The spin on the surplus

SUN JOURNAL

Debate: The disappearing budget surplus reignites the partisan rhetoric of less wealthy times, but also adds the Social Security "lockbox" and president Bush as big spender

September 04, 2001

WASHINGTON — President Bush

Debate: The disappearing budget surplus reignites the partisan rhetoric of less wealthy times, but also adds the Social Security `lockbox' and President Bush as big spender. By Karen Hosler SUN NATIONAL STAFF

WASHINGTON--The surplus is gone, the Democrats wailed, complaining that there's no money left for critical new spending. The surplus is gone, the Republicans agreed. And just in time, they added, to keep the Democrats from spending it.

After two flush years, the federal government appears to have blown through a windfall of surplus tax revenue. Most of it went for tax cuts; the rest of it never materialized because of the flagging economy.

And now Washington is back to normal. Congress and the White House are once again squabbling over scraps at the margins of a budget subject to tight restraints at a time of financial uncertainty.

The only major new wrinkle is that surplus taxes collected for Social Security benefits -- long considered available for other purposes -- were put off the table when times were good and can only be used now at perhaps great political cost.

During the past two weeks, as revenue projections from both ends of Pennsylvania Avenue confirmed the news that the cupboard is bare, politicians have fallen into their familiar routine of name-calling, finger-pointing and one-upmanship.

Following a historical pattern, the Bush White House took a more optimistic view than Congress of the economic outlook. "Rosy scenario" has been in the service of presidents at least since Ronald Reagan came to town.

"Despite a nearly stagnant economy, the government's finances are remarkably sound," declares the White House Office of Management Budget in its August update of revenue projections. "The budget's enormous surpluses have allowed us to deliver significant tax relief to working Americans, providing badly needed fiscal stimulus to counteract the year-long slowdown in the economy."

The White House acknowledged that only about $1 billion remains of the $128 billion non-Social Security surplus the president anticipated for this year when he presented his budget last spring.

But an expected surplus of $157 billion in the Social Security Trust Fund--the "second highest in history"--will nonetheless allow the government to continue reducing the national debt, the White House says.

Anticipating a rebound that will return the currently flat-lined growth in the gross domestic product to more than 3 percent next year, the president says he sees only one really dark cloud on the horizon: Congress.

"The greatest threat to our budget outlook is the danger that Congress will be tempted this fall to break its earlier commitments by spending too much," Bush said in a radio address. "The old way in Washington is to believe that the more you spend, the more you care. My administration takes a new approach. We want to spend your hard-earned money as carefully as you do."

As usual, the August update released last week by the nonpartisan Congressional Budget Office offers a more conservative interpretation than the White House of the economic data, trends and models used to chart economic forecasts.

The CBO predicted the federal government would have to dip into the Social Security Trust Fund by $9 billion during the fiscal year that ends Sept. 30, and by as much as $18 billion in 2003. The CBO also projects a rebound by next year, but to a growth rate of 2.6 percent rather than the 3.1 forecast by Bush aides.

The White House and Congressional estimates are so close as to be virtually identical in the context of budgets amounting to almost $2 trillion annually. And none of these projections ever exactly hits the mark because economic conditions are constantly changing, which is why the estimates are regularly updated at least twice a year.

But the symbolic breaching of the Social Security line gave Democrats the chance to declare they had been right all along: Bush's 10-year, $1.35 trillion tax cut was too expensive for the nation to afford and is now prompting what Senate Budget Committee Chairman Kent Conrad of North Dakota calls "a raid on Social Security and Medicare."

As for the "big spender" charge, Democrats gleefully retort that the first big request for money that has not already been provided for in the budget comes from Bush: his $18.4 billion plan to beef up the defense department.

Much of this autumn will be dominated by wrangling between the president and lawmakers over how to fit their priorities within the limits imposed by their commitment to protect Social Security reserves. They are expected to make extensive use of creative accounting devices to accomplish this feat.

What troubles some budget analysts is that the long-term economic projections of the White House and Congress may be too optimistic.

During the late 1990s, the OMB and CBO were slow to factor into their estimates the burst of productivity growth--to 2.5 percent annually from a 20-year average of 1.5 percent-- from the technology-driven "New Economy." That helped create the impression of unexpected riches suddenly flowing into the treasury.

Now both agencies are anticipating that the economy will shake off its current troubles and the 2.5 percent productivity growth rate will be the norm for the next decade.

"But nobody really knows for sure," warns Robert L. Bixby of the Concord Coalition, a budget watchdog group. "If they are wrong by just a half percent, that would shave hundreds of billions of dollars off the tax money that will be available in the future."

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