SURPLUS FOR US OR SLURP UP FOR CONGRESS?

A federal budget surplus is in sight. Yet it soon will be out of sight if political leaders of either party have their usual way. The budget surplus is merely a projection for fiscal year 2000, but already the pols are lining up to smother it, either by spending it to death or by tax-cutting it out of existence. They’ll probably compromise behind closed doors – in rooms shadowed by lobbyists for corporations, unions, special interests and social activists – and do a little of both.

They shouldn’t be allowed to get away with it. And that’s where financial planners and others in the investment industry come in.

You have your fingers on the pulse of a large slice of the American public, from inherited wealth to blue-collar families just trying to make sure their retirement savings last as long as their lives. You certainly have good ideas about what will be best for your clients in the long run. Make yourselves heard. Tell your clients to make themselves heard.

We think that whittling down the national debt – not the annual budget deficit, but the total accumulated debt – is the best use of any surplus.

Since the last surplus in the federal budget, back in the wonder years of 1969, the national debt has grown from $352.7 billion, 39% of gross domestic product, to more than $5.1 trillion dollars, or about 70% of gross domestic product.

The national debt has in the past claimed a larger chunk of gross domestic product, but only following major wars, and then it was paid down quickly. It has never been so high and growing in times of prosperity.

As business historian John Steele Gordon reminds us in his fascinating new history of the national debt, Hamilton’s Blessing (Penguin Books), Alexander Hamilton created the national debt for two reasons: to help the federal government borrow for emergencies and to create a larger, more flexible money supply by making it easier for banks to lend money. Hamilton wrote: “A national debt, if it is not excessive” – emphasis added – “will be to
us a national blessing.”

But the national debt today is excessive. It imposes interest costs of more than $1,000 a person a year for “generation after generation,” according to Mr. Steele.

Now there is an opportunity to begin reducing those crushing interest costs, a move that would create more long-term wealth for more people than any pork barrel project or election year tax cut.

Now there is an opportunity to force the politicians to make hard decisions, to say “no” to the impulse to give something to everyone and to reverse the spendthrift trends of the past 29 years.

Stop the growth of the national debt. Let your voice be heard in Washington in the debate that is just beginning over the use of the prospective surplus.