WHY THIS MARKET WILL STILL GO UP....................... Top Financial News
Wed, 27 Oct 1999, 4:27pm EDT
U.S. Has Record Surplus in Fiscal 1999, Signalling Further Economic Growth
By Vincent Del Giudice and Dina Temple-Raston
U.S. Posts $122.7 Bln FY 1999 Surplus, Largest Ever (Update3)
(Rewrites first 3 paragraphs, adds comments from Clinton.)
Washington, Oct. 27 (Bloomberg) -- The U.S. posted its
largest budget surplus in history in fiscal 1999, offering the
prospect of continued economic strength fueled by reduced
government borrowing, lower interest rates, and strong private
investment.
The surplus for the fiscal year ended Sept. 30 of $122.7
billion followed a $69 billion surplus a year earlier, the
Treasury said. It was the first back-to-back government surplus
since 1956-57, when President Dwight Eisenhower occupied the
White House.
``Debt reduction really means a tax cut and a sizable one
for American families' because it keeps interest rates lower
than they otherwise would be, President Bill Clinton said at the
White House. Clinton said the federal debt is $1.7 trillion lower
than it was projected to be when he took office.
The trend may continue. ``It looks like the first decade of
the new century, barring untoward events, should see surpluses,'
said Robert Dederick, an economic consultant at the Northern
Trust Co., in Chicago.
In September alone, the government reported a surplus of
$56.4 billion, up from last September's $37.4 billion excess of
receipts over spending, as the Treasury was flooded with
quarterly tax payments from individuals and companies.
The Treasury paid off $99 billion in debt held by investors
in fiscal 1999 and $108 billion in fiscal 1998 and could retire
as much as $150 billion in debt in both fiscal 2000 and fiscal
2001, said William Sullivan, an economist at Morgan Stanley Dean
Witter in New York. ``That frees up funds for the private
sector,' he said.
More Credit
Government forecasts call for annual surpluses well into the
new century, and the Treasury is preparing to buy back some of
its higher-yielding, long-term debt as a way to save on borrowing
costs. The Treasury is also reducing the frequency of its
auctions of 30-year bonds.
``If the government is using less credit, there's more
credit available for consumers and businesses at better, lower
rates,' said Gary Thayer, chief economist at A.G. Edwards & Co.
in St. Louis. ``That allows for a stronger economy.'
If the government runs an expected surplus again in fiscal
2000, which started Oct. 1, it would be the first time for three
straight surpluses since Harry Truman was president half a
century ago.
Twenty-eight years of annual deficits peaked at $290 billion
in fiscal 1992, the final year of the Bush administration, when
the budget shortfall equaled 4.7 percent of the U.S. gross
domestic product, the nation's total output of goods and
services.
Tax Collections Rise
Today, ``The government is doing so well because the private
sector has been doing so well,' said William McDonough,
president of the Federal Reserve Bank of New York in a speech in
New Jersey today.
The lowest unemployment rate in 29 years, rising incomes,
and stock market gains have bolstered tax collections. Low
unemployment has also allowed the government to slow spending on
social welfare programs.
Reduced borrowing by the Treasury, meantime, has restrained
interest payments on government debt. All but $1 billion of last
year's surplus was due to excess payments of payroll taxes into
the Social Security trust fund than was paid out in benefits,
according to the Congressional Budget Office.
The back-to-back surpluses -- along with fiscal 1999's
paydown of $88.3 billion in debt -- don't mean the U.S.
government owes less. Government debt totaled $5.656 trillion at
the end of fiscal 1999, up from $5.526 trillion at the end of the
fiscal 1998. That's mainly because the excess of Social Security
payroll tax collections is invested in non-marketable Treasury
securities.
Budget Battle Continues
The Social Security Administration effectively lends its
surplus to finance day-to-day government activities by buying
those securities, which increases the government's overall debt.
Today's surplus announcement comes as Clinton and the
Republican-led Congress continue to spar over spending for the
current fiscal year. Both parties say they would avoid tapping
the Social Security surplus so the money would be there when the
Baby Boomers start retiring.
Republicans dropped their plans for a large tax cut and
Clinton's push for increased spending has been pared to less than
$8 billion.
Use of accounting maneuvers will still wind up tapping the
Social Security trust fund's surplus but not by enough to concern
economists or traders. Most of the surplus will be used to help
pay down the nation's $3.6 trillion in publicly held debt.
During fiscal 1999, revenue, fees and other federal
government income totaled $1.827 trillion, the Treasury said.
That's up from $1.721 trillion in fiscal year 1998. Spending by
the federal government totaled $1.705 trillion during the just-
ended fiscal year, compared with $1.652 trillion a year earlier.
For September alone, revenue rose 10.7 percent to $200.4
billion from $180.995 billion in September 1998. September
spending rose 0.9 percent to $144.0 billion from $143.6 billion a
year ago.
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