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January 13, 1998

National debt keeps rising even as federal budget balances

By WALTER R. MEARS
AP Special Correspondent

WASHINGTON (AP) -- In this balancing act, even when the federal budget starts showing a surplus the gross national debt will keep going up, as the government borrows from one of its pockets to fill another.

That money will have to be repaid beginning in about 14 years, when the cushion of surplus Social Security revenues won't be available to offset other spending.

The broadest measure of the national debt, now nearly $5.4 trillion, is projected to increase to $6.8 trillion in 2005 because of borrowing from trust funds earmarked for future costs. And by then, there will have been at least five years of budget surpluses, according to Congressional Budget Office projections.

So amid the debate over spending future surpluses, one school of budget conservatives argues that there really won't be any, because the money to get to balance is being effectively borrowed anyhow.

Another bloc disputes that idea, saying a surplus is a surplus and it makes no difference which programs and taxes produce it. They want the projected surplus used for tax cuts.

Still another group advocates using surpluses to pay down the national debt.

And some liberal Democrats would increase federal spending.

A poll on the options indicates more people favor using the funds to strengthen Social Security and Medicare or to reduce the national debt than to cut taxes.

That survey, published by USA Today, also indicated that most people doubt the budget will be balanced in 1999 or stay that way afterward. It has been nearly 30 years since the last break in the succession of deficit budgets, so doubts are understandable.

But with the economy and thus tax revenues up, President Clinton and congressional budget projections agree that balance is at hand.

Clinton said he will propose a balanced budget, with what his advisers called a slight surplus, when he presents Congress with his plan for government spending and revenues for the year beginning Oct. 1.

The Congressional Budget Office has just issued its projections showing minimal deficits for the current year and the next two, with surpluses after that. Its report said that by 2008, the surplus should reach $138 billion. The administration's projections will be in the budget Clinton sends Congress next month.

Both projections include the Social Security surpluses, revenues from taxes increased to prepare for demands that will come when the baby boom generation retires, beginning in about 2011.

At that point or soon after, Social Security tax revenues won't cover all the benefits due a growing generation of retirees, and interest on the prior surpluses that have gone into the Treasury certificates will be needed to cover the difference.

Then, in about 2019, benefits will cost more than the taxes and interest combined, and the government will have to turn elsewhere for the money.

The surplus many economists consider the most important doesn't include the intra-governmental accounting. It is measured as debt held by the public, meaning government borrowing from the financial markets, money that would otherwise be available for private investment or savings.

That is estimated this year at just under $3.8 trillion of the gross national debt.

All of that figures into the arguments over what's a surplus and what to do with it.

The administration isn't choosing. "We're going to wait until we have a balanced budget before we get into deciding how we're going to spend any money beyond the balanced budget," said Franklin Raines, director of the Office of Management and Budget.

Without Social Security revenues to offset current spending, the deficit for the current budget year, which ends Sept. 30, would be about $100 billion higher than the $5 billion now forecast. And there wouldn't be a budget surplus until 2006, based on CBO projections.

But Social Security is a government program too, and budget analysts who think it is properly figured in say that when total revenues for all federal purposes exceed total spending, that's a surplus.

There's also a case for debt reduction with budget surpluses. Interest on the debt now costs about 15 percent of government spending. Cut the debt and the cost goes down.

The General Accounting Office has estimated that annual debt reduction payments over the next 15 years could cut that by more than half.




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