Taking the long view on debt

Clinton plan: Using federal surplus to pay off Treasury bonds could generate giant savings.

August 12, 1999

YOUR rich uncle dies, leaving you a fortune that promises to grow much bigger in future years. You are awash in cash. What do you do?

A) Toss money at every friend, relative and casual acquaintance.

B) Sharply cut your spending.

C) Pay off your mortgage, credit card debt and your car loan.

If you are the Clinton administration, the correct answer is C. Republicans in Congress have selected answers A and B.

We cast our vote for the common-sense approach: Use surplus funds to get out of debt. Discussion of bond repayment by the U.S. Treasury is one of the most encouraging -- and responsible -- fiscal developments in decades.

Right now, the public -- including foreign investors -- holds $3.7 trillion in U.S. government bonds. Net annual interest costs are $229 billion. That burden could shrink to $71 billion in 10 years if debt is paid down. The president wants to wipe out public debt by 2015.

Why eliminate federal debt instead of returning the surplus to taxpayers through tax cuts?

We have a duty to future generations to pay off our IOUs.

Less federal debt means more capital for businesses to expand.

It frees the United States from dependence on foreign investors.

It lowers interest rates for businesses, car buyers and those holding home mortgages and could extend the nation's economic boom for decades.

Quietly, the national debt has been shrinking. By October, the net reduction will be $87 billion -- an unprecedented decline. Long-term Treasury bonds, which consumed 40 percent of the bond market in 1990, now amount to just 18 percent.

But it is just the beginning. Early next year, the Treasury wants to buy back some of its long-term, high-interest bonds. It is a superb way to manage the nation's growing revenue surplus.

This country spends far too much on debt payments. Reducing this amount by 70 percent over the next 10 years is now a realistic goal. Budget surpluses should not be used for short-term, political gratification. The president is right to take a long-range view.

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