CBO Delivers Rosy Revised Surplus Estimates
By Eric Pianin
Throughout the coming decade, the government will take in $1.6 trillion more in revenue than it will spend, according to the revised report, or nearly $1 trillion more than CBO officials forecasts last January. Moreover, the government will balance its books in 2002 for the first time without drawing on the surpluses in the Social Security trust fund.
House and Senate GOP leaders, who have struggled to find a politically acceptable way to finance a major new tax cut of as much as $100 billion through reductions in domestic programs, eagerly seized on the new report as justification for using some of the future surpluses for tax relief. "This is great news for every American family," said House Speaker Newt Gingrich (R-Ga.). "With a whopping $520 billion surplus, we can preserve, protect and strengthen Social Security while also passing significant tax relief for hard-working Americans."
Gingrich said that in light of the new long-term surplus estimates -- more than twice the amount House Republicans assumed in drafting a new budget this year -- he would urge President Clinton to work with Republicans to phase out the "marriage penalty," cut the capital gains tax and eliminate the estate tax.
But the White House and some Democratic budget leaders who have argued against using future surpluses until Congress and the administration can agree to long-term reforms to the Social Security system admonished the GOP leaders to keep their hands off the surplus.
"The temptation to spend the money now before fixing the long-term problems of Social Security would be a short-term, feel-good approach," said Linda Ricci, a spokesman for the Office of Management and Budget. "The president hasn't closed the door to the possibility of tax cuts, but that should only be done after the hard work of fixing Social Security."
Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) said the first priority was to protect Social Security, but there was now also room for a "significant" tax cut. Until now, Domenici has counseled for a relatively small tax cut.
CBO director June E. O'Neill has been under extraordinary pressure from Gingrich and other GOP leaders to juice up CBO's long-term economic and surplus forecasts to bring them in line with some private forecasts that are far more optimistic. O'Neill said yesterday that while she and other CBO officials considered altering their techniques, "We have arrived at our decisions independently."
In the face of a torrent of tax revenue, the CBO in May revised its economic forecasts and predicted a surplus in the range of $43 billion to $63 billion this year, followed by $39 billion in fiscal 1999 and nearly $80 billion by 2002.
Yesterday, the CBO concluded that the surplus would reach $63 billion this year -- the first time the government will have balanced its books since the start of the Nixon administration -- followed by $80 billion in 1999, $79 billion in 2000, $86 billion in 2001 and $139 billion by 2002.
CBO officials attributed the substantial boost in its surplus forecast to the unexpectedly strong revenue collection by the Treasury during the past nine months and a slightly more optimistic economic outlook. CBO conceded in its report that it still could not explain the cause of the vast surge in revenue this year and had no way of knowing how long it would continue.
The revised forecast assumes a 3.3 percent increase in the gross domestic product (GDP) this year, compared with the 2.7 percent increase that was projected last January. However, CBO expects the economy to begin to slow late this year and early next year and predicts that in the coming years the economy will grow at an average rate of 2.2 percent.
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