- The Washington Times - Tuesday, August 28, 2001

The federal budget through 2004 will rely on Social Security payroll taxes to remain in balance, according to Congressional Budget Office estimates to be officially released today.
The numbers are substantially less optimistic than projections released last week by the Bush administration and are a sea change from the endless surpluses predicted just four months ago.
Republicans say the estimates show they have succeeded in taking the surplus away from the government and back into Americans' hands with this spring's tax cut. But the lack of a surplus could also mean trouble for the extra spending requests the White House has made for defense and education.
"The new budget numbers … confirm what we have been saying for over a year: the Bush tax cut forces the government to invade both the Social Security and Medicare trust fund surpluses," said Rep. John M. Spratt Jr., South Carolina Democrat.
House Majority Leader Dick Armey, Texas Republican, said Democratic "concern for the surplus is a mask to disguise their true intentions repeal tax relief and spend the money on more risky spending schemes."
Adding all revenues, including those generated by the Social Security payroll taxes, the CBO numbers still show the government accumulating in 2001 a total surplus of $153 billion, down from $275 billion predicted in May. The $153 billion figure would still be the fourth annual surplus in a row and the second-largest surplus in the nation's history.
But taking payroll taxes intended to fill the Social Security trust fund out of the equation, though, the government will end with an "on-budget" deficit of $9 billion for the year.
Office of Management and Budget Director Mitchell E. Daniels Jr. downplayed the differences as minor and said CBO's estimates are very close to those provided last week by his office.
"I would simply point out that nobody's crystal ball is more accurate than the difference between these numbers. We are down to a fraction of one percent difference," he said. "I view them as essentially identical."
Mr. Daniels said that while the predictions differ at the margin — OMB predicted a gross budget surplus of $157 billion and an on-budget surplus of $1 billion for fiscal 2001 — the two estimates prove that the nation faces "a fundamental new fiscal reality: enormous surpluses this year, next year, and in the forecast period."
But in recent years it has become a political mantra to promise to set aside surpluses generated by Social Security for Social Security.
"Although the distinction between [Social Security and other] surpluses is unimportant from an overall economic perspective, it has become a key part of the budget debate," the CBO report notes.
The new projections will not affect current Social Security benefits.
Because federal trust funds cannot actually hold cash assets, the equivalent of "preserving Social Security" has been to use every surplus dollar generated by the Social Security payroll tax to pay off federal debt rather than to fund other programs.
"We have some very hard decisions to make" on spending choices if Congress and the White House want to continue to honor that promise, Mr. Spratt said. The task becomes even more difficult when the Medicare trust fund, which most Republicans and Democrats have also pledged to preserve, is thrown into the mix, Mr. Spratt said.
Mr. Daniels countered that there is no Medicare surplus and that Congress should go ahead and fund Mr. Bush's proposed increases for defense and education, even though it might require running an "on-budget" deficit to do so.
"It would be a big mistake to shortchange fundamental priorities like defense and education in the pursuit of a symbolic goal," Mr. Daniels said.
The White House last week estimated that, for now, it plans to seek $18 billion in extra defense spending for next year and about $198 billion in the next decade.
On the political front, the White House plans to largely ignore the CBO numbers, an administration official said.
Mr. Bush will instead use the bully pulpit to continue pushing his priorities such as spending increases for defense and education, using OMB's budget estimates as a defense against the arguments that he is "raiding" Social Security, the aide said.
Democrats will contend that CBO is the official budget scorekeeper and that OMB's estimates, therefore do not count, the aide predicted, but "priorities beat process every time," particularly given the presidential bully pulpit.
Although both budget offices agree that surpluses should grow substantially in later years, CBO predicts that on-budget surpluses will add to $847 billion through 2003. The OMB predicted on-budget surpluses of $1.3 trillion in the same time period.
The major difference in the two estimates is the assumption about when the nation's economy will turn around. Both estimates assume growth will rise in the last two quarters of 2001, bringing total growth for the year to 1.7 percent. But in 2002, when OMB assumes growth will jump to 3.2 percent, CBO predicts it will rise to just 2.6 percent.
The sluggish economy helped erase $283 billion of the $5.6 trillion in gross budget surpluses predicted by CBO in May.


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