NCPA - National Center for Policy Analysis

Newmann's Debt Repayment Act

August 27, 1997

Policy analysts are intrigued by a bill introduced by Rep. Mark Neumann (R-Wis.) to use whatever budget surpluses emerge over the next few years to retire the nation's $7 trillion debt and lower the federal tax burden.

Specifically, Neumann's National Debt Repayment Act of 1997 would:

  • Require that federal spending increase at a rate 1 percent less than the rate at which revenue increases, once the budget is balanced.
  • Two-thirds of the surplus each year would be applied to the national debt -- which he projects could be paid off by 2026, or sooner.
  • One-third the surplus would be dedicated to tax cuts.

While the overall plan excites tax-reduction advocates and already has 100 House cosponsors, some say Neumann has the priorities backwards. Some supply side economists, such as American Skandia's chief economist Larry Kudlow, advocate applying surpluses to an immediate across-the-board tax cut, then starting to repay the debt. The theory is that decreased taxes would lead to greater investment and even larger budget surpluses.

But Cato Institute president William Niskanen contends that if the deficit is lowered or paid off, tax rates could be further lowered.

Whatever the outcome, observers say, the prospect of budget surpluses is generating a refreshing change in the political debate.

Source: Perspective, "Spending the Surplus," Investor's Business Daily, August 27, 1997.

 

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