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Strategies & Market Trends : Guidance and Visibility -- Ignore unavailable to you. Want to Upgrade?

To: Jerry Olson who wrote (12838)	8/28/2001 9:29:33 PM
From: 2MAR$	Respond to of 208838

Market's Swoon Raises Concerns About Surplus By John D. McKinnon Staff Reporter of The Wall Street Journal WASHINGTON -- The tax-revenue boost the federal government enjoyed during the 1990s stock-market boom has disappeared almost as rapidly as it appeared, according to congressional budget analysts. At the end of the last decade, tax revenue soared faster than government economists' models had predicted, even accounting for strong economic growth. For example, according to a recent estimate by Goldman Sachs Group, government revenue for 2001 rocketed upward by about $186 billion over and above what government estimators expected a few years earlier when they first began doing budget projections for the period. Analysts still aren't sure what brought on the flood of extra tax money in the late 1990s, but they agree that much of it likely was due to the bull market in equities, as stocks threw off capital gains and income from employee options. Now, the Congressional Budget Office's midyear budget update, released officially yesterday, shows that upbeat surplus projections are being reversed because of the market's recent swoons. CBO economists lowered their surplus estimates by almost $200 billion over the next 10 years for "technical" reasons that weren't accounted for by their economic models. Much of that unexpected drop-off likely is due to lower taxes expected from capital gains, stock options and other stock-related income, officials said. The economic downturn itself accounted for an additional $300 billion in lowered surplus forecasts for the 10-year period, because of reduced corporate profit expectations and other ripples from the falloff in economic activity. CBO also slightly lowered its forecast for productivity because of lower corporate investment in new equipment. Some private-sector forecasters believe the August updates by CBO, the White House Office of Management and Budget and other analysts are just the beginning of further ratcheting down of official revenue expectations. The projected 10-year budget surplus peaked in January at $5.6 trillion, with about $3.1 trillion of it attributable to income taxes and other funds outside Social Security. Now a few forecasters are saying that the non-Social Security surplus -- the part that Congress could realistically spend on new programs or use for tax cuts -- will continue to dwindle. << "The economy and the stock market supercharged [government] revenue growth relative to economic activity, and I think we're going to see the mirror image of that going forward," said Mark Zandi, chief economist at Economy.com, a consulting firm in West Chester, Pa. Mr. Zandi estimates that revenue could be off as much as $50 billion from current estimates just for the 2002 fiscal year, which begins Oct. 1. CBO projects a total surplus for 2002 of $176 billion, just $2 billion of it on the non-Social Security side of the ledger. If Mr. Zandi is right, elected officials could wind up dipping deeply into Social Security surpluses in 2002. That is something that elected officials have pledged not to do, although lately, as forecasts have dimmed, their resolve has appeared to weaken. >>> CBO and the White House Office of Management and Budget remain considerably more optimistic. Even after the economic slowdown and President Bush's tax cut, CBO projects a non-Social Security surplus of about $847 billion for 2002-2011. OMB's figure -- after subtracting some new spending the White House wants -- is about $575 billion for the decade. "I'm not at all troubled by these assumptions" from CBO, said Mr. Bush's top economic adviser, Lawrence Lindsey. He said the negative technical changes in CBO's report should turn positive again when the economy turns around. ....Ok (END) DOW JONES NEWS 08-28-01 09:16 PM * end of story *