White House foresees US growth spurt

Can Bush see the tax wood for the trees?

The Bush administration has made the first move in what promises to be an acrimonious budget battle this year, by saying that economic growth will almost double next year to 3.2%.

According to the White House, the additional government revenue that will accrue will both cover the expense of the huge tax cut President George W Bush introduced earlier this year, and safeguard the Social Security budget.

Even with the economic slowdown, the budget will have the second-largest surplus in history, and the only way the Social Security surplus will be spent is if Congress breaks the budget

Ari Fleischman, the president's press secretary

Opposition Democrats, who now control the Senate, have warned that they believe the $1,350bn (£935bn) tax cut and the slowing economy will put the near-sacrosanct Social Security system at risk.

Senior Democrats lost no time in denouncing the figures, pointing out that they were rather more optimistic than most economists' forecasts.

Social Security pays for the healthcare and living expenses of the elderly in the US, and is seen as a political powderkeg.

Growth back on track?

In a preview of the so-called mid-session economic snapshot, to be released by the White House next week, a spokesman said the budget will in fact show a small operational surplus overall.

Congress will release its own budget proposals later this month.

The overall surplus will undercut 2000's record $236.92bn figure, the spokesman said, although he would not provide a more exact figure.

The additional growth - 3.2% over this year's projected 1.7%, according to the White House - will safeguard that figure, the administration hopes.

It sold the tax cut as a way of stimulating the economy, even though the main issue in the US's economic slowdown has been corporate under-investment and a ballooning trade imbalance rather than weak consumer demand.

Budget protection

The Social Security budget, though, which goes to support the elderly, will show a surplus of about $157bn-160bn, he said.

"Even with the economic slowdown, the budget will have the second-largest surplus in history," said Ari Fleischman, the president's press secretary.

"And the only way the Social Security surplus will be spent is if Congress breaks the budget."

The tax cut, he said, was insurance against this temptation, in that it put money out of reach of Congressional lawmakers.

The comment incensed senior Democrats, with the party's leader in the House of Representatives, Richard Gephardt, saying the Bush administration "will twist and turn the numbers" to avoid revealing that the tax cut "has put him on a path headed straight for the Medicare and Social Security surpluses".

Accounting "gimmick"

An accounting change also has opponents up in arms, which has shifted back payments on payroll taxes for Social Security out of this year's budget and into the 1998-2000 budget, lifting this year's non-Social Security allocation by $4.3bn.

Mr Fleischman admitted this could make the difference between surplus and deficit in that segment of the budget, although he said it was merely a way of making the administration's book-keeping more accurate.

But that failed to satisfy opponents, who said the move - which they dubbed a "gimmick" - was necessitated by an earlier decision to shift the deadline for $33bn in corporate taxation into 2002, depressing the non-Social Security budget.