Seemingly perpetual growth of national debt pauses _ briefly
WASHINGTON (AP) _ For only the second time in 16 years, the government plans to pay off a tiny sliver of the national debt this quarter.
That won’t last, of course. The government will return to its borrowing ways in the summer.
But the temporary $65 billion reduction in the $5.21 trillion debt accumulated since the founding of the republic underscores that the annual budget deficit is likely to shrink for the fifth year in a row.
And that could make life easier for administration and congressional negotiators struggling to cut a deal this week to balance the budget by 2002. It means less debt will accumulated and over the next few years, there’ll be less interest for taxpayers to shoulder.
``The economy has been robust, tax revenue has been strong, spending has been relatively contained,″ said economist Bruce Steinberg of Merrill Lynch in New York. ``The 1997 deficit will be $80 billion, maybe even less. That’s remarkable.″
The deficit in 1996 was $107 billion and as recently as January both the Clinton administration and the Congressional Budget Office projected a 1997 deficit of around $125 billion.
They and nearly every other economic forecaster didn’t count on the strong 3.8 percent economic growth in the October-December quarter, the first of the fiscal year, picking up steam in the January-March period. That’s produced millions of new jobs and windfall of tax payments.
``Virtually all of the decrease in our cash needs is explained by an unexpectedly large surge in tax receipts,″ said Paul Malvey, the associate director of Treasury’s Office of Market Finance.
Through March, the government’s revenue was running $50 billion, or 8 percent, ahead of the same period of fiscal 1996 while spending was up only 4.3 percent.
And that doesn’t include April, the month when most Americans settle their tax bills for the previous year. Malvey, outlining Treasury borrowing plans Tuesday to an advisory panel of Wall Street executives, said it now looks as if April tax collections from individuals, over and above withholding, will total $125 billion.
He said the government expected a record $80 billion of cash on hand at month’s end on Wednesday, nearly quadruple the balance of just two weeks earlier.
That means the old debt the Treasury pays off this quarter can actually exceed the new debt sold. The reduction represents only about 1.25 percent of the national debt.
Still, it’s the largest quarterly paring of the debt ever. During the spring quarter a year ago, the government cut the debt by $27.5 billion, the first reduction since 1981.
By the July-September quarter, the windfall flow of tax revenue should subside and Treasury projects it will add $40 billion to $45 billion to the debt.
If analysts such as Steinberg are correct about the magnitude of the shrinkage in the deficit, it will represent just 1 percent of gross domestic product, the lowest since 1974.
But economists warned government officials not to get carried away and think the annual deficit _ let alone the accumulated debt _ will go away on its own.
In the short run, the Federal Reserve is raising interest rates and the resulting economic slowdown could send the deficit modestly higher in 1998 and 1999. Then, in the next decade, the government will have to cope with the wave of baby boomers retiring. It projects mushrooming Social Security and Medicare costs.
``When all is said and done, I don’t think we’ve made any headway on a long-term deficit reduction package,″ said economist Tim O’Neill of Harris Bank-Bank of Montreal. ``There are a lot of tough decisions that have to be made.″