What Will the State Do with the Surplus?

chester arthur

You might have recently heard that South Carolina ended the fiscal year with a higher-than-expected surplus – a surplus big enough to cover the entire list of items on lawmakers’ $235 million surplus priority (a.k.a. “pork”) list and still give them an extra $32 million to “distribute” as they please. Moreover, as The Nerve reported last week, state agencies are sitting on over $490 million in unspent General Fund money. When combined with the state’s General Fund, Capital and Contingency Reserve Funds, along with “unreserved/undesignated” funds, the state’s total balance as of June 30 stood at a whopping $1.16 billion.

But let’s back up and ask what a revenue surplus really is. Surpluses are almost always talked about in a positive light. If a working citizen has a surplus of money at the end of each month, that’s great. It means he’s earning more money than he’s spending, and has extra money left over to do whatever he wants with. When a business makes a surplus, that’s a good thing as well. It means it can stay in business, keep people employed, and potentially hire new people or increase wages.

What about a government surplus, though? The 21st President of the United States – admittedly not one of the nation’s famous presidents, but one who places fifth in Ivan Eland’s ranking of presidents based on peace, prosperity, and liberty – thought surpluses were generally a bad thing.

When faced with consistently high surpluses in the federal treasury, President Chester Arthur appointed a special commission on tariffs that called for a 20-25 percent across-the-board reduction in tariffs. (At the time, tariffs were the federal government’s main source of revenue.) Congress, in defiance, passed a bill that cut tariffs by an average of a mere 1.47 percent. And when Congress tried to use the surplus as an excuse to pass pork barrel projects like the Rivers and Harbors Act of 1882, Arthur vetoed the bill (although his veto was overridden). He thereafter “forcefully argued at every opportunity that the growing surplus of federal funds should be reduced by tax and rate reductions rather than by government pork-barrel-type expenditures.”

South Carolina state government has too much in common with the Congress of 1882. The first reaction of the state’s governor and legislature to a surplus is: Spend it. The South Carolina state budget has skyrocketed over the past ten years, even with a recession right in the middle. And each year that the state receives more money than budgeted, none of it has gone back to taxpayers.

Certainly lawmakers debate what to do with the surplus. But the idea of returning it to the taxpayers from whom it came, though occasionally raised by one or two lawmakers, is never really considered as a serious option. Instead, elected officials disagree only about which parts of government it ought to go to. Last year, for example, the governor wanted to use surplus revenue – tellingly referred to as the “money tree” by State House politicians – on the state’s corrupt transportation funding system, while lawmakers wanted to spend it on even more corporate welfare and pork projects for their districts.

In the end, the money gets spent either way; state agencies tack it onto what they expect next year’s budget to be, and taxpayers get nothing back.

What about cutting revenue? Is that ever a real option to solve a surplus problem for South Carolina politicians? Unfortunately, no. Although a few bills are introduced to cut the state’s income tax each year, those bills never go anywhere. And the tax cuts that do pass aren’t across-the-board cuts but targeted breaks to specific businesses lawmakers want to bring to the state – sometimes in the form of taxpayer cash handouts.

South Carolina’s “conservative” lawmakers would all agree that, when a budget deficit arises, it means the government has spent too much money and should cut appropriations. But the converse is equally true: When a surplus arises, it means to the government has collected too much and should return the money to taxpayers.

So unless there is a mechanism in place to return surplus money back to taxpayers, budget surpluses are inherently bad.

So to answer the question: What would Chester Arthur do about South Carolina’s recurring budget surpluses? Maybe he’d advocate sending the money back to taxpayers. If that happened this year, the state would have cut a check to every household in South Carolina for $646.

But don’t expect that check: some state agency will get it instead.

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