US Surplus Down: Democrats Prophesy Doom; Republicans Chipper

by Mike Godfrey

23 July 2001

On Friday, while one part of the U.S. Treasury Department was busy mailing the first batch of tax rebates of up to $600 per household, part one of President George W. Bush's 10-year, $1.35 trillion tax cut, in another part of the forest the Department reported that the government's surplus last month came to $31.9 billion. That's 43 percent lower than the $55.9 billion surplus posted in June 2000.

Corporate income taxes have fallen along with corporate profits, reducing corporate income tax payments in June to $29.9 billion, a 26 percent drop from the $40.5 billion collected in June 2000. Individual income tax payments were down by 6.8 percent, totaling $93.7 billion last month, against $100.5 billion a year ago.

In Louisiana, a typical state and due to receive about $600m in rebates, local economics professor Bruce Cofer said that the refunds would cause just a ripple of economic activity - he explained that to rev up the local economy to a point where it's running full throttle, there have to be more fundamental shifts that help the manufacturing base. On a macroeconomic level, there must be fundamental changes like lower interest rates and fuel costs, not just a one-time cash infusion, Cofer said. Federal Reserve Chairman Alan Greenspan signaled Wednesday there might be another interest rate cut in the near future; in the last six months, the Federal Reserve has lowered short-term rates six times. Cofer said it usually takes six months for a lowering of rates to take full effect on the economy. "We're just now getting to that point," he said.

House Minority Leader Democrat Richard Gephardt hinted Saturday that tax increases will be on the horizon if Democrats gain control of the U.S. House in next year's elections. The Congressional Budget Office will issue a report this month predicting that budget deficits are going to appear in about six months, said Gephardt. An effort to raid Medicare and Social Security funds will likely be made if a deficit occurs, he said.

Congress in 1993 raised income and gas taxes to reduce a budget deficit. Gephardt on Saturday said that while the 1993 vote cost Democrats the majority in the House of Representatives, it was the right thing to do. Democrats will likely face a similar vote if they gain a House majority in 2002, Gephardt said, conveniently ignoring the fact that there was a Democrat President in 1993.

The dwindling surplus projections have prompted a partisan fight over what to do about them. On Thursday, White House economic adviser Lawrence Lindsey accused Senate Budget Committee Chairman Kent Conrad and other Democrats of threatening tax increases that could cause "economic disaster."

Conrad, D-N.D., fired back Friday, saying he has never advocated boosting taxes in a weak economy and repeating accusations that the Bush tax cut is driving the budget "back into the deficit ditch."

June's surplus was slightly larger than the $30 billion projected by the CBO, but was smaller than the $36.5 billion expected by private economists. Receipts totaled $202.9 billion last month, and spending came to $171 billion. In May, the government posted a deficit of $27.9 billion, unchanged from Treasury's previous estimate.

Through the first nine months of this budget year, which began Oct. 1, the government is running a surplus of $168.9 billion, down from $176.5 billion for the corresponding period last year. The budget surplus for the 2000 fiscal year, which ended Sept. 30, was $236.9 billion.

A surplus for 2001 would mark the fourth consecutive year the government has finished in the black, a stretch last accomplished during an 11-year string of surpluses that ended with the $738 million surplus of 1930. The Congressional Budget Office estimated that the 2001 surplus will fall below $200 billion. President Bush's budget chief, Mitchell Daniels, said the figure could be as low as $160 billion. Regardless, it would still be the second biggest surplus ever, trailing only the $236.9 billion rung up in 2000.

Even if the 2001 surplus is as low as $160 billion, Treasury Secretary Paul O'Neill, appearing on CNN Friday, said: "In a time of very slow economic growth, it's a fantastic situation.... So I think it's pretty good."

You pays your money and you takes your choice. Perhaps it's a good thing there are only two political parties in the US, or the number of contradictory economic postures adopted by politicians would become bewildering.

.

Recommended

Write a comment