Budget Office Projects Bigger Surpluses

WASHINGTON —  In a report certain to jump-start the federal budget debate, the Congressional Budget Office will release estimates today that echo President Clinton’s predictions of massive budget surpluses for the next 10 years.

The nonpartisan agency, Congress’ official estimator of spending and deficits, projects that the net budget surplus will be $107 billion this year and $2.6 trillion over the period from 2000 to 2009.

That is dramatically higher than the budget office’s own projections of just a few months ago. The estimates validate those of the White House and suggest that there is a consensus among government economists on the direction of the economy.

The higher surpluses reflect a combination of lower government spending and continued growth in the economy, resulting in higher tax revenues and lower debt payments.

After more than a year of pushing Congress to “save Social Security,” Clinton in this year’s State of the Union address proposed using 62% of the surplus for Social Security and appears to have succeeded in getting broad support for that idea even among Republicans. Now the fight centers on what to do with the balance of the surplus.

Congressional Republicans are eyeing the “on-budget” surplus, the federal accounts independent of the massive Social Security trust funds, and proposed again Thursday using the money to cut taxes. The on-budget surplus will total $787 billion over the next 10 years.

Clinton wants to preserve the on-budget surplus to help shore up the Medicare trust fund, which pays for health care of the elderly and disabled, as well as to bolster defense spending and other domestic programs.

“We’ve clearly succeeded in our long battle to balance the budget,” said Sen. Pete V. Domenici (R-N.M.), chairman of the Senate Budget Committee. “Now we face a new test: Over the next 10 years the federal government will build up a $2.5-trillion surplus . . . ; $1.8 trillion belongs to Social Security and must be used to shore up the retirement system. The remaining $700 billion are excess federal tax revenues. We’d better cut taxes and send this money back to the taxpayers quickly or else Washington will spend it.”

Democrats viewed the surplus projections as a credit to Clinton’s budget policies and a chance to save crucial entitlement programs.

“These new numbers are further proof that President Clinton’s policies are on the right course,” said Sen. Frank R. Lautenberg (D-N.J.), the ranking minority member of the Senate Budget Committee.

“Now we have to build on them and prepare for our nation’s future. . . . That means saving Social Security, strengthening Medicare and cutting taxes for ordinary Americans to encourage savings,” Lautenberg said.

Despite the rosy projections, there is much uncertainty about whether surpluses on this scale will materialize, according to a number of economists, including Federal Reserve Chairman Alan Greenspan. The budget office’s estimates do not project any major recessions, emergency spending measures or increases in overall spending by the government. The estimate also assumes that inflation will remain low during the 10-year period.

“Budget projections beyond six months are more fantasy than fact. When it’s longer than a year or two, it’s science fiction or at least wishful thinking,” said Stan Collender, managing director of the federal budget consulting group at Fleishman-Hillard, a government relations and communications firm.

The budget office’s new estimates show annual unified surpluses--that is the Social Security and on-budget surpluses together--of $200 billion or larger starting in 2003 and stretching beyond the budget horizon.