- The Washington Times - Monday, March 13, 2000

It didn't make the nightly network news shows, but for the first time in 70 years the government began buying back its bonds last week as part of its long-term debt-reduction plan.

While it did not receive the kind of media attention given to one of John McCain's temper tantrums or another national apology from Bill Clinton, this is an important story that underscores the strength of our economy.

The big news coming out of the Treasury Department lately is not that it is selling more bonds to borrow more money, but that it is now trying to give the loan money back to the people who lent it to them before the securities are due. All told, the Treasury plans to repurchase $30 billion worth of debt this year alone.

The buy-back is part of the Treasury's larger program to better manage the government's shrinking national debt. Some of the bonds being bought back were sold in the 1980s at yields as high as 11.25 percent. Although that's not as high as the annual interest on the average consumer's Visa bill, it's too high by today's government borrowing standards.

At the same time, the Treasury finds that it does not have to borrow as much or as frequently as it did. Treasury bills that used to be sold every month to keep the government running and the debt clock ticking upward are now sold at intervals of three months or more.

All of this is happening in an era of burgeoning budget surpluses, which the Congressional Budget Office conservatively estimates will total $4.2 trillion over the next 10 years though it wasn't that long ago that the people at CBO were in deep denial there would be any budget surplus at all.

In January 1996, CBO analysts forecast a 1999 deficit of $219 billion. In fact, the government rang up a surplus of $124 billion last year. Then in 1998, CBO grudgingly conceded that, well, yes, there would be surpluses, but not until 2001, and they would only be a measly $400 billion over seven years, give or take a billion here and there.

There were others who fought the notion of surpluses to the bitter end, or who insisted they would end up being lower that the forecasts, and certainly won't get any higher.

But the current surplus forecasts "are probably still too low," says Michael Schuyler, senior economist at the Institute for Research on the Economics of Taxation. Why? Because they are based on low-balling future economic growth rates.

"Even though real GDP's growth rate has averaged 3.8 percent over the last five years, 3 percent over the last 10 years, 3 percent over the last 20 years, and 3.1 percent over the last 30 years, CBO projects that it will average just 2.8 percent over the next decade," Schuyler says in a cogent analysis making the rounds of Capitol Hill. Worse, the White House Office of Management and Budget projects GDP growth to be only 2.7 percent.

Schuyler thinks that the budget analysts at CBO and OMB ought to wake up and smell the coffee. "If the economy's future performance is merely average, baseline budget surpluses will be much larger than the already immense ones that CBO and OMB are currently projecting," he says.

These are growth numbers that George W. Bush ought to commit to heart and begin reciting whenever a TV news anchor questions whether we can afford his $1 trillion across-the-board tax cuts.

One of the reasons critics of the Bush tax cuts give for opposing them is that they could plunge the government back into an era of deficits if the economy turns sour. This is "the sky could fall" theory of economics.

But America's entrepreneurial economy didn't get where it is today by wringing its hands in fear about the future. There are no signs of the U.S. economy turning downward. Indeed, the GDP was sizzling at nearly 7 percent in the fourth quarter, and Wall Street forecasters at Merrill Lynch & Co. have just raised their growth forecasts to 5.5 percent for this quarter and to 4 percent for the year.

Meantime, Mr. Bush is dead right about the dangers of keeping all the surplus money here in the capital. It will only be spent by politicians and bureaucrats in fact, it is being spent right now. Spending bills passed last year are expected to shrink the surplus by $109 billion.

Of course, if the Clinton-Gore administration has its way, it will shrink much more than that. "In this year's budget documents, the administration has redefined its budget baseline to quietly shift more than $1 trillion over the next decade from budget surpluses to higher outlays," says Mr. Schuyler.

The answer to those who say we should not cut taxes because they fear a slowing of the economy is that tax cuts are the surest inoculation against any future slowdown.

If your agenda is to dramatically increase federal spending, then keeping the general fund surpluses in Washington is the best way to achieve that. But if the goal is to keep the economy healthy and humming, and to raise incomes, we should begin investing one-fourth of the surpluses as Mr. Bush proposes into lower tax rates for all Americans.

Donald Lambro, chief political correspondent of The Washington Times, is a nationally syndicated columnist.

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