May 20, 1998
For the fifth straight quarter, the U.S. Treasury opened up its sacks
of mail and discovered an unexpected windfall of money. April's
surplus is more than three times larger than the Congressional Budget
Office and other Congressional forecasters had predicted only a week
It looks as though the government will end this year with the biggest
surplus, as a fraction of gross domestic product, since 1957. The
experts say they don't really know where the extra money is coming
from, but taxpayers know; it's coming out of our pockets.
Missourians enjoy the benefit of the Hancock Amendment, a law that
requires the state to refund surplus state tax revenues. So this
spring, Missouri taxpayers received a welcome check in the mail.
Why isn't Congress refunding the surplus from the U.S. Treasury? A
deafening silence is emanating from Congressmen of both parties.
It's obvious that Bill Clinton doesn't want to refund the surplus
because he plans on increasing spending on all the usual liberal
projects. His demand that we "save" the surplus for Social Security is
as dishonest as his promise to exit from Bosnia by a date certain.
The Republican House leadership has become so nervous about prospects
for the fall election that they've even deigned to meet with profamily
groups. But when the suggestion was made last week that Congress
refund surplus tax revenues, nobody in leadership responded.
The best way to expand the Republican majority in Congress in the
November elections is to vote an across-the-board tax cut that puts
money in the pockets of all taxpayers, and let Clinton veto it if he
dares. Social conservatives should realize that the way to terminate
the programs they despise (e.g., funding for obscene art and Title X)
is to cut off the money flow.
One way to cut taxes would be to reduce all the rates that were
increased under Bush and Clinton. Another way would be to make tax-deductible the employee's share of social security taxes, just like the
employer's share that is currently tax-deductible. Another way would
be to make health insurance tax-deductible to individuals, just as
employer's health insurance premium payments are currently tax-deductible.
Bill Clinton and the media are boasting that the unemployment rate is
at an unprecedented low and the stock market is at an unprecedented
high (and implying that he deserves the credit). But neither economic
trend is nearly as important as the fact that real wages for average
American workers have been stagnant for the last twenty years.
What the worker should have gained by increased productivity, higher
wages and promotions has been taken away by the government in direct
and hidden taxes. This is spelled out in a new study just published by
the Cato Institute.
The average manufacturing worker costs his boss $30,954, but only
$27,200 is paid to the employee as his gross earnings. The employer
must pay $3,754 in direct taxes for social security/medicare payroll
tax, workers' compensation tax, state unemployment insurance tax, and
federal unemployment insurance tax.
Then, out of the employee's gross earnings, he must pay another $4,766
in direct taxes. These include social security/medicare payroll tax,
federal income tax, and state income tax.
The bottom line is that, out of the $30,954 the employer shells out,
the worker gets $22,434 and the government gets $8,521. That's 72
percent to 28 percent. For a worker earning $60,000 a year, the
government's share rises to 36 percent.
That figure doesn't even include the cost of fringe benefits (e.g.,
health insurance) and tax and regulatory compliance, which the employer
pays. Nor does it include all those other taxes workers must pay out
of their take-home pay: property taxes, sales taxes, gas taxes,
cigarette taxes, etc.
The Tax Foundation reports that, when we add it all up, the median-income two-earner family in America today pays 38 percent of its income
each year in federal, state and local taxes. That's more than the
typical family pays for food, clothing, housing and transportation
It's beginning to look as if the 1996 Republican Platform promise to
pass a "flatter" tax system and "an across-the-board, 15-percent tax
cut to marginal tax rates" was just as phony as Clinton's second
inaugural boast that "the era of Big Government is over." Big
Government has grown bigger and liberal programs are spending more
taxpayers' money today than before Republicans took over Congress.
The fundamental mistake was Newt Gingrich's strategy in making a
balanced budget his primary goal and agreeing to the rule that tax cuts
must be "revenue neutral," i.e., offset by increasing revenue somewhere
else. As Milton Friedman has taught for decades, the biggest threat to
the American people is government spending, not deficits.
Balanced budget and revenue-neutral are euphemisms for allowing Big
Government spending to continue. If Republicans in Congress don't
repudiate this foolish strategy and then cut taxes for all working
Americans, they will pay a bitter price in November.