8/22 -- Much of Budget Surplus Is Erased -->
Wednesday, Aug. 22, 2001
WASHINGTON (AP) -
President Bush's tax
cut and the sluggish
economy have
combined to virtually
erase the projected
budget surplus not
dedicated to Social
Security this year and
next, the White House
estimated Wednesday.
The Office of
Management and
Budget projected a
fiscal 2001 surplus of
$158 billion, only $1
billion above the tax
receipts that flow to
Social Security. The
revision is $123 billion less than the last estimate in April but the
surplus still will be the second-largest ever.
The forecast envisions a similarly tiny non-Social Security surplus
of $1 billion in fiscal 2002, which begins Oct. 1. That represents a
$58 billion drop from the April estimate, for an overall surplus of
$173 billion next year that is almost entirely Social Security.
Despite the reductions, White House Budget Director Mitch
Daniels said, the government's fiscal health is sound even as the
economic woes continue. ``The nation is awash in money, and it
will be,'' Daniels said.
The new figures for fiscal years 2001 and 2002 will add fuel to
Democratic charges that Bush's 10-year, $1.35 trillion tax cut is
squandering the surplus.
``I see no more irresponsible act than that of the Bush
administration's tax cut,'' Sen. Robert C. Byrd, D-W.Va., who
chairs the Senate Appropriations Committee, said in an interview
Tuesday. ``It was a tax cut based on faulty projections.''
Republicans, led by the president, retort that even with the
economic slowdown plenty of money is available for the tax cut,
to meet government spending needs and to protect Social
Security and Medicare. The OMB predicts that economic growth
will pick up next year, partly due to the stimulus provided by the
tax cut, which in turn would boost government revenues.
``We cut the taxes. It was the right thing to do,'' Bush said
Tuesday during a visit to Independence, Mo. ``It was the right
thing to do for our economy.''
Some key points in the OMB budget outlook:
-The economic downturn will reduce government revenue by
$148 billion over the next 10 years, mainly in lower income and
corporate taxes in the early years. But an improving economy
will increase revenue in 2005 and beyond, leading to an overall
upward revision of almost $74 billion for the decade.
-The 10-year surplus is forecast at $3.1 trillion, of which $2.5
trillion is Social Security. That leaves $575 billion for spending or
tax cuts, down from $850 billion forecast in April. The total
surplus before the tax cuts or other spending was pegged at
$5.6 trillion.
-The administration is proposing a 10-year, $198 billion increase
in defense spending and an extra $37 billion over the decade for
a Medicare overhaul, including a prescription drug benefit.
-Growth in the nation's gross domestic product, estimated at
just 1.7 percent in 2001, is projected to improve to 3.2 percent
in 2002 and remain above 3 percent for the balance of the
decade. The tax cuts and interest rate reductions by the Federal
Reserve should improve the economy dramatically, the OMB
says.
-The fiscal 2001 bottom line was fattened by an estimate from
the Treasury Department that $5 billion in corporate taxes would
be paid before Sept. 30, even though the new tax law moved
the payment deadline until after the start of fiscal 2002.
The fiscal 2001 surplus figure includes an accounting change
criticized by Democrats that effectively shifted $4.3 billion from
the Social Security trust fund to regular government accounts.
This enabled the administration and congressional Republicans
to say that, just barely, they kept a promise not to dip into
Social Security for other government operations.
But the document also says that further tax relief or spending
initiatives beyond those proposed by Bush would have to be
offset, either by other spending cuts or by raising other taxes.
Republicans say that will force Congress to adhere to strict
spending limits that were ignored in previous years.
``We must contain spending over the coming year,'' the OMB
document says.
The nonpartisan Congressional Budget Office, whose estimates
Congress must follow, plans to release its own surplus update
next week. Many analysts on Capitol Hill expect the CBO to
show that a small portion of the Social Security surplus will be
diverted to other government purposes this year.
``The president needs to present a new budget and explain
how he will work with Congress to solve this mess of his own
making,'' said House Minority Leader Dick Gephardt, D-Mo.
On Medicare, the OMB update estimates a $32 billion surplus for
Part A, which pays hospital costs. That surplus will be shifted to
cover unpaid costs such as doctor bills from the program's Part
B. Without that money and other cash from general government
accounts, the White House estimates, Part B would face a $48
billion shortfall this year.
Democrats contend that this still amounts to a raid on Medicare -
Part B always has been paid for with general revenue - breaking
a bipartisan commitment to keep both Medicare and Social
Security walled off in a so-called ``lock box.'' Republicans say
that's a distortion. |
