Unfortunately, there is nothing inevitable about debt reduction.
In fact, many lawmakers - political rhetoric notwithstanding - are
reluctant to use the surplus to pay down the debt. Yes, the House
of Representatives recently voted to earmark the extra revenue
already collected for debt reduction, but there's a good chance the
legislation won't even be considered by the Senate, let alone
The Treasury Department must use specific procedures to pay down
the debt. If these procedures are not followed - or even go slowly
- Congress can use the extra revenue for play money instead.
Essentially, the Bureau of the Public Debt must outrace special
interest groups eager to spend the surplus revenues, and it is
starting to fall behind. The national debt of $3.54 trillion won't
be reduced one penny unless Congress ensures the surplus is used
for the debt reduction and nothing else.
How can you have surplus and debt simultaneously? Like this: Say
a family with a mortgage, credit card debt and student loans
unexpectedly gets a lot of money. They will likely deposit the
funds in a checking account. They might take some time to consider
how to spend the money - refinance the mortgage, pay off credit
cards, etc. They might decide to leave the money in the checking
account until they can restructure their debts on the best possible
terms. Meanwhile, their debt remains until it is formally paid off
But temptation might win out, and the family could spend its
money on frivolous pursuits. (I'm afraid I speak from experience.
The last time my family had a "budget surplus," I bought a BMW
Like our hypothetical family, the federal government has an
unexpected windfall. In fact, the money is accumulating in the
Treasury Department's operating accounts faster than the Bureau of
the Public Debt can earmark it for debt reduction. Although
Treasury has retired over $230 billion worth of publicly held debt
since 1997, the opening cash balance for May 2000 was $92.5
billion, the largest on record. Not surprisingly, special interest
groups have already tried to spend an additional $115 million on
arts and humanities, the federal government's version of BMW
The legislation just passed by the House would ensure these
funds are not misused while it works on the budget. The measure
would protect the surplus revenues collected during the rest of
fiscal year 2000 and use them for debt reduction by putting them in
a special "Public Debt Reduction Account."
Although the extra revenues may cause an increase in cash
balances, the cash would be sent to the special debt account rather
than to the Treasury Department's operating cash account.
Appropriators would be able to reallocate these funds only through
legislation that would need to pass both houses of Congress and
gain presidential approval.
Once surplus revenues are deposited in the special debt account,
appropriators would have limited ability to increase spending
without creating a deficit, which many taxpayers would perceive as
a raid on the Social Security trust fund. Many powerful members of
the Senate recognize this and may prevent this legislation from
coming up for a vote.
The legislation would protect surplus revenues collected during
the rest of the fiscal year. It also would serve as a model for how
Congress should handle future surpluses. And it wouldn't interfere
with tax reform, because it is limited to the current fiscal year.
It affects only revenues that have already been collected or will
be collected before any tax reforms take effect.
Once this special account is created, Congress could continue to
channel funds to the account at any time. This means Congress would
be able to reduce revenues through tax reform and still have a
mechanism to prevent future surpluses from being used for anything
other than debt reduction.
It's too early to tell whether the Senate will follow the
House's example and vote to protect the surplus revenues in our
nation's checking account. The only alternative is to hope the
Treasury Department can speed up debt repayment before any more
special interest groups sell lawmakers new convertibles.
Peter B. Sperry is the Grover M. Hermann fellow in federal
budgetary affairs at The Heritage Foundation (www.heritage.org).
Most Americans believe that mounting federal budget surpluses will
automatically go toward reducing the national debt. If only it were