President Clinton has announced that over the next 15 years federal budget surpluses will be $1 trillion above previously projected figures. He wants to use the funds to pay off the national debt by 2015.

However, economists are warning of pitfalls in such a policy. To begin with, the predicted surpluses are based on estimates and assumptions far off into the future.

• These include implausible assumptions that there will be no recession in the next 15 years, that economic growth will remain at historically high levels -- and inflation, interest rates and unemployment will stay at historically low levels.

• Only six months ago the Office of Management and Budget estimated that the surplus this fiscal year would be $79.3 billion, which now turns out to be $98.8 billion -- a 25 percent error that throws into considerable question any 15-year projection.

Aside from such hazards, economists point out that paying off the debt raises a number of important policy problems. The Clinton plan would only pay off the two-thirds of the debt held by the public -- while the one-third held in government accounts, such as the Social Security Trust Fund, would actually grow from $1.9 trillion to $7.9 trillion.

• Reducing debt held by the public means that not only would the Treasury not be selling any new bonds, but it would be paying off those that come due and may even buy back some previously issued bonds.

• Having no Treasury bonds in the market will make it much more difficult for bond dealers to accurately price corporate, municipal and other bonds.

• Since the Federal Reserve conducts monetary policy by buying and selling Treasury securities, presumably it would have to start trading private securities -- with all the dangers that implies.

• Finally, private individuals, no longer able to buy savings bonds, would be deprived of a savings vehicle for which there is no substitute.

Rather than paying down the debt through the surpluses, the nation would be better advised to turn to tax reform and tax reduction -- achieving debt reduction through economic growth.

Source: Bruce Bartlett (National Center for Policy Analysis), "It Doesn't Pay to Pay Down the Debt," Wall Street Journal, June 30, 1999.