- The Washington Times - Tuesday, July 10, 2001

The U.S. Treasury will finish this year with a substantial budget surplus, despite the slowdown in the economy, the tax cuts and additional spending, the administration said yesterday.
Responding to mounting Democratic charges that a weak economy and President Bush's tax cuts have all but wiped out the surplus this year, administration officials and supporters said that the Democrats were exploiting a limited, short-term revenue downturn for political purposes.
"We acknowledge and expect that the weakening economy has made the budget tighter in the short term, but we do believe that there will be a surplus in the short term over the next couple of years," said Chris Ullman, chief spokesman for the White House Office of Management and Budget.
"Even with the tax cuts, paying the debt and spending for Social Security, Medicare, defense and all the rest, we still estimate that there will be nearly a trillion dollar surplus over the next 10 years," Mr. Ullman told The Washington Times. "By any measure, we have huge surpluses and it is disingenuous to tell the public otherwise."
OMB is working on updated revenue estimates for release later this summer, as is the nonpartisan Congressional Budget Office.
The consensus within the administration is that the surplus will end up somewhere between $150 billion and $200 billion at fiscal year's end on Sept. 30, Treasury Secretary Paul H. O'Neill told The Washington Times last week.
Meantime, Senate Majority Leader Tom Daschle, South Dakota Democrat, and Senate Budget Committee Chairman Kent Conrad, North Dakota Democrat, have been charging that the surpluses are shrinking rapidly and suggesting that Congress needs to "revisit the tax cuts" to free up more revenue for spending.
But the arguments were ridiculed yesterday by tax-cut backers who point out that the tax cuts have hardly taken effect. The rebate checks for this year's retroactive tax cuts have not been mailed and the 1 percent lower paycheck withholding rates did not take effect until last week, and thus can have had little if any impact.
"We have been operating for most of the current fiscal year with the higher tax rates. This has nothing to do with the reduction in the tax rates. A lot of this [revenue decline] started in the early spring when taxes had not been cut," said Scott Hodge, executive director of the nonpartisan Tax Foundation.
"Besides, most of the tax cuts take effect in four to six years. How can that have any impact on the surpluses now?" he said.
While Mr. Bush's Democratic critics "are saying we should not have cut taxes to stimulate the economy, we have to ask the critics what they would have done," Mr. Hodge said.
"Would they have just increased government spending? Was that their solution to boosting the economy?
"They weaken their own charges against the administration every time they open their mouth about new spending. If they are so concerned about the deficit, why are they pushing for so much new spending?" he said. "We can only have a surplus if Washington doesn't spend it first."
"What the Democrats want to do is to stop the tax cuts in 2004 and 2006 and say it is because of the [surplus] decline in 2001," said Grover Norquist, president of Americans for Tax Reform.
But Mr. Norquist thinks the short-term fall in the surplus will add pressure on the White House to keep the Democrat-run Senate from trying to enlarge spending bills beyond the 4 percent total to which Congress agreed.
"Right now, the Democrats are in a corner. They don't have the money to pay off their base constituencies and Bush can point to the spending limits in the budget to justifying his opposition to higher spending," he said.

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