The Budget Battle Endgame

COMMENTARY Budget and Spending

The Budget Battle Endgame

Sep 22nd, 2000 2 min read

Visiting Research Fellow

With President Clinton's recent vetoes of legislation that would have eliminated the "marriage penalty" and the death tax, federal lawmakers are down to two options as they decide what to do with next year's $268 billion budget surplus. They can either use it to reduce the national debt, or they can spend it.

The president has made his choice: more spending. He's threatening more vetoes - this time aimed at the fiscal 2001 budget bills wending their way through Congress - unless lawmakers agree to boost funding for some pet White House projects that will cost an estimated $25 billion to $40 billion. Of course, with so much public support for debt reduction, and the importance both parties attach to avoiding another budget "train wreck," these must be very important projects, right?

Let's see: President Clinton may veto the energy and water appropriations bill because the House placed a $150 million limit on contractor travel after congressional investigators found many government contractors were making weekly trips between Washington and California at taxpayer expense. Evidently paying down the debt is less important than securing free "frequent flyer miles" for government contractors.

Then there's the Commerce/Justice/State appropriations bill, which the president may veto because it gives the Legal Services Corporation (LSC), a quasi-federal agency that provides free legal aid to low-income clients, only $141 million - considerably less than the $340 million he requested. Never mind that the General Accounting Office, the official government auditing agency, has found that the LSC over-billed or double-billed on more than 5,000 cases last year - or that the agency has been shown to have inflated its client list in an effort to get more funding.

The president may also veto the Treasury/Postal appropriations bill because he strongly objects to the "deeply inadequate" funding given to the Internal Revenue Service ($409 million below his request). That may sound like a lot, but the bill already provides $8.5 billion for the IRS - and most of the president's proposed increase would go toward agency restructuring efforts that will be completed before the budget takes effect.

There are many other examples, but the question is, why shouldn't this money be put toward reducing the debt, which currently tops $3.4 trillion? The savings in interest alone would make it worthwhile. The Congressional Budget Office estimates that the interest on the federal debt is 6.5 percent. Since every $1 billion in debt costs $65 million per year in interest, lowering it by $40 billion would save $2.6 billion in interest payments every year.

In fact, debt reduction is critically important for our continued economic health, according to the one man most responsible for that health: Federal Reserve Chairman Alan Greenspan. In testimony before the Senate Banking Committee last January, Greenspan made it clear that more spending was the worst option in deciding how to use the surplus. "My first priority would be to allow as much of the surplus to flow through into a reduction in debt to the public," he said. "If that proves politically infeasible, I would opt for cutting taxes. And under no conditions do I see any room in the longer-term outlook for major changes in expenditures."

However high next year's spending goes, the blame can't be laid entirely on President Clinton: Congress plans to devote $241 billion of the $268 billion surplus to debt reduction, so - even without the president's "help" - spending would still rise by $28 billion. But that's not enough for the president, which helps explain why some federal lawmakers want to add a debt reduction "line item" to each appropriations bill. If adopted, it would force them to balance budget increases with budget cuts.

In an ideal world, surplus money would be returned automatically to the taxpayers who provide it. But until the tax system is reformed, using the surplus for debt reduction is a second-best option. President Clinton himself said earlier this year: "We should remember what got us to this dance was discipline, fiscal discipline." Indeed, it did. Will someone please remind him?

Peter Sperry is a former Grover M. Hermann fellow in federal budgetary affairs at The Heritage Foundation (, a Washington-based public policy research institute.

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