The Park Place Economist / vol . IX 78 Government Debt By Jeremy Sandford

Recently, Treasury Secretary Larry Summers implied that the government would be de creasing the supply of government bonds in order to pay down outstanding debt. This likely represents the beginning of President Clinton's plan to use a surplus that could total as much as $1.92 trillion over the next ten years to begin to eliminate the national debt (Dreazen, 2000). The wave of prosperity that has spread over the United States throughout the last decade has left the government with additional tax revenue. However, there is considerable debate over just what to do with it. Now in the second fiscal year with a small surplus, Washington politicians are trying to decide among three ways to utilize the surplus revenue. The most popular option among politicians and voters alike seems to be reducing and eventually eliminating the national debt. However, a legitimate argument can be made that the surplus is a result of increased tax revenue and should therefore be returned to the people in a tax cut. Also rather pressing are the impending Social Security and Medicare crises. There is little doubt that neither of these programs will be around long enough to help today's children if dramatic action is not taken. Much has been made of the possibility of using surplus funds to somehow "save" these programs. So which of these three options would be the most effective use of the government's extra revenue?