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Any Surplus Belongs to the Taxpayers

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After years of budget deficits in the hundreds of billions of dollars, an increasing number of Washington watchers now see budget surpluses coming in the near future. What happened?

It should be said up front that the politicians don’t deserve credit for the disappearing deficit — although, unsurprisingly, they have seized credit. The reason that the deficit has headed downward is that Washington is raking in huge amounts of revenue from the long-suffering taxpayers of America. Revenues are way up because economic activity has been vigorous. Unemployment is low and incomes are increasing. The downside of those generally good developments is more money for the tax collector.

Did the vaunted “balanced-budget deal” stimulate the economic activity that is producing the revenue? No. The deal is full of new spending and is hardly an example of restraint by the politicians. Rather than the budget’s making economic growth possible, it is the growth and anticipated revenue increases that made the deal possible.

The huge deficits since the early 1980s had at least one salutary effect: to some extent they restrained the big spenders. Deficits of $200 billion and more scared lots of people. That fear made it harder for politicians to propose large spending programs with the same recklessness as they did previously. Some paranoid big-government advocates even accused the Reagan administration of purposely running record deficits in order to make new government spending politically impossible. That’s not what happened; but the effect was almost the same. The deficits — and the public’s perception of them — had a chilling effect on new spending. That didn’t mean new spending did not occur at all. But the rate of spending increases dropped.

A small amount of deregulation and reduction in marginal tax rates freed the private sector enough to set off an expansion. As a result, entrepreneurs have invested in new products and unemployment has fallen well below the level in the moribund European welfare states. Even the Clinton administration hasn’t been able to derail the expansion. By historical standards, though, the expansion has been modest. Today we get excited over economic growth of between 2 and 3 percent. Earlier in our history, the freer private economy grew at much higher rates. The weight of government has reduced expectations. If the economy were ever truly deregulated and freed from the tax drag, the growth would make our heads spin.

Now that surpluses are theoretically on the horizon, the spenders are having visions of Federal Reserve notes dancing in their heads. The irony is that a surplus will embolden the very people who brought us record deficits. It is a big-government myth that the deficits of the 1980s came from tax cuts. Tax revenues, in fact, grew throughout the 1980s. The reason for the deficits was the increase in spending.

The question of the hour is: what should be done with the surplus? There is only one good answer: give it back to the taxpayers. It is our money. No other reason is necessary. Some in Washington talk about cutting taxes. As usual, President Clinton only believes in “targeted” tax cuts: if you do what the authorities want, they will return some of what already belongs to you. Americans should not accept that nonsense. How we spend our own money is none of the government’s business.

There is something better than tax cuts: tax repeals. They are harder to reverse. The best place to start is the income tax. The income tax is an oppressive levy that never should have been tolerated in America, a country born in tax revolt. The tax gives government an open-ended claim to our money, as well as the excuse to violate our financial privacy and otherwise trash our civil liberties. Nothing short of repeal of all income taxes will do.

To make sure it does not come back again, we should also repeal the Sixteenth Amendment to the U.S. Constitution, which authorizes the tax. What better way is there to prepare for the 21st century than to cleanse the law of every reference to that most un-American of taxes?

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    Sheldon Richman is vice president of The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.