Whither a Surplus?
Jude Wanniski
October 21, 1997


Memo To: Rep. John Kasich
From: Jude Wanniski
Re: Question from Brit Hume of Fox News

If you review the transcript of the "Sunday Morning" show on the Fox network, you will see why Brit Hume became so exasperated with your answer to his question about a possible budget surplus next year. The question was simple: Does John Kasich think a surplus should be used to cut taxes, increase spending, or pay off the national debt? You would only answer the part that says you would oppose any increase in spending. You would not say whether an extra dollar be used to cut taxes or pay off a dollar's worth of the national debt.

Let me suggest a principled and logical way to answer:

1. Start with your position that government should not do for people what they can do for themselves. Don't automatically say we should not spend any more money. Maybe we should. If the people have need of the dollar of surplus, it should be spent on meeting that need. You should say instead you personally believe there are too many dollars spent now doing for people what they can do for themselves. There are places where spending should be increased and places where it should be cut. It is the job of the Congress, representing the 50 states and 435 congressional districts, to debate these spending issues.

2. If there is no obvious need to spend the surplus dollar, it should be used to cut tax rates where they appear to be higher than they should be. If a tax rate can be cut and the lower rate produce at least the several cents in revenue that you could save by paying down the national debt, you should do it. These are questions of judgement that Congress must also make. As long as we believe any tax on capital gains is so negative for economic growth that it produces less revenue than if it were eliminated, any surplus dollars should be used to cut the capgains tax. After there is no capgains tax, I'd argue the top rate on income tax should continue to come down until it is at least no higher than 25%. When it is no longer possible to make the argument that a lower tax rate produces a better return than you would get by paying down the national debt, you can then pay down debt.

3. This is a reasonable and logical approach that anyone involved in public or private finance would agree with. There is plenty of room for differences of opinion between the political parties on when an extra dollar should be spent and when it should not. There should be far less debate on whether a surplus dollar should go to a tax cut or to a reduction of debt, until the high tax rates we have today are down to levels that both parties can agree seem low enough.

4. This general philosophy allows the Republican Party to present a reasonable stance to the national electorate. You can still argue that the federal government is too big and should be reduced in size over time, but that as a party you are not going to say there is no useful role for government. This was the reason the GOP lost the presidential election last year. The stance you took in answering Brit Hume would not help you in a presidential race, if that's what you had in mind.