surplus must first go toward debt reduction
DAVID S. BRODER/ Jan.7, 1998
WASHINGTON - No one can accuse official Washington of lacking a sense of
humor, not when the politicians and pundits are falling over each other arguing
about what to do with the unexpected budget surplus.
The remarkable discovery that the Treasury took in $2.5 billion more in revenues in the last 12 months than it spent was followed Monday by President Clinton's announcement that he will submit a balanced budget for fiscal 1999. The prospect of a surplus has unleashed a cascade of talk about new tax cuts or more spending (or "investments," as the White House prefers to say).
Suddenly forgotten is the fact that we have amassed $5.5 trillion in debt, almost four-fifths of it in the 1980s and 1990s, and the last trillion during the supposedly frugal Clinton years.
Conveniently overlooked, too, are the $14 trillion of unfunded obligations for the retirement and health care benefits of the baby boomer generation, now just 10 years away from starting to impose its unprecedented burdens on its children and grandchildren.
House Speaker Newt Gingrich, R-Ga., is arguing for cutting taxes "every year" as long as the budget is in the black. President Clinton is proposing "targeted" tax cuts, presumably less costly, but his spokesmen say he is ready to consider going further, if Republicans can show how to pay for expanded largesse.
All of this suggests that spoon feeding honey to voters in an election year is more appealing to many in Washington than telling the public the truth: After the profligacy of the last two decades, we face years of sucking in our fiscal gut if we are going to be in shape to finance the boomers' golden years without another explosion of debt.
Clinton deserves credit for recognizing at the very beginning of his presidency that the reckless pattern of previous years could not continue. He and Treasury Secretary Robert E. Rubin (then running economic policy on the White House staff), working closely with Federal Reserve Chairman Alan Greenspan, took the substantial political risk of pushing through a budget in 1993 that set the path toward this intoxicating day of deliverance from deficit financing.
In 1993, Republicans, to their shame, fought Clinton every step of the way. But when they took control of Congress in 1994, they reversed their stance and applied further pressure toward eliminating the red ink.
The remarkable run of inflation free economic growth we have been enjoying is something for which both parties can claim credit. But it would be foolish to relax now that a nominal balance is in sight. Keeping that balance is important. It is not, as some say, a meaningless accounting trick. This year, we are spending about $250 billion in interest on the national debt. One out of every seven dollars in taxes goes simply to pay off the bondholders.
That money is diverted from medical research, military preparedness, upkeep on the national parks and all the other things the federal government does. Those tax dollars truly are being squandered.
As anyone with a credit card knows, the interest on unpaid debt compounds quickly, which is exactly what has been happening to the country during these reckless years.
Wise policy would use any budget surplus first to start paying down the national debt, thus capturing the effects of compounding for the benefit of future generations. Every $1 billion taken off the debt in 1998 saves many times that amount in interest payments over the coming decades.
This nation does not have to wait until the debt is completely eliminated before people begin to enjoy tax cuts or benefits of additional government spending in important areas. As the debt shrinks relative to the size of the overall economy, it becomes less and less of a tax on the current generation. But simple prudence suggests that debt reduction be given priority at least until agreement is reached on how we will finance the inevitable demands of the boomers' retirement and health care needs.
The bipartisan Medicare commission that is supposed to deal with that part of the problem is still without a chairman and is not due to report until March of 1999.
No mechanism even exists to force action on the much larger problem of the boomers' demands on Social Security. The White House let it be known last week that Clinton would like to see a start on that process this year, but he has no proposal of his own to put forward at this time on either Medicare or Social Security.
Squandering the supposed budget surplus on either tax cuts or new government programs would be worse than putting the cart before the horse. It would be this generation saying to the next: We're getting ours, and the hell with you.
(Copyright, 1997, Washington Post Writers Group)
David S. Broder's column appears Wednesday and Sunday on editorial pages of The Times.