It Just Could Be: Debt-Free Government
But Congress Unlikely to Abide Surpluses
The United States is on the threshold of a truly remarkable turnaround in financial fortunes: the tantalizing prospect that the booming economy could make the federal government debt-free in just 15 years.
And it could happen, for only the second time in the nation's history, with seemingly no heavy lifting.
If politicians simply leave current policies alone, the president's Office of Management and Budget projects the $3.7 trillion debt held by the public will be wiped out in 2014. The Congressional Budget Office is even more optimistic, predicting that publicly held debt could be gone by 2012.
With politicians eager for tax cuts and more spending, no one expects lawmakers actually to leave well enough alone. "Congress over the long haul abhors surpluses. They will be dispensed in some fashion, either as tax cuts or increased spending," predicts Henry Aaron of the Brookings Institution.
Right now, both President Clinton and the Republicans who control Congress are pledging to use the bulk of future surpluses - roughly two-thirds - to reduce the national debt as a way to shore up Social Security.
Skeptics note that leaves the other third of the $4.5 trillion in projected future surpluses for spending increases or tax cuts. And that means both parties are, in essence, already running behind the debt paydown schedule that would occur if there are no charges in policy.
In 2014, the year the OMB projects that debt held by the public could be eliminated with no changes in policy, Clinton's budget instead sees a publicly held debt of $1.17 trillion.
That red ink is greater if the total national debt is considered. That figure now is $5.6 trillion - a total that includes the $3.7 trillion in debt held by the public and the $1.9 trillion in debt held by the government in trust funds, primarily Social Security's.
Under Clinton's complex plan to shore up Social Security, the government IOU's held by the retirement program would actually increase - approach Republicans insist amounts to double counting.
After five years, the national debt under Clinton's plan, including the extra IOU's for Social Security, would grow to $6.8 trillion, compared with $5.9 trillion under OMB forecast with no policy changes.
The administration defends the extra IOU's as a way to lock in , for Social Security, benefits of paying down the public debt. Private economists generally are neutral, arguing that because the trust funds exits only as bookkeeping entries, it's the debt held by the public that actually matters for the economy.
On that point, economists general give the administration high marks for using the bulk of the surpluses to pay down the public debt, and thus put the government on a sounder footing to meet future retirement demands of 73 million baby boomers.
Federal Reserve Chairman Alan Greenspan recently told Congress the best use for surpluses would be shrinking the national debt, thus freeing money for investment by private businesses.
"By wiping out the debt held by the public, we increase national savings, keep interest rates low, build our capital stock and fuel long-term growth," said Gene Sperling, Clinton's national economic adviser.
The Clinton administration also stresses that reducing public debt would trim the government's interest bill. Because of skyrocketing deficits during the Reagan years - overall, the debt held by the public quadrupled in two decades - interest is now the government's third-biggest expense, behind Social Security and military.
Interest payments accounted for 15 cents of every budget dollar in 1997. In all, they totaled $243 billion, which bought not a single airplane, paper clip or preschool class. Interest payments this year will amount to 11 percent of the budget. Clinton projects they will drop to 2 percent in 2014 before disappearing in 2018, the year he says the public debt will disappear.
The CBO forecasts public debt will be gone by 2012. But it also notes that the era will be short-lived as escalating payments to retirees put the nation back in debt by 2040.
Of course, all long-range forecasts need to be taken with a grain of salt.
"Right now, with a good economy, we have had unrelentingly good news, but that could change quickly," former CBO director Robert Reischauer said.
And the experience of President Andrew Jackson, the only president to eliminate the debt, should also serve as a cautionary tale.
In his 1832 campaign for the White House, Jackson called the debt a "national curse" and in 1835 fulfilled his pledge to wipe it out, creating a surplus of $440,000.
But even before he lift office, the debt was rising again as the country entered a six-year recession.
"Paying off the national debt doesn't automatically mean economic good times," historian John Steele Gordon said, "After Jackson did it, the country went into the longest recession in its history."
A Legacy of Debt
The United States was born in debt, with George Washington's administration faced with paying off obligations incurred during the Revolutionary War. The following shows the national debt held by the public in selected years. For the period before 1940, the source is Hamilton's Blessing," a history of the national debt by John Steele Gordon. After that, figures are form the Office of Management and Budget, with projections from 1999 forward taken from the Congressional Budget Office.
By Martin Crutsinger, The Associated Press. Printed in the Seattle Post-Intelligencer, Tuesday, March 2, 1999; pages C-1 & C-2.