Clinton Urges Paying Off U.S. Debt With Surplus

President Clinton, heading for impoverished neighborhoods in Southern California, says jump-starting economic activity in these communities and paying off the federal debt are key to maintaining prosperity for all Americans.

By contrast, he charged in an interview with The Times, Republican tax cut proposals would create a new federal deficit.

“It’s almost like the parties have switched places on this,” Clinton said. “I’m not sure a lot of [the Republicans] believe it is as important as I do to try to make the country debt-free by 2015. . . . To me, that’s a bigger tax cut than we could ever give the American people.”

A debt-free government would no longer be saddled with the enormous interest payments that now weigh heavily on the federal budget. This year the government is spending an estimated $229 billion, or 13% of all its outlays, in interest payments.

More broadly, Clinton said, paying off the debt would relieve pressure on the credit markets and help keep interest rates low--a formula for economic growth that would help taxpayers even more than an outright tax cut.

Opening a new front in the debate, he asserted that reducing America’s debt could help stabilize the world economy in the event of another financial crisis by removing the U.S. as a competitor for capital in global markets. “That would mean our trading partners could get funds more readily at lower interest rates, and it would cushion the shock of any downturn,” he said.

“I believe in an economy that is as globalized as this one. The richest countries are better off imagining themselves almost as states do now in the American system, and the more they can be debt-free, the better off they are going to be.”

What to do with a series of budget surpluses that are now projected to total nearly $6 trillion over the next 15 years has become the knottiest issue facing Washington policymakers.

Both political parties would use substantial shares of the surpluses to shore up the financially shaky Social Security program. But where congressional Republican leaders have proposed a tax cut of as much as $1 trillion over 10 years, Clinton has offered a plan with much smaller tax cuts, increased spending on Medicare and a greater emphasis on paying off the national debt now held by the public, which totals about $3.6 trillion.

And he charged that the GOP’s current proposals would produce bigger federal budget deficits down the road.

Visit to Watts Scheduled Today

Clinton, who arrived in Southern California on Wednesday night and will visit Watts today, said that “by far the biggest way” the United States can “grow the economy without sending inflation up” is to increase employment and investment in areas that have missed out on the nation’s boom. Not only would that benefit those places, he said, but it also would be good for the national economy by generating more consumer demand. The Watts visit concludes a four-day tour of impoverished communities around America.

“The principal thing I am hoping to accomplish,” Clinton said, is to “convince a critical mass of economic and political decision makers . . . that there is both an opportunity and an obligation in the underdeveloped parts of this country.

“I think people have not thought through that the economic infrastructure in most of these places literally disappeared over the past 30 years and has not been replaced. . . . Now it turns out to be in the self-interest of the investor and the corporate community to replace it.”

During the interview aboard Air Force One on Tuesday evening, the president, wearing jeans and a casual shirt and chewing occasionally on an unlit cigar, discussed issues from inner-city poverty to Campaign 2000 while the summer-green fields of the upper Midwest rolled by below.

Although he focused on his tour of poor communities from Appalachia to Los Angeles, Clinton, when asked, eagerly jabbed at Vice President Al Gore’s two principal rivals for the presidency: Democrat Bill Bradley, the former senator from New Jersey, and Texas Gov. George W. Bush, the front-runner for the Republican nomination.

Asked whether Bush’s lead over Gore in public opinion polls demonstrates a desire for change after Clinton’s tumultuous two terms, the president fired back: “I think there is a constant desire for change. But I think what you will see by next year is that the vice president will be the candidate of change. People will have to decide if they want the change [that is] going on [now].”

Striking a conciliatory note, Clinton said that the chances of reaching a sweeping deal with congressional Republicans on the budget, Social Security and Medicare reform and taxes are “better than conventional wisdom would hold out.”

But he almost immediately belied that optimism by intensifying his criticism of the Republican budget plans--and arguing that Americans would receive less money in their pockets from the tax cuts the GOP is considering than from the interest-rate reductions that could flow from using the budget surpluses to completely pay off the publicly held national debt.

If Republicans enact a broad tax cut, fence off Social Security revenue and endorse Clinton’s proposal for a moderate increase in defense spending, “We are already in the hole again and running a deficit, with a 30% cut in discretionary spending,” the president said. “I don’t think all these numbers have been added up.”

Clinton did show some signs of flexibility. He suggested that the two sides could reach a budget deal without agreeing on how to reform Social Security, so long as they agree on what share of the surplus to provide the program. And he reiterated his openness to tax cuts as part of an overall package.

But for the most part, Clinton emphasized differences. He said tax cuts shouldn’t be considered until Congress first provides enough funds for Social Security and Medicare--including his proposed prescription drug benefit--and money to increase spending in such areas as education and medical research. He displayed little enthusiasm for a bipartisan proposal to cut taxes by increasing the level of income subject only to the lowest 15% rate--an idea that could emerge as the centerpiece of Senate Republican tax plans.

While budget fights always command enormous media attention, Clinton, in his tour this week, has spotlighted proposals to encourage private investment in depressed areas.

He would tout ideas such as his empowerment zone program, which offers tax breaks for businesses to locate in low-income neighborhoods, and tougher enforcement of the Community Reinvestment Act, which requires commercial banks to serve low-income communities.

New Proposals to Aid Poor

Clinton now wants to expand on his earlier efforts by creating companies that would underwrite enterprises that invest in depressed communities. He would encourage the spread of these new investment vehicles, which are modeled on efforts to stimulate investment abroad, by providing government loan guarantees and a new $980-million, five-year tax credit for investors who fund them.

In the interview, Clinton said he believes that stimulating employment in low-income areas has become critical to maintaining overall economic growth. Because so many Americans are already in the work force, he said, the only way to keep the economy growing without igniting inflation is to find new markets for American products, both by lowering trade barriers abroad and invigorating economic activity in depressed areas at home.

“It’s like I’ve taken a trade mission to America,” he said of his peripatetic trip this week.

Turning to the 2000 presidential campaign, Clinton offered an extensive analysis of Bush, saying that his campaign is “very flattering in a way because it replicates the rhetoric” that Clinton has employed in stressing themes such as linking opportunity and responsibility. But he suggested that Bush’s “compassionate conservatism” might be only a cover to allow congressional Republicans to pursue a more ideological agenda should the Texas governor win the White House.

The president pointed out that the conservatives who gained control of the House of Representatives after the 1994 elections had endorsed Bush early on.

Responding to Clinton’s remarks, Mindy Tucker, a spokeswoman for Bush, said: “Gov. Bush offers a new approach in terms of both leadership and philosophy. . . . The Clinton-Gore administration believes in a central government that dictates solutions from Washington, D.C. Gov. Bush . . . knows that solutions are found in local communities.”

Clinton smiled--but also quickly counterpunched--when asked about Bradley’s recent charge that the administration has not done enough to reduce childhood poverty.

“I don’t think anybody’s done enough to reduce childhood poverty; you have to keep going,” he said. But citing the increase in the minimum wage and earned-income tax credit he’s won, declines in minority unemployment and increases in immunization, Clinton continued: “I think we’ve made more headway than anybody imagined we could when we started.”

Then, as the plane landed and aides hovered to end the interview, Clinton lingered to add a pointed postscript about Bradley, who has been criticized for not detailing more of his own proposals: “It’s a good opportunity for him to say what he’d do about it; we can have a discussion.”