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Running in the red: How the U.S., on the road to
surplus, detoured to massive debt

View
Photo Gallery —  Congressional Republicans and Democrats have waged a
long fight in trying to agree on a budget plan to slash federal spending and
avert a government shutdown.

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Most Republicans reject raising taxes as part of the solution; House Speaker John A.
Boehner (Ohio) has called it a “non-starter.” But Democrats won’t go for a
proposal based solely on spending cuts. The“Gang
of Six,” a bipartisan Senate group dedicated to debt reduction, is expected
to unveil a strategy as soon as this week that couples sharp spending cuts with
a rewrite of the tax code that would raise additional revenue.

(The debt ceiling, set at $14.3 trillion, covers all federal debt,
including money the Treasury owes other federal entities, such as the Social
Security trust fund. The CBO data focus on the portion of the debt borrowed from
outside investors. The debt is the accumulation of annual deficits; if annual
budgets are in surplus, the nation can pay down the debt.)

Tweet

Graphic

From surplus to debt

Video

Treasury Secretary Tim Geithner discusses the U.S. budget
deficit. Geithner, speaking with Peter Cook on Bloomberg Television's ‘’In the
Loop,’’ also discusses banking regulation and the European debt crisis. (April
19)

More on this Story

Running
in the red: How the U.S. detoured to massive debt

Gallery:
Battle over the budget

Video:
Geithner urges enforcement on enforceable limits

More
Democrats threaten to vote against raising borrowing limit

View
all Items in this Story

Treasury
quietly plans for failure to raise debt ceiling

What’s
the debt ceiling and why do people care?

The annual surpluses that set the nation on this course emerged in the final
years of the Clinton administration. In the typical American household, a
surplus comes as welcome news. But the White House is not a typical household.
When Treasury Secretary Robert Rubin saw the budget shift into the black in
1998, he immediately warned President Bill Clinton that, politically, it was a
mixed blessing.

Rubin wanted to use the surplus to start repaying the debt, which was then
just more than $3 trillion. The White House billed it as “saving Social
Security first,” viewing the surplus as an opportunity to shore up the nation’s
finances before huge numbers of the baby boom generation began claiming federal
retirement benefits. “The problem was a whole other part of the political
spectrum wanted to use the surplus for tax cuts,” Rubin said in an interview.
“They said they wanted to give the people back their money. Of course, it was
also the people’s debt.”

What to do with the surplus became a central issue of the 2000 presidential
campaign, with Vice President Al Gore arguing that much of it should be put in a
“lockbox” to protect Social Security and Medicare. Bush pushed for a broad tax
cut, arguing that taxpayers at all income levels were owed a refund. “Some say
that the growing federal surplus means Washington has more money to spend, but
they’ve got it backwards,” Bush said as he accepted the GOP nomination in August
2000. “The surplus is not the government’s money. The surplus is the people’s
money.”

As soon as he took office, Bush pushed Congress to make good on his tax
pledge. Less than a week after his inauguration, he got a boost from Federal
Reserve Chairman Alan Greenspan, who testified before the Senate Budget
Committee that “tax reduction appears required” to prevent the federal
government from accumulating too much cash. Greenspan feared that large
surpluses would turn the government into the nation’s largest investor, creating
distortions in the markets.

A chorus of skeptics warned against spending the surplus. Some stressed the
inherent uncertainty of the CBO projections. Others said a big tax cut would
unleash pent-up desire in both parties to pursue expensive priorities without
the pay-as-you-go restraints that had helped produce the surplus.

Continued

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