Saving the Surplus
Wednesday, January 31, 2001
by Dr. Liqun Liu, Dr. Andrew J. Rettenmaier, and Thomas R. Saving
Table of Contents
A Closer Look at the Surplus
In July of this year, the Congressional Budget Office (CBO) issued three new estimates of federal finances, updating its earlier estimates with an even rosier picture of the future. The CBO projects that between 2001 and 2010, the federal government will collect between $4.6 trillion and $5.8 trillion more than it spends.1
"The fundamental choice is between using Social Security surpluses to pay down the debt and using them to prepay future benefits."
Figure I presents the CBO's most conservative estimates of the budget surplus between now and 2010. Like the other two forecasts, federal tax collections remain steady at about 20 percent of gross domestic product (GDP). In this estimate, discretionary spending on things like national defense is assumed to grow at the rate of inflation after 2000. As a result, discretionary spending falls from 6.2 percent to 5.2 percent as a share of GDP between 2000 and 2010. The other category that contributes significantly to the overall size of the surplus is the spending on interest payments.
- From 2000 to 2010 interest payments as a percentage of GDP fall from 2.3 percent to 0.4 percent.
- Over the same period the cumulative surplus will total at least $4.6 trillion.
- Of that total the Social Security surplus accounts for $2.4 trillion and the non-Social Security surplus for the remaining $2.2 trillion.
In the CBO's forecasts, the total budget surplus in each year - the combination of non-Social Security and Social Security surpluses - is used to pay down the existing federal debt held by the public.2