A Surplus of Anxiety: What the numbers mean for Bush's hopes - Bush administration budget surplus projections are revised downward

National Review, Sept 17, 2001 by Byron York

The morning after the Office of Management and Budget unveiled the administration's new-and dramatically lower-projections for the budget surplus, the White House communications office began holding daily strategy sessions aimed at winning the public-relations war with Democrats over the surplus, spending, and Social Security. The "huddle"-don't call it a "war room" or you'll be corrected by Bush aides-meets every morning at 9:30 to come up with talking points to send Republican allies on the Hill.

"Will the new budget numbers prevent the president from helping those who need health care?" asks one talking-point question. The answer: No. Another question: "Many say that the new budget numbers will prevent the president from funding a prescription drug benefit for seniors. Is this true?" The answer: No. A third question: "Many assert that the new budget numbers will prevent President Bush from funding his increases in military spending. Is this true?" Again: No.

Of course, Democrats are pounding out their own talking points-"George W. Bush has changed the tone in Washington, back to the days of budget gimmicks and rosy scenarios," says chairman Terry McAuliffe in a special message from the DNC-and some Democrats are trying to figure out how to bash Bush for a tax cut they supported (and that would have reduced the surplus even more this year had they gotten the bigger rebate checks they wanted). But the spinning is just one part of a much bigger story that will consume Washington this fall, and that is the administration's bet-the-bank prediction that the economy will grow fast enough next year to sustain White House budget priorities. Virtually everything George Bush wants to do as president depends on it.

Budget chief Mitch Daniels said as much when he handed out the new surplus projections on August 22. "I would simply note that economic growth is the key to continuing this very strong fiscal picture," Daniels told reporters. "We'll all be very watchful on economic trend data on which our surpluses, the trust funds of our entitlement programs, and all our hopes for continued meeting of the nation's priorities ultimately depend."

Daniels's concern is well placed. Just look at what the latest economic numbers did to the budget predictions the White House made last April. At that time, the administration, assuming economic growth this year would be 2.4 percent, estimated the 2001 surplus at $281 billion. Now, with economic growth assumed to be 1.7 percent, that number is predicted to be $158 billion. Not all the difference came from the slowdown; the surplus was reduced by $40 billion because of the tax cut, $28 billion because of a congressional decision to hold over some tax revenues until next year, and $9 billion because of additional spending on defense, farm aid, and a few other things. But the largest single portion of the decline-$46 billion-was the result of lower revenue projections owing to the economic slowdown. And if it turns out that 2001 economic growth is even less than 1.7 percent, the final surplus number could be smaller still.

The White House is predicting that the economy, stimulated by tax cuts, will grow at a 3.2 percent annual rate next year. "The tax rebate checks have just begun to go out. The first installment of rate relief is only just occurring," Daniels said in an August 27 conference call with reporters. "The Fed has also acted aggressively. And many economists think that these are just the kind of changes necessary to jolt growth back solidly into the plus column." Daniels said the administration's 3.2 percent forecast is in the "mainstream" of economic opinion, but he conceded that the Congressional Budget Office's lower forecast-for 2.6 percent growth-was just as reasonable.

But if the White House had based its projections on an estimate of 2.6 percent growth, the budget numbers wouldn't have added up. Now, since it has committed to the 3.2 percent growth rate for 2002, the administration has increased the chances it has overestimated the economy's actual strength. "If I'm the White House, both from a political and an economic point of view, I'm not going to project 3.2 percent," says Steve Moore of the pro-tax-cut Club for Growth. "I would expect the worst and hope for the best, and they're expecting the best."

Maybe the best will happen. But in the long run, it might be a good thing if it didn't, because a further reduced surplus might be necessary to restore a measure of sanity to an economic debate that is, even by Washington standards, simply crazy.

The White House and both parties in Congress are pretending to "protect" Social Security by not spending the Social Security surplus. But the Social Security system is perfectly healthy right now, and there is no way to put that surplus money in a savings account-the fabled "lockbox"-for the future, when the system will be in crisis. Instead, the extra cash is being used to pay down the national debt. So far, the White House and its allies in Congress have done a good job of explaining that there simply is no Social Security lockbox, that it was simply a turn of Al Gore's rhetoric. But they have failed to go the next step, which is to ask: Why, if the government is running a $158 billion surplus, has the administration vowed to set aside $157 billion of it to pay down a debt that doesn't particularly need repaying- especially in a time of economic downturn, when the money could be used for other things? Why pretend that a surplus of nearly $160 billion is not really a surplus at all?