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Straight Talk on Debt and Taxes

By Sen. James Inhofe, April 2001

As the debate over President Bush's tax cut proposal continues in Washington, many Oklahoma citizens have sought to remind me of their overriding concern for fiscal responsibility in government. They tell me they think it is more important to use government surpluses to pay down the national debt than to reduce taxes. They emphasize that they would prefer to see the long-term benefit for the country of debt reduction than any short-term personal benefit they might get out of a tax cut.

As a strong supporter of both a tax cut and deficit reduction, I want to address some heartfelt words to these well-meaning citizens because I so deeply share their underlying concerns: that our country's future depends on putting the government's fiscal house in order by reducing the $5 trillion national debt and by controlling excessive and wasteful spending. The President's tax cut proposal does not detract from these goals. It advances them.

Under the President's plan, the government will do more than cut tax rates. It will also devote about $2 trillion of the projected ten-year surplus to paying down the debt. In fact, he proposes to do as much deficit reduction as fast as can possibly be done. As the President's top economic advisor, Lawrence Lindsay, points out, the federal government's publicly held debt is tied up in bonds and other securities that, in many cases, cannot be forcibly retired until their maturity dates.

Therefore, there is a limit to how much debt can be retired at any given time, no matter how much money the government has. Bush proposes–along with his tax cut--to retire $2 trillion in debt over the next ten years–the maximum amount of debt than can be retired in this period.

Yet some argue that it would be wise to forego the tax cut and set aside the additional surplus money to keep in some kind of an escrow account so it will be there to pay down even more debt when it comes due in future years. While this sounds good, experience has proven it is not a realistic proposition. Why? Because no matter how you try to set money aside in Washington, politicians will find a way to spend it on current programs long before it ever becomes available for its intended purpose.

This is a critical lesson about government which all of us must recognize. Money which is not spent on current programs or used to retire immediately available debt, simply cannot be protected from the insatiable appetite for spending which exists in Washington.

According to the Congressional Budget Office, federal discretionary spending increased by 2 percent in the immediate years prior to the appearance of the surplus, yet increased by 6 percent in the last two years with the surplus. It would be nice if more spending discipline could be enforced, in a manner that individuals and families are routinely able to muster, but we know from experience it is simply not realistically possible. Plain and simple, if the money is there, it will not be saved; it will be spent.

This being the case, the fiscally responsible answer is to return a portion of excess tax receipts back to the taxpayers in the form of a tax cut. The idea is not to wastefully squander money which could be used to pay down debt. This is the fallacy the Washington liberals want you to believe, so they can get their hands on the money.

The truth is that a responsible tax cut will not diminish debt reduction by one cent. Instead, it will help prevent the kind of irresponsible spending and excessive government growth which is inevitable if the money stays in Washington.