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08/22 12:52
White House Says FY 2001 Surplus Drops to $158 Bln (Update4)
By David Morris and Laura Litvan
Washington, Aug. 22 (Bloomberg) -- The Bush administration says the U.S. budget surplus will be $158 billion when the fiscal year ends Sept. 30, 44 percent lower than the $281 billion estimate in April.
Slowing economic growth and the cost of implementing President George W. Bush's tax cut leave less than $1 billion of the surplus beyond those funds set aside for future Social Security payments, the White House said in a report this morning.
The forecast pegs the fiscal 2002 surplus at $173 billion, down from $231 billion in April, and puts the 10-year surplus at $3.1 trillion, down from $3.4 trillion in April. That's still enough to pay off most of the government debt traded on securities markets, the administration said.
The shrinking surplus comes as the president and both parties in Congress seek political advantage going into next year's mid- term elections. The first test comes next month, when legislators decide between cutting funds for some programs or breaking their pledge not to borrow from the Social Security.
``I think everything is going to get a haircut, including defense,'' said Greg Valliere, a political analyst for the Schwab Washington Research Group.
Bush's budget director, Mitch Daniels, said politicians will miss the larger point if they focus on the small non-Social Security surplus instead of the larger amount.
``The nation is awash in extra money,'' Daniels said.
Mostly Political
The revised numbers will have more impact in Washington than on Wall Street, said Paul McCulley, managing director and portfolio manager at Pacific Investment Management Co.
``It's a big deal politically, but not for the markets,'' McCulley said. ``The financial markets look at it as a natural consequence of a very weak economy.''
The estimate, prepared by Bush's Office of Management and Budget, says the 10-year surplus will be large enough to pay off most of the Treasury debt that is traded in securities markets over the next 10 years. Debt held by the public will decline to about $3.3 trillion at the end of this year, down from a record $3.8 trillion in 1997, OMB said.
While most of that is publicly traded, some of it is in savings bonds and other securities not easily redeemed. Some publicly traded debt can't be paid off readily because it matures after 2011.
``The amount of non-redeemable debt will depend on many debt management decisions that have not yet been made and will not be made until the appropriate future occasions,'' OMB said.
OMB estimates that the Treasury will buy back about $35 billion in longer-term debt this year and $40 billion in 2002. Over the next 10 years, as much as $2.2 trillion in debt will be paid off, reducing public debt to about $1.1 trillion or approximately 6.1 percent of gross domestic product, the smallest share of the economy since 1917, OMB said.
Growth Forecasts
The White House predicted the economy will grow 3.2 percent in 2002, more than the 2.8 percent consensus in the latest Blue Chip Economic Indicators survey of about 50 corporate and Wall Street economists.
The growth projections for 2002 ``are quite reasonable,'' said Stephen Slifer, chief U.S. economist at Lehman Brothers Inc., in New York. ``The Fed has been easing aggressively for seven months now so I guess it's about time to see some positive effects from that next year.'' Slifer said his own forecast for next year was also 3.2 percent.
For this year, both the OMB forecast and the Blue Chip survey see growth at 1.7 percent. The OMB growth forecast for years beyond 2002 -- used to predict the amount of tax revenue and the surplus -- is roughly in line with the U.S. expansion over the past decade. After rising to a 3.5 percent growth rate in 2003, the OMB forecast declines to 3.1 percent for 2006-2011. That's an average 3.2 percent for the decade, the same as 1991-2000.
Social Security
Bush, in campaign-style events this week, said his spending plan will allow the government to proceed with the tax cut, protect money set aside for Medicare and Social Security and increase funding for defense and education -- provided Congress resists the annual temptation to add spending for pet projects.
``I know this: we're not going to raise the taxes on the people,'' Bush said yesterday in Missouri. ``I know this: that we're going to make sure additional spending doesn't cut into essential programs, like Social Security or Medicare. I know this: we won't shortchange the military.''
Although Bush warns against additional spending, legislators from both parties are expected to try to add billions of dollars for education, agriculture and other programs. And Bush himself has asked Congress to approve an additional $18 billion for defense programs that weren't in his initial budget request.
Democrats Attack
House Minority Leader Richard Gephardt, a Missouri Democrat, said the new estimates ``are deeply disappointing'' and show the tax cut was too big. Other Democrats, including Senate Budget Committee Chairman Kent Conrad of North Dakota, said the surplus decline will sharpen Democratic opposition to Bush's defense spending request and make it difficult for both sides to complete a fiscal 2002 budget.
``I believe President Bush's campaign promises are unraveling,'' Conrad said. ``He claimed we could afford his massive tax cut, a major defense buildup, and more money for education while paying down debt and protecting Social Security and Medicare. He was wrong.''
Valliere and other analysts say they think this year's budget debate might be resolved without tapping the Social Security surplus, although money set aside for Medicare likely will be used.
Spending Medicare money elsewhere may work to the Democrats' advantage -- provided they can resist adding money to the budget for other programs -- because they can pin the blame on Bush, Valliere said.
Stan Collender, a budget analyst for Fleishman-Hillard Inc. also said Republicans will be in a tough spot if the Democrats show restraint.
``I've got to believe Democrats are going to sit back and watch,'' Collender said. ``The only thing that helps Republicans is if a year from now the economy is back to doing really well.'' |
