NCPA - National Center for Policy Analysis

Bartlett: Paying Down Debt May Be Only Option

February 18, 1998

The prospect of federal budget surpluses, rather than deficits, has created new opportunities for both those wishing to expand government and those wishing to curtail it.

  • President Bill Clinton clearly relishes the chance to initiate new programs for health, child care and a host of other liberal issues.
  • On the other hand, some conservative Republicans want to spend more for roads, bridges and other public works.
  • Others are equally adamant about using any surpluses to cut taxes or pay down the national debt.

However, Republicans have recently begun to realize they really have only one option for using the surplus: to pay down debt. The reason is the PAYGO rule, which requires that any new programs or tax cuts be "paid" for with higher taxes or cuts in entitlement programs, such as Medicare. It is not possible to "pay" for a tax cut or new programs by cutting non-entitlement spending, such as defense. And non-entitlement spending is subject to tight spending caps that are also written into law.

Key elements of Clinton's agenda are expanding the child and dependent care tax credit and instituting a new tax credit for private employers to establish day care facilities. They are, in effect, spending programs; but since they are technically tax provisions they can legitimately be enacted if offset by higher cigarette taxes.

Republicans may try to target any new revenue from tobacco taxes to broad-based tax relief, but that will still leave the overall level of taxation unchanged. Thus, by default, it may be that the only thing they can do with the surplus is retire some of the government's debt.

Source: Bruce Bartlett (senior fellow, National Center for Policy Analysis), February 18, 1998.  


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