is a budget surplus this year, as we suspect, what should Washington do about it?

We would suggest: nothing. Let's just enjoy the surplus that is accompanying national prosperity.

We don't need a tax cut. Federal revenues, equivalent to about 19.8 percent of national output, aren't excessive. If Clinton or Congress want to launch or expand a program, let them find the money from current revenues or offsetting spending cuts. Don't damage this great national accomplishment: A budget surplus at last!

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