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But the budget-surplus battle is more about politics than economics. In a $10 trillion economy, it doesn't much matter if the government has to dip into Social Security for a few spare billion. But with both parties committed to a lockbox, budget makers are forced to look for savings in less sacrosanct areas, which means that, depending on where the budget ax lands, you may be about to lose a popular program.
The lost surplus may also be hurting the economy--and hitting Americans in the wallet. Despite Federal Reserve Board Chairman Alan Greenspan's seven short-term interest-rate cuts, long-term rates--the ones that govern home mortgages--have hardly budged. The reason: those rates are set not by the Fed but by bond traders, many of whom are clearly spooked by economic uncertainty and anticipate more government borrowing in the future. Mortgage rates, though fairly low, could be lower--and if they were, even more Americans would be refinancing their mortgages and getting back hundreds of dollars a month to spend or save. Home-equity and small-business loans are similarly affected. All of which means that the economy isn't getting the huge boost it could be getting, because someone swiped the surplus.
Bush's greatest political peril will come if he and the Congress eat up great hunks of the Social Security trust fund (they are already raiding Medicare, something the OMB report went to great pains to say didn't matter) to meet general operating expenses. The $158 billion Social Security surplus is as tempting to Democrats as it is to Bush, who vowed again last week to increase defense and education spending. But there's a compelling reason to hold the line. Neither party wants to be at the wrong end of attack commercials next fall saying it sold out seniors. Bush adviser Lindsey argued to Time that "there's no economic consequence" to crossing the line and dipping into the Social Security surplus. But there's a political consequence, as he and Bush well know.
As the battle over the lost surplus rages in the months ahead, look for both sides to tie the issue to emotionally resonant problems. That's just what Maryland Congressman Steny Hoyer did last week at an Arthritis Foundation meeting in Edgewater, Md. Hoyer tried earlier this year to increase federal research on chronic diseases by $350 million, but the White House pared it down to $175 million. He had hoped to restore the cut, but with the surplus gone, he told the seniors, it now seems unlikely. In Missouri, Bush had used his favorite tax-cut line: "It's your money." Hoyer gave the seniors the Democrats' response: "It's also our money, and we need to spend it responsibly."
These are the kind of real-world budget arguments that could pack a punch at the polls a year from now--which is something Harry Truman could appreciate. He understood that the presidency isn't just where the buck stops. It's also--for vital federal programs, paying down the debt and keeping the economy strong--where the bucks start.