*EPF308 01/23/2002
Congressional Budget Office Projects Smaller Budget Surpluses
(Forecasts growth returning, accelerating) (540)

By Andrzej Zwaniecki
Washington File Staff Writer

Washington -- The U.S. government will run dramatically smaller surpluses in the next decade than projected just one year ago, a non-partisan congressional analytical office says.

In January 23 testimony before the Senate Budget Committee, Congressional Budget Office (CBO) Director Dan Crippen said that the recession coupled with additional spending has reduced the estimated budget surpluses for fiscal years 2002 through 2011 by 71 percent.

Factoring in the overall economic outlook, Crippen said that the current recession is likely to be "mild" with the annual growth rate of real (inflation-adjusted) gross domestic product (GDP) accelerating from 2.5 percent in 2002 to 4.3 percent in 2003, and growth rates averaging 3.1 percent between 2002 and 2012.

But the federal government will face immediate fiscal pressure in this and the next fiscal year, for which CBO forecasts deficits instead of the surpluses projected earlier, Crippen said. These deficits, however, are expected to be relatively small, he said, amounting to 0.2 percent of GDP in 2002 and 0.1 percent of GDP in 2003.

The U.S. government, which has run budget surpluses since 1998, should continue the trend after the two-year break, Crippen said.

He said that the projections have been revised mostly as the result of the tax cuts enacted in June 2001, additional spending -- including funds appropriated in response to the terrorist attacks in New York and Washington -- and increased costs of federal debt servicing. But the worsening economic outlook contributed significantly to the drop, Crippen added.

The CBO projections are likely to provide fuel for a partisan debate in Washington on who is to blame for the government's dramatic shift from budget surpluses to budget deficits.

Democrats have blamed the Bush tax cuts for the problem while Republicans have defended administration policy by depicting it as stimulating the economy and giving due emphasis to national security.

White House spokesman Ari Fleischer, commenting on Crippen's testimony, defended the tax reduction as "absolutely essential to get the economy growing again."

"It should surprise nobody that the size of the surplus has been diminished by the size of the tax cut, as advertised," he said. "The purpose of federal governments is not to run surpluses that are gargantuan, taking more money away from the American people."

For 2003-2012, Crippen said CBO estimates a surplus of nearly $2.3 trillion, or 3.7 percent of GDP. But he added that almost half of that amount comes from the surpluses projected for the last two years of the period, and is thus "the most uncertain." Crippen said that surpluses actually do not materialize until 2010, unless the expected positive balances of Social Security funds are included.

These surpluses reflect the scheduled expiration in December 2010 of the recent tax cuts, Crippen said. With the tax cuts extended, the total 10-year budget surplus would fall by 30 percent, he added.

Crippen cautioned that the CBO projections "will almost certainly" differ from actual budgets because of likely changes in economic growth rates and tax and spending policies.

His testimony was based on "The Budget and Economic Outlook: Fiscal Years 2003-2012" report, which is to be released January 31.

(The Washington File is a product of the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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