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Letter to the Honorable Charles Rangel [i] (February 1999)

handle is hein.congrec/cbo8475 and id is 1 raw text is: February 22, 1999 Honorable Charles Rangel Ranking Democrat Committee on Ways and Means U.S. House of Representatives Washington, DC 20515 Dear Congressman: This letter responds to your request of February 11I for information about the economic effects of policies that would exhaust the surpluses in the Congressional Budget Office's (CBO's) baseline projections. As you note, CBO's economic projections are consistent with the general budget outlook under current policies. In recent years, the outlook for the federal budget has sharply improved, more than offsetting a decline in personal saving. As a result of that improvement as well as higher saving in the corporate sector, gross national saving has risen from its low of 14.5 percent of gross domestic product (GDP) in 1992 to 17.3 percent of GDP in 1998. The increase in national saving is expected, all other things being equal, to hold down real interest rates and support continued strong growth in the nation's capital stock. CBO's forecast for interest rates reflects those trends in the federal budget and in private saving, as well as CBO' s projections of developments in other countries. Under current policies, federal debt held by the public is expected to decline over the next 10 years, dropping from $3.7 trillion at the end of fiscal year 1998 to $1.2 trillion in 2009 and bringing down the ratio of debt to GDP from 44.3 percent to 8.9 percent. That decline in debt will cut federal interest payments by more than $ 500 billion over the 1 0-year period. Economists agree that increasing national saving raises productivity and boosts economic growth. With such broad consensus about the positive impact of paying off the debt, perhaps that alternative should be the standard against which all other proposals for use of the surplus are measured. That is, do proposals that increase federal spending or reduce taxes raise productivity and economic growth more than the option of paying down the debt?

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