- The Washington Times - Tuesday, February 8, 2000

With the active support of House Speaker Dennis Hastert, Republicans in Congress are beginning to embrace a plan to pay off the national debt. This misguided strategy plays right into the hands of President Clinton. As sure as night follows day, the White House will use this anti-debt sentiment to gain a rhetorical edge in their battle to stop meaningful tax cuts.

Al Gore's campaign team, meanwhile, will gladly exploit the issue by "triangulating" between the debt-phobic congressional GOP and the party's presumptive presidential nominee. Any tax cut will be portrayed as excessive, and it does not take a political genius to predict Mr. Gore will dust off the "risky tax scheme" language from 1996.

Mr. Hastert's strategy also is bad news on the spending side of the fiscal equation. Paying down debt, after all, requires that the budget surplus stay in Washington. Yet having extra money in Washington is like putting blood in a shark-filled ocean. Hordes of interest groups already are lining up at the Treasury door, and both parties are conspiring to completely bust the "dream-come-true" spending caps from the 1997 budget deal.

By the time the dust settles, it is likely Congress will approve the orgy of new spending that was outlined in the State of the Union. To be sure, some Republicans will try to stop this spending binge by arguing it is more important to pay off the debt, but there is no organized constituency to rally behind such an effort. At least tax cuts keep the money from coming to Washington in the first place. Paraphrasing Kevin Costner's "Field of Dreams," "If you collect it, they will spend."

A quixotic campaign to pay off the debt is not just bad politics. It also is second-rate economics. The Congressional Budget Office now projects more than $4 trillion of budget surpluses over the next 10 years. This flood of excess tax revenue creates a golden opportunity to fix some of the worst features of our internal revenue system.

Indeed, with surpluses this big, lawmakers could scrap the entire tax code and replace it with a flat tax of 15 percent. The benefit to average families from fundamental tax reform higher living standards, lower taxes and sweeping simplification of the code would dwarf the modest benefits of reducing the debt. And a stronger economy automatically will shrink the burden of the debt in the future.

Notwithstanding the political risks and economic shortcomings of debt reduction, some people approach the issue as if it were a moral crusade. In their minds, debt is bad and that is the end of the discussion. Yet even these crusaders should think twice about dedicating all surpluses to paying off the debt.

More specifically, they are focusing on the molehill and ignoring the mountain. Our national debt of $3.6 trillion is a trivial problem compared to the Social Security system's $19.8 trillion unfunded liability. If the anti-debt crowd genuinely wants to lift a burden off the backs of future generations, this is where they should concentrate their efforts.

And unlike the national debt, Social Security's gigantic future deficit could result in real hardship. Failure to fix the program, for instance, could mean a 50 percent increase in payroll tax rates, a 33 percent reduction in promised benefits, or some combination of the two options. As such, lawmakers who want to simultaneously reduce debt and improve the lives of future retirees should discard the silly notion of debt reduction and instead use the budget surplus to modernize the Social Security program.

Back when there were budget deficits, critics argued that workers could not be allowed to shift payroll taxes into personal retirement accounts because that money was needed to fund benefits to retirees. Thanks to large budget surpluses, this problem no longer exists. Indeed, there is so much extra tax revenue in Washington that workers could be allowed to immediately set aside 4 percentage points of their payroll taxes in private accounts while still having enough money to pay every penny of promised benefits.

With budget surpluses expected to grow even larger over the next 10 years, lawmakers could gradually increase the amount of money workers would be allowed to invest. Depending on the amount of surplus that was used for tax cuts, workers could shift more than half of the 12.4 percent payroll tax into a personal retirement account.

The most important reason to make this reform is to provide more income and security to future retirees, but personal accounts also should appeal to anti-debt policy-makers. Once workers accumulate large nest eggs, they no longer will require as much money from the government, and Social Security's $19.8 trillion liability would be dramatically reduced.

If effect, anti-debt lawmakers have two choices. They can leave the surplus in Washington and hope politicians somehow will resist the temptation to spend it. If successful, the $3.6 trillion national debt will be reduced. Alternatively, they can allow workers to shift their payroll taxes to personal accounts. This approach will slash Social Security's huge deficit while also helping future retirees and ensuring there will not be extra money in Washington for politicians to spend.

The choice should be obvious.

Daniel Mitchell is the McKenna senior fellow in political economy at the Heritage Foundation.

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