THE CLINTON-GORE ADMINISTRATION:
PAYING OFF THE DEBT BY 2012
June 26, 2000
LARGEST UNIFIED SURPLUS EVER AND THE ONLY ON-BUDGET SURPLUS SINCE MEDICARE WAS ESTABLISHED
· Instead of a $455 billion deficit, a $211 billion surplus this year -- the largest ever. 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 $455 billion by 2000. Today, the Office of Management and Budget is projecting a $211 billion surplus -- the third consecutive surplus and the largest surplus ever, even after adjusting for inflation. Compared with original projections, that is $666 billion less in government drain on the economy and $666 billion more potentially available for private investment in this one year alone.
· Largest unified surplus as a share of the economy since 1948. The 2000 surplus is projected to be 2.2 percent of GDP -- the largest surplus as a share of GDP since 1948.
· Third surplus in a row -- for the first time in over 50 years. The $211 billion projected surplus in FY2000 follows a surplus of $124 billion in FY 1999 and $69 billion in FY 1998. The last time America had three surpluses in a row was over fifty years ago in 1947-49. The FY2000 surplus marks the eighth consecutive year of fiscal improvement, for the first time in American history --surpassing the pre-Clinton-Gore best of five straight years.
· The second consecutive surplus excluding Social Security. Excluding Social Security, the surplus is projected to be $63 billion this year. This is the second consecutive surplus on this basis, for the first time since 1956-57.
· The first on-budget surplus in the history of Medicare. The on-budget surplus, which excludes the Social Security and Medicare surpluses, is projected to be $39 billion this year. This is the only on-budget surplus on this basis since Medicare was established in 1965.
LARGEST DEBT REDUCTION EVER
· The President's plan would eliminate the debt by 2012 -- one year earlier than previously projected. President Clinton's budget proposes to reduce the national debt by $2.9 trillion over the next decade and to eliminate it by 2012, one year ahead of the projection in the February budget. The President's debt reduction comes from saving the entire $2.3 trillion Social Security surplus, the entire $403 billion Medicare surplus, and $192 billion of the on-budget surplus for debt reduction.
· Interest payments would be eliminated. Currently we spend 12 cents of every Federal dollar on interest payments. These payments, which were once projected to grow to 25 percent of all federal spending in 2012, would be eliminated under the President's plan by that time.
· On track to pay down $324 billion in debt held by the public over three years. In 1998 and 1999, the debt held by the public was reduced by $140 billion. OMB is projecting that the government will pay down an additional $184 billion in debt held by the public this fiscal year alone. That will bring the total debt pay down to $324 billion – the largest three-year debt pay-down in American history. In contrast, under Presidents Reagan and Bush, the debt held by the public quadrupled.
· The debt held by the public is on track to be $2.4 trillion lower in 2000 than was projected when the President took office. In 1993, the debt held by the public was projected by the Office of Management and Budget to balloon to $5.85 trillion by 2000. Instead, shrinking deficits and growing surpluses in the last three years are projected to bring the debt down to $3.45 trillion in 2000 -- $2.4 trillion less than expected. In 1993, the debt held by the public was 50 percent of GDP and projected to rise to 65 percent of GDP in 2000. Instead, it has been slashed to a projected 35 percent of GDP. Under the President's plan, it would be completely eliminated by 2012.
· As a result, interest payments on the debt in 2000 are $125 billion lower than projected. In 1993, the net interest payments on the debt held by the public were projected to grow to $348 billion in 2000. This Administration's fiscal discipline has slashed this figure to a projected $223 billion -- a $125 billion improvement for one year alone.
REDUCING SPENDING WHILE CUTTING TAXES FOR MIDDLE-INCOME FAMILIES
· Federal spending as a share of the economy is the lowest since 1966. The spending restraint under President Clinton has brought spending down from 22.2 percent of GDP in 1992 to a projected 18.5 percent of GDP in 2000 -- the lowest since 1966. At the same time, President Clinton has increased investments in education, technology and other areas that are vital to growth.
· Non-defense discretionary Federal spending as a share of the economy is the lowest on record. Since President Clinton took office, non-defense discretionary spending has fallen from 3.7 percent of GDP in 1992 to 3.3 percent of GDP in 1999 -- the lowest as a share of the economy on record. Over this period, total discretionary spending fell from 8.6 percent of GDP to 6.3 percent of GDP, also the lowest on record. (Comparable data for these categories go back to 1962.)
· The smallest Federal civilian workforce in 40 years. The Federal civilian workforce increased from when President Reagan took office to when President Bush left office. Since President Clinton and Vice President Gore took office, the Federal workforce has been cut by 377,000 -- nearly a fifth -- and is now lower than any time since 1960.
· While balancing the budget 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 – for example, the expanded Earned Income Tax Credit, the $500 child tax credit, the $1,500 HOPE Scholarship Tax Credit, and expanded IRAs have reduced taxes for American families. The total Federal tax rate for middle-income families has dropped from 24.5 percent in 1992 to 22.8 percent in 1999 – that's the lowest tax rate since 1978. For families at one-half the median income, the effective Federal tax rate has been slashed from 19.8 percent in 1992 to 14.1 percent in 1999 – that's the lowest tax rate since 1968.
WHAT FISCAL DISCIPLINE MEANS FOR AMERICA
· Goldman Sachs credits deficit and debt reduction with lowering interest rates by 2 percentage points. "According to the model, the swing in the federal budget position from a deficit of $290 billion in 1992 to a surplus of $124 billion in 1999 -- roughly matching the improvement in the general government position -- has lowered equilibrium bond yields by a full 200 basis points." [Goldman Sachs, GSWIRE Undistorted by the Budget Surplus, April 14, 2000.]
· Lower interest rates have already cut mortgage payments by $2,000 for families with a $100,000 mortgage. Because of deficit and debt reduction, it is estimated that a family taking out a home mortgage of $100,000 expects to save roughly $2,000 per year in mortgage payments. This has helped raise the homeownership rate to 66.8 percent in 1999 --the highest rate on record.
· Lower interest rates cut car payments by $200 annually for families taking out a typical car loan.
· Lower interest rates cut student loan payments by $200 annually for a person 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 a 12.6 percent real annual increase in productive equipment and software investment since 1993 – the seventh consecutive year of double-digit growth and the strongest period of growth on record. This compares to 4.7 percent annual growth from 1981-92, a period that saw the debt held by the public quadruple.
· Rising investment has contributed to a pickup in productivity growth. Non-farm business productivity has grown at a 2.6 percent average annual rate for the last five years, and a 3.1 percent average annual rate for the last three years. This is more than double the 1.4 percent annual growth from the 1973 through 1990.
WHAT THE EXPERTS SAY
Experts agree that President Clinton's 1993 economic plan helped reduce the deficit, lower interest rates, spur business investment, and strengthen the economy. The economy and the budget are now working in a virtuous circle – lower deficits have led to lower interest rates, which led to faster business investment, which led to faster growth, which led to more revenues and lower spending and even lower deficits. Experts agree that the President's 1993 Economic Plan helped create this virtuous circle:
· Alan Greenspan, Federal Reserve Board Chairman, 1/04/00 with President Clinton at Chairman Greenspan's re-nomination announcement: "My colleagues and I have been very appreciative of your [President Clinton's] support of the Fed over the years, and your commitment to fiscal discipline-- has been instrumental in achieving what in a few weeks -- will be the longest economic expansion in the nation's history."
· Paul Volcker, Federal Reserve Board Chairman (1979-1987), in Audacity, Fall 1994: "The deficit has come down, and I give the Clinton Administration and President Clinton himself a lot of credit for that. [He] did something about it, fast. And I think we are seeing some benefits."
· Business Week, 5/19/97: "Clinton's 1993 budget cuts, which reduced projected red ink by more than $400 billion over five years, sparked a major drop in interest rates that helped boost investment in all the equipment and systems that brought forth the New Age economy of technological innovation and rising productivity."
· Goldman Sachs, March 1998: One of the reasons Goldman Sachs cites for the "best economy ever" is that "on the policy side, trade, fiscal, and monetary policies have been excellent, working in ways that have facilitated growth without inflation. The Clinton Administration has worked to liberalize trade and has used any revenue windfalls to reduce the federal budget deficit."
· Lehman Brothers, 1/10/94: "Lower deficits, lower long-term rates and higher real growth was the overall promise. With the data now rolling in for December 1993, it seems clear that President Clinton delivered on all three counts..."