$800 Billion 10-Year Surplus Projected
Washington Post Staff Writer
Friday, January 29, 1999; Page A4
The Congressional Budget Office (CBO) plans to unveil dramatic new budget projections today that forecast surpluses of nearly $800 billion over the next 10 years in non-Social Security accounts. The announcement is certain to intensify the struggle between the Republican Congress and the Clinton administration over what to do with the windfall.
The new numbers mark an extraordinary turnaround from CBO's forecast from last fall, when the agency projected not a surplus but a cumulative, 10-year deficit of some $9 billion over roughly the same period.
The chief good news for policymakers is that CBO is now forecasting huge and growing surpluses in the non-Social Security part of the budget. That is a crucial distinction, since all sides have agreed to set aside the Social Security surpluses to pay off the $3.7 trillion national debt as part of a plan to overhaul that program.
Previous projections showed virtually all budget surpluses over the next decade coming from the Social Security system, effectively putting them off limits to politicians who wanted to use them for tax cuts or new spending initiatives.
The effect of the new CBO projections is to offer policymakers a vast new pot of money over the next 10 years that they can vie to carve up among competing demands. President Clinton has proposed to divide the money among Medicare, defense and domestic spending initiatives, and the creation of new 401(k)-style retirement accounts for most Americans. Republicans have proposed devoting most of the money to across-the-board tax cuts.
Although many economists warn that it would be foolish to commit surpluses on the basis of long-range projections that could easily turn out to be wrong, the sheer size of the non-Social Security surpluses $787 billion in 2000 to 2009 will likely prove irresistible. By comparison, the 10-year cost of the tax cuts Republicans tried but failed to push through Congress last year was $177 billion.
The new numbers mark the latest in a rolling series of revisions by CBO and virtually all other forecasters who have consistently underestimated the combined effects of the current economic boom, the soaring stock market and the slowdown in growth of big government spending programs such as Medicare. In effect, the government has been showered with unexpectedly large tax receipts at the same time that low inflation, low interest rates and years of incremental belt-tightening have slowed federal spending.
CBO Director June O'Neill is scheduled to announce the numbers in testimony before the Senate Budget Committee today. O'Neill is set to leave her post today after a four-year term. Congressional officials said lobbyist and former GOP political aide Dan Crippen will be named to succeed her next week.
The CBO's forecast is replete with news, all good. In the agency's forecast last fall, there was no surplus in the non-Social Security side of the budget until 2005. Now, CBO projects a surplus in 2001. Counting the money generated by the excess payroll taxes being collected to prepare Social Security for the onslaught of baby boomer retirements in the next century, the federal government's 10-year surpluses amount to a staggering $2.6 trillion.
Many economists are extremely wary of relying on budget projections beyond a year or two, and they regard 10-year projections as just short of science fiction.
"A 10-year projection is a treacherous thing," said Bruce Steinberg, chief economist for Merrill Lynch & Co. "I wouldn't count on us having these extraordinary surpluses for as far as the eye can see."
"Obviously, projections of surpluses are a lot better than projections of deficits, but there are many things that could go wrong," said Tom Kahn, Democratic chief of staff for the House Budget Committee. "We could go into recession, the stock market could drop, the Asian flu could spread," he said, referring to the economic collapse in Asian nations. "We need to be very cautious about either using projections for spending increases or tax cuts."
The federal government recorded its first overall budget surplus in 29 years last year, only the ninth time since the end of World War II. The last time the nation saw a string of back-to-back surpluses like the ones CBO is now forecasting was in the years before the Great Depression, when the government ran 11 surpluses in a row from 1920 to 1930.
© Copyright 1999 The Washington Post Company