- The Washington Times - Sunday, September 2, 2001

Recent re-estimates of the federal budget surplus have prompted contradictory and often confusing claims.
Democrats say the numbers mean the nation is in fiscal crisis. Republicans say that despite the declining surplus the nation is in the best fiscal shape in decades.
At the heart of the debate is the Congressional Budget Office report that in fiscal 2001 the federal government will have taken in $2.011 trillion in personal and corporate income taxes, payroll taxes, excise taxes and user fees. It will have spent $1.858 trillion, leaving a surplus of $153 billion instead of the $275 billion predicted in January.
Bolstering those numbers is Social Security, which is taking in $162 billion more in payroll taxes than it is paying out in benefits. Taking Social Security out of the equation leaves a $9 billion deficit. This $9 billion is called the "on-budget" deficit, because officially Social Security is "off budget." In other words, there is an on-budget surplus when the federal government has enough revenues outside of Social Security to pay for all its programs.
Before 1998, the last time the federal government ran a gross annual surplus was in 1969. Before 1999, the last time the federal government ran an on-budget surplus was 1960.
In the years in which there was no gross surplus, the federal government sold bonds to private investors to finance spending. In 1960, the federal government had $237 billion in debt held by the public. Today, that debt has grown to $3.7 trillion. Measured as a percentage of the gross domestic product, federal debt held by the public has actually fallen from 46 percent of GDP in 1960 to 35 percent of GDP in 2000.
And even with the bad news of the dwindling surplus, the CBO predicts that if federal spending grows only at the rate of inflation, debt held by the public will fall, essentially, to nothing in the next decade.
In part, that is why Office of Management and Budget Director Mitch Daniels has called achieving an on-budget surplus a "symbolic goal." Democrats countered that it is not symbolic goal, but rather "a commitment we have made to the American people."
The House has repeatedly passed so-called lockbox legislation that would have required a three-fifths majority to pass legislation that did not maintain an on-budget surplus. Twice in the last two years, the House went a step further, voting in near unanimity to expand the lockbox to require a similar "supermajority" for legislation that did not also set aside the $40 billion annual surplus from Medicare's Hospital Insurance Trust Fund.
Some Republicans are now arguing that the surplus has no effect on the Social Security trust fund.
Strictly speaking they are correct. Because the Social Security and Medicare trust funds cannot hold cash, or other publicly available assets, revenues they do not need to pay benefits must be used to buy special Treasury Bonds.
How the money used to buy those special bonds is used by Treasury whether to buy back publicly held bonds or to pay for other government programs has no effect on the number of special bonds being held by the trust funds.
In theory, Social Security is running a surplus to prepare for the day when baby boomers start to retire and benefits begin exceeding payroll tax receipts.
In fact, while the bonds have been accumulating, the federal government spent nearly $1 trillion of the money while racking up $3.7 trillion in publicly held debt to boot.
As mentioned above, if Congress passes no further tax cuts, adds no new benefits to Medicare, Social Security, or other entitlement programs, and limits the growth of discretionary spending to the rate of inflation, then the publicly held debt will be virtually paid off by 2011.
The problem, say Democrats, is that still is not enough.
According to CBO analysis released last year, if the government paid off its publicly held debt by 2011, the financial sinkhole of funding the baby boomers' retirement would still drive the nation deep into debt. In fact, by 2050 debt will have grown to twice the GDP, nearly twice that accumulated by the end of World War II, according to the CBO.


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