NCPA - National Center for Policy Analysis

Would Paying Down The Debt Reduce Interest Rates?

September 8, 2000

Presidential candidate Al Gore has based his economic plan on the assumption that reducing the federal debt would lower interest rates. But economists debate that point. Indeed, to reach seven of the 10 goals he has committed himself to would depend upon reducing the debt.

Here are a few of the reasons experts say debt reduction would not lower interest rates:

  • Between 1983 and 1990, interest rates were falling at the same time federal debt was climbing.
  • In 1998, interest rates climbed while debt was falling.
  • Moreover, to cut the debt to zero by 2012, Gore would raid the Medicare and Social Security trust funds for their surpluses.
  • Although Gore says he will use the savings generated from the lower interest payments to shore up the entitlement programs, analysts expect that Gore would tap into general revenues to "save Social Security" -- a first in the history of the program.

Source: Editorial, "Gore: Pay Off Debt, Grow Hair," Investor's Business Daily, September 8, 2000.


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