-Caveat Lector- New York Times October 1, 2001
In a Rapid Shift, Budget Surplus Is Expected to Turn Into Deficits By RICHARD W. STEVENSON WASHINGTON, Sept. 30 — Analysts inside and outside the government say the large federal budget surpluses of recent years are likely to give way to a deficit in the fiscal year that starts on Monday, a stunningly swift turnabout brought on by the weakening economy and the costs of the campaign against terrorism. The Congressional Budget Office expects the government to run a surplus of about $121 billion in the year that ends today, down from $236 billion the year before. For the coming 12 months, analysts are forecasting that the government at best will balance its books after paying for military action, relief and reconstruction efforts and an economic stimulus package, and probably will spend tens of billions of dollars more than it takes in through taxes. As recently as the spring, before the passage of President Bush's $1.35 trillion 10-year tax cut and before the extent of the economic slowdown became clear, the budget office was projecting a surplus for the coming year of $304 billion. Although there is bipartisan consensus that the nation should spend what is needed after the attacks on the World Trade Center and the Pentagon, the shift in the budget outlook could have considerable economic and political effects in the long run. Already the goal of paying off most of the $3.3 trillion national debt has been questioned. Proposals like helping retirees pay for prescription drugs have been postponed. The Social Security lockbox has been cast aside, leaving unclear how Congress and the administration will deal with the rising costs of paying retirement benefits to an aging population. In the long run, the two parties no doubt face an intense fight over how best to get the government back on a track of surpluses, and how scarcer money should be allocated. An analysis by Democrats on the House Budget Committee last week concluded that the roughly $2 trillion federal budget in the coming year would be $8 billion in deficit under optimistic assumptions about the economy and the costs of the response to the terrorist attacks, and $70 billion in deficit under pessimistic assumptions. Goldman Sachs, the investment firm, on Friday projected a deficit for next year at $25 billion, with a substantial risk that it could be higher. Stanley Collender, managing director of the Federal Budget Consulting Group at Fleischman-Hillard, the public relations firm, said it was difficult to come up with a course of events in which the surplus is not wiped out next year. "It's hard to dispute the notion that a balanced budget is the best you can do," Mr. Collender said. "More likely you end up with a budget deficit." Projecting budget surpluses and deficits even a year ahead is an extremely imprecise business, and there are more uncertainties than usual this time, including the nature and duration of the fight against terrorism and the depth of the economy's problems. But even if the government ends the coming year without posting a deficit, it is very unlikely to return quickly — or perhaps at all — to the situation that existed just a month ago, when both parties assumed they could count on large and growing surpluses to pay for a variety of initiatives. Even one bad year could eat deeply into the projections of $3.4 trillion in excess revenues for the next decade. When the economy is weak, unemployment goes up and people who are working earn less money, cutting into government revenues from income taxes and the payroll taxes that finance Social Security and Medicare. A decline in corporate profits leads to an erosion of corporate income tax revenues. A stagnant or declining stock market means people have fewer capital gains. At the same time, government expenditures tend to go up when the economy weakens or goes into recession. Payments for unemployment and welfare benefits, for example, rise. As a result, the surplus shrinks, or the deficit increases, both from declining revenues and increasing costs. Smaller surpluses or bigger deficits also increase the interest payments the government must make on its debt, exacerbating the problem. Members of both parties said it was entirely appropriate for the government to run a deficit for a year or two under the circumstances. There are no higher priorities, they said, than national security and reestablishing economic growth. Asked about the prospect of running a deficit, Ari Fleischer, President Bush's spokesman, said the nation was fortunate to enter this period having money available from the surplus to put to work fighting terrorism and reinvigorating the economy. "The president's priority is to take the necessary steps to protect this nation in the wake of the attack," he said. "The budget implications of that remain to be precisely determined, and those will also substantially be driven by the strength of the economy." Gene Sperling, who was President Bill Clinton's economic policy adviser, said that one reason for running surpluses in the first place "is to be able to unload your fiscal cannon and load your military cannons when you're in a time of crisis." In coming up with its projection of a $25 billion deficit for the coming year, Goldman Sachs said the most recent official forecast by the Congressional Budget Office for a surplus of $176 billion has already been reduced substantially. Of the $40 billion in emergency spending for the military and relief efforts passed by Congress this month, about $26 billion will come from the coming year's budget. An expected economic stimulus package, plus aid to the airline industry and lower expectations for economic growth, will shave another $110 billion off the surplus, the investment firm estimated. Goldman Sachs said it expected the remaining $40 billion surplus to be wiped out by further deterioration in the economy and a drop in revenue from capital gains taxes caused by the stock market's decline. Although it is projecting a deficit of $25 billion, Goldman Sachs said the risks were "skewed heavily toward an even larger budget deficit in the coming year." The forecast by the Democratic staff of the House Budget Committee is built largely on the possibility that the economy does not generate as much tax revenue as in recent years, even after adjusting for a slowdown in economic growth, because of the weak stock market. "Stock prices have now fallen dramatically and may stay low given the uncertain climate going forward," the forecast said. "As a consequence, tax revenues related to surging income from capital gains, stock options, bonuses and corporate profits may now dwindle." But even before the budget outlook for the next year comes precisely into focus, the two parties are laying the groundwork for a debate about how to restore the government to a stronger fiscal condition in the long run. Democrats say the government should allocate as much money as necessary now to military needs and to a package of tax cuts and new spending to help the economy recover. But they said short-term stimulus needs to be accompanied by a commitment to running surpluses and paying down more debt in the long run. Moreover, Democrats said, the nation still faces the same long-term fiscal challenge it faced before Sept. 11 — paying retirement benefits to a rapidly aging population. Within the next two decades, Social Security will no longer be able to cover full benefits out of the taxes it collects. Steve Wingate, Webmaster ANOMALOUS IMAGES AND UFO FILES http://www.anomalous-images.com <A HREF="http://www.ctrl.org/";>www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substance—not soap-boxing—please! These are sordid matters and 'conspiracy theory'—with its many half-truths, mis- directions and outright frauds—is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRLgives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credence to Holocaust denial and nazi's need not apply. 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