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LOU WATERS, CNN ANCHOR: You know that old song "We're in the Money"? You might hear a few Washington politicians humming that tune today. Thanks to a well-greased economic machine that, like that battery-powered bunny, just keeps on ticking.
The federal government is ending the fiscal year this week flush with cash, apparently, $230 billion in surplus, the largest surplus in U.S. history. President Clinton did a little election-year crowing, mentioning Al Gore by name at least twice as he ran down the numbers. Mr. Clinton says $223 billion of the surplus went toward the national debt, and he says there's something in that for you. Like we said, it's an election year.
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WILLIAM J. CLINTON, PRESIDENT OF THE UNITED STATES: Paying off the debt will benefit America just as paying off credit cards benefits the average family. It frees up money for things that matter and it keeps interest rates lower. That will mean more investment, more jobs, lower mortgage payments, car payments and student loan payments.
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WATERS: Washington posted it's[sic] first surplus since the Vietnam War era. In 1998, $69 billion; almost double the next year to $124 billion; and now, in 2000, the surplus has just about doubled again to $230 billion.
The person you're about to meet might accuse the federal government of economic malpractice. He is economist Allen Smith, who says there is no surplus, that it's all a big, fat myth. His book is entitled "The Alleged Budget Surplus, Social Security & Voodoo economics."
Dr. Smith joins us from Ft. Myers, Florida. He taught economics for 30 years, retiring from Eastern Illinois University in 1998 to write. And he wrote this book entitled, once again, "The Alleged Budget Surplus, Social Security & Voodoo Economics," all of which suggests you're not elated over President Clinton's announcement today of 19 billion more in the surplus since June.
Huh-oh. Dr. Smith?
ALLEN SMITH, AUTHOR, "THE ALLEGED BUDGET SURPLUS, SOCIAL SECURITY & VOODOO ECONOMICS": Yes?
WATERS: Can you hear me?
SMITH: Yes, I can.
WATERS: All right, did you hear my question?
SMITH: Yes. The figures released today I haven't seen, the breakdown in terms of the amount that is off budget and the amount that is on budget. But like all the other surpluses they've been talking about, most of this is Social Security money and Social Security Trust Fund. Prior to the figures released today, in the last 40 years, we had a surplus in the operating budget of seven-tenths of a billion, or 700 million, and that came in fiscal '99. Thirty-eight years prior to that, every year had a deficit in operating budget. This is Social Security money they're talking about and not general tax revenue.
WATERS: You're saying that this money that we're hearing is a government surplus that we're paying down the federal debt with is Social Security money?
SMITH: It is Social Security money and they are not paying down the national debt. If I could, I just went on the Internet to the Treasury Department's Web site and printed out -- they have a page on there--the public debt to the penny. And they give it--they show a public debt of two years ago, in 1998, of 5,526 billion, and today it is 5,646. According to the Treasury Department official figures, the national debt has increased by $120 billion in this two-year period in which Clinton says it's being paid down.
What they're doing is borrowing from Social Security money, paying off what they describe as the publicly held debt and trying to make the American people believe the debt's going down.
WATERS: Well, if what you say is true, what do we make of these political promises of a prescription drug benefit, preschool for all, college tuition paid for, tax cuts? We heard Al Gore just a few minutes ago saying they, meaning Republicans, would squander the surpluses. And he's talking about a tax cut.
SMITH: These are outrageous proposals, both the proposals of George W. Bush and that of Al Gore, will tend to derail the economy, as has happened so many times before. I don't know if they've consulted with any economists, if they've looked at the facts. But Al Gore has said we'll be debt-free by 2012, and you can--anybody can go to the Internet and get this "Mid-Session Review." It's from the office of the president, the OMB, submitted to Congress in June. And the figures in here will show that President Clinton is showing an increase in the national debt between 2000 and 2012 of about close to an additional trillion dollars.
WATERS: So we're being misled by the politicians with all these campaign promises?
SMITH: We are being totally deceived. I think this is the biggest deception in American history. It started back about 10 years ago under President Bush at the time the Social Security surpluses first came into being.
I think what the American people need to know, and most don't seem to know, and I don't hear it anyplace in the news, is the so-called "surplus" all originated as a result of legislation passed in 1983 in reaction to a presidential commission headed by Alan Greenspan in 1982 which indicated we were going to have major problems with Social Security when the baby boomers retired, beginning about 2010.
So they took action, they raised tax rates and the sort. Every bit of this surplus is a planned surplus and it is in the Social Security. I don't know the figures today, but as of last year, the only surplus that was not in Social Security was seven-tenths of a billion, or 700 million. And we have spent 4,600 billion of red ink in the last 20 years.
WATERS: I would certainly agree with you we're not hearing any of this in the news. I'm involved in the news. Are you a voice crying in the wilderness? And if not, why haven't we seen a presidential candidate, any presidential candidate, talk about this?
SMITH: I think because--there's one of--there's only two explanations. One, they don't know the facts, they don't know anything. The other is, they're deliberately misleading the American people. And I think it's the latter. George W. Bush's early proposal for the massive tax cut, that was just an unthinkable--that's more Reaganomics. It's exactly the same thing Ronald Reagan said. And when Ronald Reagan came into office, we had accumulated $1 trillion in debt. We now have 5.6 trillion; 4.6 trillion of that, or 82 percent, has come under Clinton, Bush and Reagan. And the American people seem to be of the impression that we don't have a debt because of the lack of a current deficit.
WATERS: I can hear boomers now. There are between 70 and 80 million of them saying if the Social Security surplus is being used to pay down the debt, what about my Social Security?
SMITH: Well, not only that, the Social Security money has all been used for general operating purposes since it first came out back in the early--or the late '80s. President Bush, at the time he was in office, he said, "read my lips: no new taxes," and yet he spent a substantial amount of the increased revenue from Social Security, the surplus that came along. Sen. Daniel Moynihan, at that time, actually suggested that we repeal that Social Security tax increase to keep them from getting it.
So we started back in the Bush administration pulling the wool over the American people's eyes, and it's been going on ever since.
WATERS: Is there a danger for the future?
SMITH: There is a big danger because our economy right now is healthy, extremely healthy, but the budget of the United States government is probably the worst it's ever been in terms of indebtedness, and any actions taken by the government does have an impact on the economy. And I think that either--the plans of either of the two candidates will derail this economy and put us back into recession and major problems.
WATERS: But we all thought, because of the economy, because of more jobs, because of more people working and paying taxes and corporate profits up, corporate taxes up, that that's the reason why we have these surpluses.
SMITH: No.
WATERS: No.
SMITH: That is--the reason is the result of the 1983 tax increase. It is the reason that we had the tiny surplus last year. And probably, of the amount announced today, when they release the figures, they'll tell us how much of that 230 billion is in the Social Security fund and how much is in the general operating budget. My guess is there's not more than 30 billion there.
And we would expect that to be the case when the economy's at a point with the lowest unemployment in 30 years, but it won't continue. Recessions always follow expansions and we will be back in deficit territory before very long whether we have any tax cuts or not. And the tax cuts will just make it worse.
WATERS: A dire warning from economist Allen Smith. Thank you, Professor, for joining us today.
SMITH: Thank you for having me.
WATERS: The book: "The Alleged Budget Surplus, Social Security & Voodoo Economics."
(text of September 27, 2000 CNN broadcast transcript)
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