As the Deficit Fades, What About the Debt?
The government is nearly turning a profit, but it has $5.9 trillion in IOUs to pay.
WASHINGTON — In his own inimitable way, Texas billionaire and Reform Party founder Ross Perot once compared the national debt to the "crazy aunt in the basement," kept hidden out of sight. Everyone knew she was down there, but nobody talked about it.
With Washington basking in the euphoria of the first budget surplus in three decades, the sense of alarm raised by Mr. Perot and like-minded debt foes seems to have faded into a collective sense of relief over the balanced budget.
But the aunt is still under the stairs. Yes, the nation's checkbook is nearly in the black. Still not widely understood, however, is that there are still $5.9 trillion in unpaid bills sitting in the federal government's in-box. In other words, an end to deficit spending is not the same as paying off the national debt.
"Once we explain it, a light bulb goes on," says Van Zeck, acting commissioner of the Bureau of Public Debt, the federal office responsible for keeping tabs on what the country owes. But the general public, including politicians, isn't clear "on what the difference is," he says.
What to do with surplus
As Washington begins to consider how to spend the $9.5 billion surplus projected in President Clinton's proposed budget, the focus is on tax cuts, transportation infrastructure, or the Social Security system. The few politicians calling for paying off the national debt are seldom heard.
"There is no major political figure running with that banner," says Democratic advisor Ted Van Dyk. "If you can't do it now, when can you do it? These past few years have been golden. This is the time to do it," he says.
Until the national debt is paid off, or significantly reduced, the government has an obligation to pay the interest. Interest payments alone consume 16 percent of all federal outlays or $1 out of every $6 in federal spending.
That means interest payments consume $5,000 in taxes each year from the average family of four. The $240 billion in interest payments each year is nearly as much is consumed by paying interest on the national debt as is allocated for defense spending.
If the government didn't have to spend all that money on interest, income taxes could be cut by around 20 percent, calculates the Concord Coalition.
In the past, America ran up large amounts of debt relative to the size of economy during periods of war and during major economic downturns. Like a home mortgage, some of that debt is considered a wise investment in infrastructure. But in the 1980s the government ran up the debt on current consumption.
Robert Bixby, policy director at the Concord Coalition, asks, "When does the harm outweigh the good, and when does it begin to crowd out other expenditures?"
Time for a credit counselor?
Some analysts say that if the government was a credit card holder, it would need a credit counselor.
Stan Collender, managing director of Burson-Marsteller's federal budget consulting division, says the government behaves like someone "using a credit card for haircut and then failing to pay it off. You are paying interest and at the end of the month, your hair has grown back."
The real danger of not paying down the debt, say analysts, lies in the years ahead when the government will be responsible for servicing interest on the debt as Baby Boomers begin collecting Social Security checks and depending more heavily on Medicare.
Mr. Clinton has recommended saving all of the surplus funds until a viable plan to revamp Social Security system is put in place. Nevertheless, he has proposed an estimated $42 billion dollars worth of initiatives pending ranging from daycare and healthcare programs to expanded civil rights programs.
While not widely heard, there are proponents of paying down the debt.
Congressman Mark Neumann (R) of Wisconsin, has introduced legislation that would cap federal spending growth at one percent less than revenue growth. Two-thirds of the surplus would be spend on reducing the national debt, and the rest would be spent on tax cuts and new spending.
Federal Reserve Board chairman Alan Greenspan has recently added his voice to those urging the use of surpluses to pay off the debt. Doing so, he points out, would also have the silver lining effect of lowering long-term interest rates.