- The Washington Times - Sunday, December 2, 2001

The expected disappearance of the government's revenue surpluses over the next few years will be largely the result of the recession, not President Bush's tax cuts, top congressional economists and budget officials say.
White House Budget Director Mitchell Daniels no sooner announced Thursday that the federal budget probably will run a string of small deficits until 2005 than Democratic leaders punced to pin the blame on the $1.35 trillion in tax cuts that Mr. Bush signed into law in the spring.
The prediction follows four straight years of budget surpluses.
But congressional economic analysts said the relatively small tax cuts that will take effect in the first few years of the president's 10-year tax reform plan amounting to $38 billion in fiscal 2002 alone do not explain the elimination of large projected surpluses of up to $400 billion a year in a $2 trillion annual budget.
"The economy and the stock market giveth and now taketh away in terms of revenue growth and budget surpluses in the last half of the 1990s, and that has all been reversed as a result of the economic slowdown and the decline in the stock market," said Chris Frenze, chief economist at the Joint Economic Committee of Congress.
"When you have a projected surplus of $313 billion in 2002 and this surplus erodes or is eliminated, it is not because of the tax cuts," Mr. Frenze said.
"To make that kind of argument, someone has to explain why a projected surplus for 2002 would be eliminated by a tax reduction that is a fraction of that amount. How can a $38 billion tax revenue reduction eliminate a $313 billion surplus?" he said.
But that is the argument that top Democratic leaders immediately began making after Mr. Daniels, in a speech to the National Press Club, said "we are unlikely to return to balance in federal accounts before possibly fiscal 2005."
Senate Budget Committee Chairman Kent Conrad, North Dakota Democrat, said that when Mr. Daniels blamed the recession and the added blow to the economy from the September 11 terrorist attacks, "he left out the biggest cause the tax cut this administration pushed and got passed."
Senate Democratic Leader Tom Daschle argued that the Bush tax cuts were the principal reason for the expected deficits to come, telling reporters: "I'd love to be able to say, 'I told you so.'"
Actually, a comparison of the projections of surpluses made by the nonpartisan Congressional Budget Office (CBO) for the 2001-2004 period and the year-by-year tax-cut costs over the same period shows how relatively little the tax reductions figure into the equation of a declining surplus.
CBO projected surpluses of $281 billion for 2001, $313 billion for 2002, $359 billion for 2003 and $397 billion for 2004, totaling nearly $1.4 trillion. The tax cuts phased in over this same period will cost $74 billion, $38 billion, $91 billion and $108 billion respectively, totaling $311 billion.
The budget surplus for fiscal 2001, which ended in September, was about $127 billion. But new projections in January by CBO and Mr. Daniels are expected to show a deficit in the current fiscal year and, possibly, for the next two years.
Republicans maintain that the economy's continuing contraction, which began in the middle of last year, is the overwhelming reason for the decline in tax revenues. They argue that the Bush tax cuts will stimulate investment, create jobs and spur economic growth.
"Unfortunately, we've seen a lessening in the surplus due to the economy and the response to the terrorist attacks," said House Budget Committee Chairman Jim Nussle, Iowa Republican. "Those who are concerned with fighting an old fight on taxes should focus their energies on reviving this economy. Having a sound economy is the best way to improve our fiscal outlook."
"The declining surplus numbers are almost wholly the result of the declining economy," a Senate budget analyst said, speaking on the condition of anonymity. "The economy has been slowing down since the middle of 2000 and the impact on the budget is now being seen."
But some analysts believe the economy can just as quickly climb out of its slump. They say budget surpluses soon can follow if Congress passes legislation, now bottled up in the Senate, designed to accelerate the tax cuts to stimulate faster economic growth.
"The surpluses could come back quickly if the economy turns around and the stock market continues its rebound," a Senate budget aide said.

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