Shrinking surplus hits US budget plan

Senators Conrad and Daschle have criticised the Bush tax cut

By BBC News Online's North America Business Reporter, David Schepp

The heyday of the budget surpluses enjoyed by the US government in the past few years may be drawing to a much-lamented close.

As the economy cools and tax receipts dwindle, sceptics of the Bush tax cut now wonder if the country won't soon revisit the deficits it struggled so hard to overcome in the 1990s.

The shrinking surpluses have resulted in stinging charges from Democrats that the Bush administration will have to raid Medicare surpluses to pay for its tax-cut scheme.

Last week, Treasury Secretary Paul O'Neill acknowledged that the federal government was raking in less cash. "Clearly the revenue rates are a little bit lower," he said.

White House economic advisor Lawrence Lindsey also admitted that the economic slowdown has had the effect of reducing the government's take in taxes.

Appearing on CNN, Mr Lindsey sought to reassure the American public by noting the debt is still being paid off.

"Remember, we're paying off debt to the tune of $150bn to $250bn a year for this decade," he said. "That is the biggest surplus that we have ever had in history, and by any measure that is very, very tight fiscal management."

How big is the remaining surplus?

Figures for the 2000 fiscal year, which concluded on 30 September, show the federal government took in $2.03 trillion and spent $1.79 trillion, resulting in a surplus of $236.9bn for the year.

But the surplus for 2000 is not as large as it seems. Built in to the budget-surplus total are amounts dedicated to Social Security, the nation's retirement programme, and Medicare, the government healthcare scheme for the aged.

After subtracting for those amounts, the budget surplus amounts to a much smaller $58bn.

Critics of the Bush fiscal policies say the president's 10-year, $1.35 trillion tax cut relies on surpluses from Social Security and Medicare, to offset the drop in tax revenues.

According to the chairman of the Senate Budget Committee, Senator Kent Conrad, even that figure is overly ambitious.

Experts express doubts

Mr Conrad said his figures reveal a surplus of just $18bn once surpluses for Medicare and Social Security and the Bush tax cut are taken into account.

The North Dakota senator followed up his findings with harsh criticism for the Bush administration, saying the White House "was on the brink of raiding the Medicare trust fund" and accused Bush officials of "fiscal mismanagement on a grand scale".

It is a charge the White House vehemently denies. Mr Lindsey has said Mr Bush has made it clear "every dime in Medicare money should be spent on Medicare - and there will be no raiding of Social Security".

Outside experts have said, however, dipping into Medicare surpluses is inevitable - at least for this year. They say the administration's margin for error, at a comparably small $10bn, in a $2 trillion dollar budget is too fine.

The debate is likely to pick up fervour now that Congress has returned from its 4 July recess.

Furious debate

The president's figures will come into further scrutiny later this week when the director of the Office of Management and Budget (OMB), which assists the president in preparing a yearly budget, testifies before Congress.

White House watchers expect sparks to fly well into next month as Democrats and Republicans exchange barbs over who is truly watching out for the fiscal welfare of US taxpayers.

"I predict that in August we will have a furious debate over duelling [budget] baselines," said Robert Bixby, executive director of the Concord Coalition, a non-partisan group that seeks to ensure the viability of Social Security and Medicare.

"The wake-up call is coming sooner than expected," Mr Bixby said.