Opinion Editorial | |
| Monday, March 2, 1998 | |
Reducing Federal Debt Would Increase National Saving |
It now appears more likely than ever that the federal government will
run a budget surplus this year, the first since 1969. Just last week the
Treasury Department announced that the federal government ran a $25 billion
surplus in January. Through the first four months of fiscal year 1998,
which began on September 1, federal revenues are up 10.5 percent over the
same period a year earlier, while spending is up only 3.8 percent. Although many Republicans would like to use the surplus to cut taxes,
they are stymied by the budget law, which requires that all tax cuts be
offset with tax increases or cuts in entitlement programs such as Medicare.
Tax cuts may not be paid for by cutting discretionary spending, such as
defense or agriculture programs. This rule, called the PAYGO rule, applies
regardless of whether there is a surplus or deficit. It was first instituted
in the 1990 budget deal and was set to expire last year; but it was extended
by the 1997 budget deal. This was a foolish action by the Republican Congress,
but one that for now probably cannot be undone. Thus it seems likely that the only thing that can be done with the budget
surplus is to pay down some of the national debt. In practice, this will
be done as the government simply pays off Treasury securities as they mature,
rather than rolling them over as it does now. Approximately one third of
the privately-held national debt consists of short-term Treasury notes and
bills maturing in less than one year. In theory, when the federal government runs a surplus it adds to national
saving. Gross national saving consists of personal saving by individuals
and households, business saving by corporations, and government saving,
both federal and state and local. When the federal government runs a deficit,
this in effect constitutes negative saving.
Saving, of course, finances investment in plant and equipment, which
creates jobs and raises productivity. Historically, nations that save more
tend to invest more. Thus higher saving ultimately translates into a higher
standard of living. For this reason, many economists believe that running
a budget surplus may be the best way the federal government can contribute
to economic growth at this time. Source: Bruce Bartlett (senior fellow, National Center for Policy Analysis),
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