08/17 17:18 U.S. to Tap Social Security Surplus, Hoagland Says (Update3) By Rob Wells and Ryan J. Donmoyer

Washington, Aug. 17 (Bloomberg) -- The U.S. will use Social Security surpluses to pay for ordinary operating expenses this year, the Senate Budget Committee's top Republican staff member said, contradicting Bush administration estimates.

The 2001 budget may dip into the Social Security surplus by $3 billion to $4 billion ``by our back-of-the-envelope calculations,'' William Hoagland, the budget panel's Republican staff director, said in an interview. He cited the slowing U.S. economy, spending from the new farm bill, and $74 billion in tax cuts taking effect this year.

The administration says President George W. Bush's $1.35 trillion, nine-year tax cut will help revive growth. The economy expanded at a 0.7 percent annual rate in the second quarter and has grown less than 2 percent for four straight quarters, the worst performance since the 1990-91 recession. Still, Treasury Secretary Paul O'Neill said the government will show a budget surplus this year of about $160 billion.

Dipping into the Social Security surplus would be a setback for the administration's pledge to protect the retirement system's funding.

``It certainly does present a political problem,'' said Robert Bixby, executive director for the Concord Coalition, a nonpartisan budget research group.

Smoking Gun

The size of the bite from the surplus isn't material. The fact that it will happen is, Bixby said. ``The circumstantial evidence is, you're standing over the body with a smoking gun.''

The diverging outlooks follow an administration projection that economic growth will almost double to a 3.2 percent rate, from 1.7 percent, in the next year. Officials are counting on the stimulus of Bush's tax-cut package, which kicked in this year with $300 checks to each taxpayer.

That estimate exceeds the 2.8 percent forecast in a survey by Blue Chip Indicators. The Congressional Budget Office will release its own budget estimates Aug. 28.

White House press secretary Ari Fleischer said most of this year's $160 billion budget surplus will come from Social Security taxes, with a small amount of it being a surplus on operating expenses.

``The White House calculations indicate unequivocally that the president's budget will create the second-largest surplus in our nation's history,'' Fleischer said. He said netting the Social Security surplus with the cost of ordinary operations, which are funded with income tax revenue, is the ``traditional, historical way it's reported.''

`At the Edge'

Hoagland said that while the staff doesn't know what the budget office's new estimates will be, preliminary work suggests that ``we would be right at the edge and potentially slightly into Social Security.''

The tax cut, signed into law June 7, will take $74 billion from the budget surplus funds in the 2001 fiscal year to pay for the advance-refund checks and adjustment of tax withholding schedules to account for lower tax rates, Hoagland said.

The slowing economy will mean tax receipts will drop by $35 billion to $40 billion, Hoagland said. ``It's all because of the drop-off of corporate receipts,'' he said.

The White House Office of Management and Budget said it has recalculated its surplus estimates to reflect a surge in tax revenue in 1998 through 2000. ``This is the way it should be done for accuracy's sake,'' said Amy Call, an OMB spokeswoman.

Bush will address the budget and social security in a speech Tuesday in Independence, Missouri.

O'Neill Retort

O'Neill rejected suggestions the administration would have to dip into Social Security. ``It's not clear to me that CBO is going to say we're dipping into Social Security,'' he said in an interview on CNN'S ``Evans, Novak, Hunt & Shields,'' which airs tomorrow.

The federal budget surplus ``is still looking like $160 billion'' in this fiscal year, the Treasury secretary said.

``It's really quite good that we're able to run a $160 billion surplus when we have effectively zero growth in the economy, or something close to that,'' O'Neill said. ``But what it means is, we're going to generate substantial surpluses beyond Social Security revenues when the economy returns to a more natural rate of real growth.''

O'Neill said the Bush administration won't support Republican proposals in Congress to cut the capital gains tax.

``At the moment, unless somebody's got some magic way to free up some money that's otherwise being spent, then there's not room'' for more tax reductions, O'Neill said.

The Concord Coalition's Bixby said the Bush administration runs a political peril if its predictions prove wrong and the government dips into the Social Security surplus.

Twice Burned?

The Bush administration is ``going to take a hit for using a rosier scenario,'' said Bixby. ``If you use an optimistic scenario and you're wrong, you get burned twice.'' He said that those projections aside, ``if conservative estimates happen to show a drop in the non-Social Security surplus, that's something we need to know.''

The decline in corporate profits, and a corresponding drop in tax receipts, is changing the nature of the budget debate, one analyst said.

``It is remarkable how quickly the numbers change, particularly because you haven't had a really meaningful increase in the unemployment rate,'' said Andrew Laperriere, an analyst for International Strategy and Investment in Washington. The unemployment rate is currently 4.5 percent, up from 4 percent 12 months ago.

There may be a silver lining for Republicans who want to curb government spending, Laperriere said.

``On one hand, it gives Bush a black eye for the tax cut. On other hand, it strengthens his hand this fall when negotiating spending bills,'' Laperriere said.

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20World%20News&s1=blk&tp=ad_topright_topworld&T=markets_bfgcgi_content99.ht&s2=ad_right1_windex&bt=ad_position1_windex&middle=ad_frame2_windex&s=AO32KHhSOVS5TLiB0

-- Martin Thompson (mthom1927@aol.com), August 17, 2001

Answers

What surplus? The future outlays for Social Security are enormous. If corporations ran their business as the government, the officers would be in the state pen. I would like to see an insurance company pull this stunt.

-- David Williams (DAVIDWILL@prodigy.net), August 18, 2001.

This kind of funny business is why I am counting on ZERO Social Security income when I retire.

-- Margaret J (mjans01@yahoo.com), August 18, 2001.

08/27 15:40

U.S. to Use $9 Billion From Social Security, CBO Says (Update2) By Laura Litvan

Washington, Aug. 27 (Bloomberg) -- The federal government will spend $9 billion of the Social Security trust fund to pay for other government operations this year, the Congressional Budget Office will report tomorrow. Such a move would violate a promise by lawmakers of both parties not to use Social Security receipts for other purposes.

The non-partisan CBO, in a 65-page report prepared for Congress, says the overall U.S. surplus will drop to $153 billion for the fiscal year ending Sept. 30. That's 44 percent less than a May estimate of $275 billion, and it's $5 billion less than what the Bush administration projected last week.

The shrinking surplus comes as the president and both parties in Congress seek political advantage going into next year's mid- term elections. The first test comes next month, when legislators decide between cutting funds for some programs or breaking their Social Security pledge.

CBO estimated next year's surplus at $176 billion, with all but $2 billion coming from Social Security.

``This has a devastating effect on the budget debate,'' said Stan Collender, a budget analyst with Fleishman-Hillard Inc. ``It leaves no one room to maneuver and everyone a chance to point a finger at somebody else to blame them for what happened.''

Turning Up the Heat on Bush

Democrats in Congress are turning up the political heat on President George W. Bush, maintaining that it will be up to him and congressional Republicans to offer a plan to complete the budget for next year without ``raiding'' Social Security or a separate trust fund for Medicare projected to run a fiscal 2002 surplus of $38 billion.

``What the CBO confirms today is what we've been saying all along: that the Bush budget will force an invasion of the Social Security and Medicare trust fund surpluses,'' said Representative John Spratt, top Democrat on the House Budget Committee. He blamed Bush's $1.35 trillion tax cut for creating a ``spartan'' budget climate that will thwart plans to create a Medicare prescription drug plan for seniors, boost funding for medical research and defense, or improve other programs.

The Social Security retirement system is currently running a surplus because receipts from payroll taxes exceed the benefits being paid out. That will change by 2018, when many of the 76 million baby boomers are collecting benefits. The government has used some of those funds to provide for more spending in the past without defaulting on benefits to seniors.

Less Growth, Less Revenue

The CBO estimates the surplus over the next decade will be $3.4 trillion, down from $5.6 trillion in the May estimate. The decline stems from a slowing economy and reduced revenue for the government due to Bush's $1.35 trillion tax cut.

In making its new surplus forecast, the CBO is assuming the economy will grow at a 1.7 percent annual rate this calendar year, after adjusting for inflation. In January, the agency expected growth this year to reach 2.4 percent.

Next year, the agency assumes the economy will continue to skirt a recession, with real gross domestic product growing at 2.6 percent. The White House estimated growth at 3.2 percent.

Over 10 years, growth will average about 3.2 percent, the agency said, up from 3.1 percent assumed in January.

The tax cut accounts for much of the decline in the surplus over the 10-year period. In addition to the $1.35 billion in lower revenue, the tax cut helps boost interest on the debt by $413 billion. Congress approved new spending this year that gobbles up another $83 billion over the next decade.

The slowdown in the economy will shave $283 billion off the surplus between fiscal 2002 and fiscal 2011, the agency said. Of that, $48 billion will be in fiscal 2002.

The agency said debt held by the public would drop from about $3.3 trillion this fiscal year to $876 billion in fiscal 2011 under its new economic assumptions.

Last week, the White House released a slightly different set of numbers, forecasting a surplus of $158 billion this fiscal year and a surplus outside Social Security of $1 billion. The differences between the two agencies stem, in part, from different assumptions in accounting for Social Security tax payments.

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20World% 20News&s1=blk&tp=ad_topright_topworld&T=markets_bfgcgi_content99.ht&s2 =ad_right1_windex&bt=ad_position1_windex&middle=ad_frame2_windex&s=AO4 qiIRRHVS5TLiB0

-- Martin Thompson (mthom1927@aol.com), August 27, 2001.