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Tax Receipts Exceed Treasury Predictions

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Also, by next year, costs from the new prescription drug benefit should start rolling in. By the end of the decade, pressure from the retiring baby boom generation will start pushing Medicare, Medicaid and Social Security costs up significantly.

Treasury officials have long resisted reissuing 30-year bonds, in part, because "nobody wanted to admit the deficits were permanent," said Wyss, the Standard & Poor's economist.

Treasury officials disputed that notion during a meeting with reporters yesterday.

"The deficit has nothing to do with it," said Timothy S. Bitsberger, assistant Treasury secretary for financial markets. "In fact, we think the deficits are coming down."

Wall Street wasn't buying it. "If you weren't borrowing this much, you wouldn't be doing it," Wyss said. "No question."

After four years of rising budget surpluses, the Treasury announced in October 2001 that it would no longer issue the 30-year bond. The decision was intended to lower the cost of government borrowing, since bonds that mature in more than 10 years, known as long bonds, typically offer higher interest rates to attract buyers willing to accept the added risk of such long maturation periods.

With a 2001 forecast of surpluses totaling $5.6 trillion over 10 years, Treasury officials figured they could focus on reducing debt, not adding to it. And eliminating the 30-year bond would push buyers to the 10-year Treasury bond. Since 30-year mortgages are closely tied to the 10-year bond, the added demand for that bond would drive down mortgage rates and help the economy.

But forecasted surpluses turned into huge, forecasted deficits. Since President Bush entered office, the total federal debt -- including debt to the public and debt owed the Social Security system -- has risen from $5.7 trillion to $7.8 trillion. Long-term interest rates should begin rising in the near term, so the government should lock in interest rates on 30-year bonds soon, Wyss said, before the cost of federal borrowing begins to rise.

Moreover, aging populations around the world have forced governments -- especially in Europe -- to shore up pension funds by requiring that they invest in long bonds. Washington is considering similar changes for its private pension systems. That has sent demand for long bonds skyrocketing, said Neal M. Soss, chief economist at Credit Suisse First Boston LLC.

Bush's proposal to convert part of Social Security to individual investment accounts would also add considerable demand for 30-year bonds if it were to pass, Soss said. A decision on whether to issue 30-year bonds will be announced Aug. 3, Bitsberger said.


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