Expensing the economic-stimulus package...
U.S. Debt Is Set to Rise in Quarter
As Tax Receipts Come Up Shortthe
By REBECCA CHRISTIE and DEBORAH LAGOMARSINO
DOW JONES NEWSWIRES
WASHINGTON -- The Treasury Department said it expected to borrow a net $1 billion during the April-to-June quarter -- not repay a net $89 billion, as it said it would do earlier this year.
The announcement, the department's first official acknowledgment of its dismal tax collections during the important April filing season, increases the likelihood that the federal budget will linger in deficit for longer than the two years cited in congressional estimates. The government's troubled finances could even damp prospects for recovery by flooding debt markets and driving up interest rates.
"It's really a very remarkably negative commentary" on the government's financial fortunes, said John Youngdahl, an economist for Goldman, Sachs & Co. At a time when the economy might be picking up momentum, increasing private-sector borrowing, the government's increased demand for debt "runs the risk of creating more friction and consequently spurring somewhat higher rates than would otherwise be the case," Mr. Youngdahl said. "That is one thing to be concerned about."
Taxes Come Up Short
The department attributed the swing in its outlook to lower-than-expected tax receipts and the economic-stimulus package enacted in March. The department defended its overly optimistic expectations for tax receipts. "Forecast errors of this magnitude are not surprising given total expected revenues for the year of $2 trillion," a Treasury spokeswoman said.
Treasury continues to expect the U.S. to return to surpluses in a few years. "We still believe that passing a stimulus package was the right thing to do to get the economy growing sooner and economic growth will get us back to surplus," a second Treasury spokeswoman said.
In January, the Treasury predicted it would pay $89 billion of debt during the second quarter. The government also said then that it expected to increase its cash holdings by about $40 billion to $60 billion from a predicted $20 billion at the end of the first quarter.
Instead, the government said it would add $1 billion of debt and end the second quarter with about $45 billion in cash, up from the roughly $14 billion it had on hand at the end of the first quarter.
Political Backlash
The announcement is sure to increase criticism of government estimates. The Congressional Budget Office's forecasts during the past two years, which were used by supporters to justify President Bush's big tax cut, have proved to be too optimistic as well. Some Republicans, worried about election-year attacks from Democrats, recently have begun taking pre-emptive shots at the CBO.
Analysts said Treasury's tax collections are 30% behind where they were this time last year and that the shortfall could add $50 billion to this fiscal year's projected budget gap, roughly doubling expectations for this year's deficit.
Treasury's announcement marks the first time the agency has projected a net borrowing for the second quarter since 1995, when the government borrowed a net $25.3 billion.
For the July-to-September period, Treasury said it expected to borrow $55 billion in marketable debt and to target a cash balance of $50 billion on Sept. 30.
-- John D. McKinnon contributed to this article.
Write to Rebecca Christie at rebecca.christie@dowjones.com and Deborah Lagomarsino at deborah.lagomarsino@dowjones.com
Updated April 30, 2002 |
