NCPA - National Center for Policy Analysis

Economic Benefits Of Deficit Reduction

August 12, 1997

Representative Mark Neumann's (R-Wis.) plan to send one-third of budget surpluses to tax reduction and two-thirds to deficit reduction raises the question of the proper balance between tax cuts and deficit reduction. Policy analysts say that deficit reduction offers real and immediate benefits to the national economy.

A large national deficit makes it possible for foreign countries to hold the U.S. economy and policies hostage:

  • U.S. taxpayers annually pay $248 billion in interest on a $6 trillion debt.
  • The money needed to pay the interest is borrowed from foreign countries, with 28 percent of our debt currently financed by foreign countries.
  • Recently, the prime minister of Japan hinted at selling off some American debt and the U.S. stock market plummeted more than 100 points.

Also, paying off the national debt would have an immediate and positive impact on the economy:

  • A reduction in debt would provide more money in the lending markets.
  • That, in turn, drives down interest rates, which financially benefits the government, business and consumers.
  • In addition, savings from reduced interest payments could go toward further tax cuts.

A compelling reason for balancing the budget, however, is moral: Many believe that it is fundamentally wrong to pass this generation's debts onto our children.

Merrill Matthews and Jan Geht (National Center for Policy Analysis), "Deficit Solutions, Budget Problems," Washington Times, August 12, 1997.


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