NCPA - National Center for Policy Analysis

Will The Budget Surplus Evaporate?

June 20, 2001

Federal budget watchdogs are coming to the grim conclusion that the budget surplus is disappearing. They warn that many of the government's official budget numbers are suspect, at best.

There are several warning signs. The true effect of the just-passed tax-cut bill on the budget may be understated -- perhaps by hundreds of billions of dollars. Then any rosy budget scenario assumes that somehow Congress will keep spending increases for the next decade to roughly half of the average of the last couple of years -- and that the Bush administration won't weigh in with big new defense spending or substantial emergency-spending requests.

According to a Concord Coalition analysis:

  • After deducting $3.1 trillion over the next decade to take care of the Social Security trust fund and Medicare, the $5.6 trillion surplus is reduced to $2.7 trillion.
  • The new tax cut is advertised to take $1.35 trillion of that over the next 10 years -- but such far-off forecasts can be tricky.
  • Moreover, Congress is expected to extend some widely popular tax breaks that would otherwise expire, as well as adjust the alternative minimum tax -- steps which would take another $350 billion from the surplus.
  • Increasing discretionary federal spending so that its share of the overall economy remains the same would require another $840 billion -- and that's on top of $400 billion for such items as a Medicare prescription-drug benefit and billions more to service debt that won't be paid off as a result of the shrinking surplus.

Add it up, and the budget plan's $500 billion "contingency fund" is gobbled up -- and perhaps $900 billion more would be taken out of the Social Security trust fund over the next decade.

Source: Gerald F. Seib, "A Budget Surplus Certainly Is Fun -- While It Lasts," Wall Street Journal, June 20, 2001; "Beyond the Tax Cut ... Now Comes the Hard Part," Issue Brief, June 14, 2001, Concord Coalition.

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