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Democrats See Dip in Surplus as a Bad Sign

Budget: Revised estimate raises fears of government having to borrow from Social Security fund.

July 04, 2001|MEGAN GARVEY | TIMES STAFF WRITER

WASHINGTON — The Democratic head of the Senate Budget Committee charged Tuesday that the slowing economy coupled with the massive tax cut pushed by President Bush will force lawmakers to dip into the Social Security trust fund as soon as next year to make the government's ends meet.

Sen. Kent Conrad (D-N.D.) also estimated that $17 billion of the Medicare surplus will be needed this year to close the gap.

In remarks to reporters, Conrad accused the White House and Republican congressional leaders of "grabbing the steering wheel" and driving "right into the fiscal ditch."

Conrad's comments were part of a growing Democratic chorus of "I told you so" that likely will mark the budget debate in the months to come and figure prominently in next year's congressional races.

The White House on Tuesday said the Democrats' charges are unfounded.

"The tax cut is really the solution to the economy that has been slowing since last year," said Bush spokeswoman Claire Buchan. "And the president has committed that the Social Security money will be used for Social Security and Medicare will be used for Medicare."

Conrad, however, used budget figures cited late last week by Bush economic advisor Lawrence B. Lindsey as evidence that the government this year may need to draw on the Medicare trust fund and next year drain the entire $38-billion projected surplus--as well as $4 billion in surplus from the Social Security trust fund.

A vocal opponent of the Bush tax cut, Conrad said he plans to call White House officials to testify before his committee next week to come up with a way to keep the trust funds untouched.

The only ways to do so, he said, are "cutting spending, raising revenue, or some combination. I'm prepared to work with them to prevent this fiscal debacle from getting worse."

The matter of the shrinking budget surplus heated up when Lindsey, the director of the White House's National Economic Council, estimated Friday that tax revenue could be about $56 billion less than the $2 trillion projected for the current fiscal year. Earlier estimates by the Congressional Budget Office had placed the shortfall at $20 billion less than projections.

Lindsey cautioned that the $56-billion figure was "not an official number. It's rule of thumb . . . an illustrative guess, a back-of-the-envelope calculation."

He made it using an economic model that forecasts a 1.4% drop in tax revenue for every 1% drop in the gross domestic product--estimating government tax revenue would fall about 2.8% short of previous estimates for the fiscal year ending Sept. 30.

"We're still going to have a huge surplus, something like $200 billion," he said.

But Democrats, including Senate Majority Leader Tom Daschle (D-S.D.), jumped on the lower estimate as proof that their criticisms of Bush's economic policies are valid. In a Sunday appearance on ABC-TV's "This Week," Daschle suggested that the 10-year, $1.35-trillion tax cut signed into law by Bush last month may need to be revised in the future.

"We may not have the votes to revisit it in the short term," he said. "But clearly, we've got to solve a problem that I think is becoming larger and larger, and that is how do we meet our obligations? How do we do what we have to do to stay fiscally sound? And how do we protect Medicare and Social Security?"

In a sign of how politically sensitive the trust fund subject is, Daschle's comments prompted a rebuttal Sunday night from Lindsey, who in a statement said Daschle "misspoke this morning when he said the Bush administration would dip into Social Security and Medicare funds."

Although economists agree that tapping into the trust fund surpluses--the money being collected above the amount needed to pay current beneficiaries--would have little to no effect on the programs in the short term, politicians on both sides of the aisle see the matter from a different perspective.

Many Republicans have argued that the Medicare trust fund shouldn't be considered off-limits. But Social Security is another matter. Nearly all Democrats and Republicans have said the Social Security trust fund--the item former Vice President Al Gore famously wanted to put in a "lock box"--should be hands-off. And Republicans on Capitol Hill have expressed concerns about the political fallout if, in fact, the fund has to be tapped.

But White House aides said Tuesday they believe any revenue shortfall would be offset by economic growth brought on by the tax cut. And, they added, cautious budgeting in Congress also would help.

"There will be one of the largest surpluses in history this year," said Buchan. "And the president has urged Congress and is working with Congress to restrain spending."

Conrad, for his part, warned that the shortfall in tax revenue indicated by Lindsey's numbers came before any additional spending requests by the White House for defense, education and natural disaster relief were figured in.

Asked where he would squeeze spending, however, Conrad deferred. "I'd say the first responsibility is on those who drove this thing into the ditch."

*

Times Washington Bureau Chief Doyle McManus contributed to this story.

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