President Clinton: The United States on Track to Pay Off the Debt by End of the Decade
President Clinton: The United States on Track to Pay Off the Debt by End of the Decade
December 28, 2000
Today, President Clinton will announce that The United States is on course to eliminate its public debt within the next decade. The Administration also announced that we are projected to pay down $237 billion in debt in 2001. Due in part to a strong economy and the President’s commitment to fiscal discipline, the federal fiscal condition has improved for an unprecedented nine consecutive years. Based upon today’s new economic and budget projections for the coming 10 years from the Office of Management and Budget (OMB):
The United States can be debt-free this decade. By dedicating the entire budget surplus to debt reduction, The United States can eliminate its publicly held debt by FY 2009. The next Administration and Congress will need to decide what priorities to address: eliminate the public debt by FY 2010 and still use part of the surplus for responsible tax cuts, prescription drug benefits for Medicare recipients, and investments in key priorities like education and health care.
The national debt is projected to be paid down by $237 billion this year. Under the budget President Clinton and Congress completed two weeks ago, the U.S. is projected to pay down $237 billion of the national debt in FY 2001.
The 4 year total debt paydown will be $600 billion. Over the last three years, we have already paid down $363 billion in debt. Therefore, The United States is on track to reduce the debt by $600 billion over four years, the largest four-year debt pay-down ever.
Record deficits have become record surpluses. This Administration has have moved the country from a deficit of $290 billion in FY 1992 to an expected surplus of $256 billion in FY 2001. Eight years ago, the Congressional Budget Office projected a $513 billion deficit in FY 2001. Thus, the fiscal picture is now projected to improve by $769 billion in FY 2001 alone.
Nine consecutive years of fiscal improvement. FY 2001 will be the fourth year in a row of overall surpluses and the second year in a row of a surplus without counting Social Security or Medicare. It will be the ninth consecutive year of fiscal improvement, the longest such period in history.
ON TRACK TO ELIMINATE THE DEBT THIS DECADE
The U.S. is on track to eliminate the publicly held debt this decade. Under OMB’s new baseline projection, the public debt would be eliminated in FY 2009. This budget "baseline" by definition includes no new initiatives or policy changes and therefore the entire budget surplus is dedicated to debt reduction (including the Social Security, Medicare, and on-budget surpluses). A fiscally responsible budget that includes new investments in moderate tax relief, a Medicare prescription drugs proposal, and key domestic priorities could eliminate the public debt by FY 2010.
Pay down of $600 billion in debt over four years. In FYs 1998, 1999, and 2000, the debt held by the public was reduced by $363 billion. The U.S. government is projected to pay down an additional $237 billion in debt held by the public this fiscal year alone (FY 2001). That will bring the total debt pay-down to $600 billion—the largest four-year debt pay-down in American history. In contrast, under the 12-year tenure of Presidents Reagan and Bush, the debt held by the public quadrupled.
The debt held by the public will be cut in half ($3.2 trillion lower) in FY 2001 than it was projected to be when President Clinton took office. In 1993, the debt held by the public was projected by the Office of Management and Budget to balloon to $6.4 trillion by FY 2001. Instead, shrinking deficits—and then the growing surpluses of the last four years—will bring the debt down to $3.2 trillion in FY 2001, $3.2 trillion less than projected in 1993. In FY 1993, the debt held by the public was 50 percent of GDP and projected to rise to 68 percent of GDP in FY 2001. Instead, it will be slashed to 31 percent of GDP this year and can be completely eliminated this decade.
Interest payments on the debt will be $166 billion lower than projected. In 1993, the net interest payments on the debt held by the public were projected to grow to $376 billion in FY 2001. Tough choices in 1993 and 1997 and a commitment to fiscal discipline have slashed this figure by $166 billion, a 44 percent reduction.
LARGEST UNIFIED SURPLUS EVER
Instead of a $513 billion deficit, there will be a $256 billion surplus this year. In 1992, the deficit in the federal budget was $290 billion—the largest dollar deficit in American history. In January 1993, the Congressional Budget Office projected that the deficit would grow to $513 billion by FY 2001. In fact, the unified budget will be in surplus by $256 billion in FY 2001—the fourth consecutive surplus and the largest surplus ever, even after adjusting for inflation. Over 10 years, the non-Social Security surplus alone is estimated to be over $2.4 trillion. Not including Social Security and Medicare surpluses, the surplus is projected to be $1.9 trillion.
Largest unified surplus as a percent of GDP since 1948. The 2001 surplus is projected to be 2.5 percent of the Gross Domestic Product (GDP)—the largest surplus as a ratio to the GDP since 1948.
The fourth consecutive year with a surplus for the first time in over 70 years. The FY 2001 surplus of $256 billion follows surpluses of $237 billion in FY 2000, $124 billion in FY 1999, and $69 billion in FY 1998. The last time The United States had four surpluses in a row was over 70 years ago, during 1927-30. The FY 2001 surplus will mark the ninth consecutive year of fiscal improvement. This is the longest run of consecutive years of improvement in American history, surpassing the pre-Clinton-Gore best of five straight years.
REDUCING SPENDING WHILE CUTTING TAXES FOR MIDDLE-INCOME FAMILIES
Federal spending as a share of the economy is the lowest since 1966. Spending restraint under President Clinton has brought federal spending down from 22 percent of GDP in 1992 to 18 percent of GDP in 2001, the lowest since 1966. At the same time, President Clinton has increased strategic investments in education, technology, and other areas that are vital to growth.
The smallest federal civilian workforce in 40 years. The Federal civilian workforce increased from the time when President Reagan took office to the time when President Bush left office. In contrast, since President Clinton and Vice President Gore took office, the Federal civilian workforce has been cut by 377,000—by nearly a fifth – and is now smaller than at any time since 1960.
While balancing the budget, running large surpluses and paying down the debt, the Clinton-Gore Administration has provided tax relief for working families. The tax cuts signed into law by the President in 1993 and 1997—including the expanded Earned Income Tax Credit, the $500 child tax credit, the $1,500 Hope Scholarship Tax Credit, and expanded IRAs—have cut taxes for American working families. Federal income taxes as a percentage of income for the typical American family have dropped to their lowest level in over 30 years.
What Fiscal Discipline Means For The United States
Lower interest rates cut mortgage payments by $2,000 a year for families with a $100,000 mortgage. As a result of President Clinton’s policy of deficit and debt reduction, it is estimated that a family with a home mortgage of $100,000 might expect to save roughly $2,000 per year in mortgage payments, effectively a large tax cut.
Lower interest rates cut car payments by $200 a year for families with a car loan.
Lower interest rates cut student loan payments by $200 a year for someone with a typical student loan.
Lower debt will help maintain strong economic growth. With the government no longer draining resources out of capital markets, businesses have more funds for productive investment. This has helped to fuel average real annual increase of more than 13 percent in private investment in equipment and software since 1993, including eight years in a row of double-digit growth. This compares to a 4.7 percent annual growth rate from 1981-92, a period that saw the debt held by the public quadruple.
Rising investment has contributed to an increase in productivity growth. Non-farm business productivity has grown at a 3.1 percent average annual rate for the last four years and 4.8 percent over the last year. This compares to 1.4 percent growth from the 1970s through the early 1990s.
Interest payments would be eliminated on the publicly held debt. Currently, we spend 11 cents of every federal dollar on interest payments. These payments, which were once projected to grow to 23 percent of all federal spending in 2010, could be eliminated by that time under a fiscally prudent budget.
Prepare for the retiring baby boomers. Paying off the debt will create room in the budget for the increased Social Security and Medicare costs when the baby boomers retire. It will also free up funds for investment, help keep interest rates low, and boost workers’ productivity and incomes. This fiscal discipline is the best way to prepare the government and the nation to meet the challenge of the retirement of the baby boom generation.