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Senate Panel Projects Huge Surpluses

The Budget
By George Hager
Washington Post Staff Writer
Saturday, January 16, 1999; Page A1

New federal budget estimates project a windfall surplus of as much as $700 billion over the next 10 years, which would provide an enormous boost to Republican hopes for a broad tax cut and to Democratic plans for new domestic spending.

The unofficial estimates come from the Senate Budget Committee and are based on its expectations of official numbers to be released Jan. 29 by the Congressional Budget Office. That agency closely guards its projections and declined to confirm them yesterday.

The committee's projections show a remarkable budget turnaround: What had been expected to be a 10-year deficit of about $9 billion in the non-Social Security part of the federal budget for 1999 through 2008 is expected to change to a surplus of about $522 billion over the same period.

Since the numbers improve steadily over time, kicking the projections forward one year, to 2000 through 2009, could boost the 10-year surplus to as much as $700 billion -- and that would be on top of any surplus created by Social Security, according to the estimates.

In the world of budget politics, these numbers could be a very big deal, since they would allow politicians to leave Social Security trust funds alone as they look for money to fund tax cuts or spending increases.

The Senate Budget Committee's Republican staff already is mapping plans to divide the surplus among tax cuts, spending increases and debt reduction.

Both parties have been constrained in tapping the budget surplus for their priorities because of the argument that the balance has been generated so far entirely by the huge surplus of payroll taxes flowing to the Social Security trust funds to pay for baby boomer retirement in the next century.

President Clinton has insisted that politicians leave the budget surplus untouched until they solve Social Security's long-term problems -- the program is expected to go broke in 2032.

Republicans failed to push through an ambitious package of tax cuts last year because of Democratic criticism that they were raiding the Social Security-generated budget surplus to pay for them.

Until now, the non-Social Security part of the federal budget was expected to remain in the red until 2005 and generate only modest surpluses after that. But the new numbers show that part of the budget turning positive in 2002 and quickly generating much-bigger-than-expected surpluses.

The White House signaled yesterday that it will stick to its Social Security-first demand. "More optimistic surplus forecasts don't affect our basic principle that all of the surplus should be reserved until we know how much is needed for a long-term fix for Social Security," said Gene Sperling, director of the White House's National Economic Council.

But some Republicans say the new projections should change that dynamic. "If there's a [non-Social Security] surplus, that's fair game," said a senior Republican budget official.

Though the new surplus estimates seem almost too good to be true, other budget experts confirm that the committee's estimates sound reasonable, given the economy's strength.

Robert Reischauer, a Brookings Institution senior fellow and a former Congressional Budget Office director, said the estimates reflect a continuing strong economy, a booming stock market and unexpectedly low spending in big government programs such as Medicare. "Each one of these contributes $5 billion here and $3 billion there; you add them together and you get some significant amounts of money," he said.

"Given their assumptions, the numbers are believable," said Cynthia Latta, principal U.S. economist for Standard & Poor's DRI, an economic data and consulting firm. "What we don't believe and don't put in our forecast are their assumptions." Chief among those assumptions, she added, is that Congress and the White House won't quickly find a way to spend whatever surplus emerges.

The size of any 10-year surplus presumes at least one thing that almost surely won't end up being true: That Congress and the White House will live within extremely tight discretionary spending caps from 2000 to 2002, and then to extend them with no adjustment for inflation through 2009. Failure to do that could slash $200 billion to $300 billion from the 10-year surplus. Senate Appropriations Committee Chairman Ted Stevens (R-Alaska) has already called for loosening the caps for the year 2000 spending bills he will be preparing this year.

Even if a big surplus materializes, it will develop slowly. The non-Social Security part of the budget is still projected to show deficits in 2000 and 2001, which would make it tough for Republicans to provide a tax cut right away without finding a way to pay for its first few years.

And veteran budget watchers warn that any projection beyond a year or two is inherently shaky. Stan Collender, managing director of the federal budget consulting group for Fleishman-Hillard, said, "Long-term budget projections are more like science fiction than reality."


© Copyright 1999 The Washington Post Company

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