The New York Times

August 17, 2001, Friday, Late Edition - Final

Section A; Page 17; Column 1; National Desk

White House Sees Economic Growth Doubling in 2002, but Democrats Voice Disbelief

By FRANK BRUNI

DATELINE: WACO, Tex., Aug. 16

The White House estimated today that economic growth would rebound to 3.2 percent next year from a projected 1.7 percent this year and that the current year would bring a small surplus in the non-Social Security part of the budget. Democrats immediately denounced the estimates as overly optimistic and politically self-serving.

As Democrats intensified their charges that President Bush's tax cut was already draining the budget surplus and putting Social Security funds at risk of being spent for general purposes, Ari Fleischer, the president's press secretary, gave reporters a preview of figures to be issued by the White House Office of Management and Budget next week.

Those figures painted a rosier picture than the one provided by many private economists, and presage an intense battle over what is affordable and what is not when Congress hammers out the details of the 2002 federal budget in the coming months.

Mr. Fleischer used the numbers to counter Democratic charges that the administration would return to deficit spending this year, not counting the revenue set aside for Social Security. "Even with the economic slowdown," he said, "the budget will have the second-largest surplus in history, and the only way the Social Security surplus will be spent is if Congress breaks the budget."

He said the overall surplus for this fiscal year, ending Sept. 30, would be about $160 billion. Virtually all that money is attributable to Social Security (*), leaving a small remaining surplus of several billion dollars. That cushion, Mr. Fleischer said, will keep the government from having to tap excess Social Security funds for current non-Social Security spending.

But Democrats and some budget experts said the White House was able to make its claim of a non-Social Security surplus only because it had changed an accounting method that had been used for the last 65 years. Under the new method, the non-Social Security surplus this year is increased by $4.3 billion.

In addition, the 3.2 percent growth estimate for 2002 is markedly higher than the projection of 2.8 percent in the most recent survey of private economists conducted by Blue Chip Economic Indicators, a leading financial newsletter. While that discrepancy has no relevance to this year's budget, the White House's use of a higher figure could have an impact on how much money Congress calculates that it can spend within Mr. Bush's budget for 2002. It will also be used to underpin White House estimates of budget surpluses for 2002 and the years beyond.

Representative Richard A. Gephardt of Missouri, the House Democratic leader, said the figures showed that the Bush administration "will twist and turn the numbers in an effort to hide the reality, which is that Bush's tax cut has put him on a path headed straight for the Medicare and Social Security surpluses." (*)

Gene Sperling, who was President Bill Clinton's top economic adviser, said he detected in the Bush administration "a disturbing pattern of using budget numbers that are compelled more by politics than fiscal prudence, more by convenience than by consistency."

The conflicting calculations and contentions reflect a broader political battle between the administration and its critics, including many Democrats, over whether Mr. Bush's tax cut was affordable and why Congress may feel a pinch when a 2002 budget is forged this fall.

Administration officials have said any budgetary constraints arise from an economic slowdown that began before Mr. Bush took office. And Mr. Fleisher said the threat to Social Security revenue came from lawmakers' appetite for spending.

Mr. Fleischer said the surplus in the current fiscal year, the budget for which was signed by President Clinton, was turning out to be $34.5 billion smaller than it should have been because Congress and Mr. Clinton "spent more than they promised." Mr. Bush's tax cut, he said, was an insurance policy against that sort of extravagance, because it put money out of reach of lawmakers.

The Office of Management and Budget's midyear report, to be released next Wednesday, will come a week before a similar report by the Congressional Budget Office, and many lawmakers expect the C.B.O. forecast to be more conservative.

Several Democrats and budget experts said they were less troubled by the O.M.B.'s optimistic forecast for economic growth, which they said was only slightly out of line with other projections, than by a sudden budget accounting change that the White House recently adopted.

The change involves payroll taxes that go to Social Security. In the past, this revenue was estimated in one year and then reconciled in a future year with the actual money collected. The reconciliation was reflected in the future year's budget.

But the Bush administration is attributing the actual amounts for 1998, 1999 and 2000 to those years instead of 2001. As a result, it will not have to deduct what is essentially a back payment to Social Security from non-Social Security revenue in this year's budget, and the non-Social Security surplus will be $4.3 billion higher. By the administration's own calculations, that amount could be the difference between a surplus and a deficit this year in the non-Social Security part of the budget. The accounting change does not, however, affect the amount of money in the Social Security trust fund, or Social Security benefits.(Compare this last sentence with the Washington Post article of August 16, fourth paragraph from the end.)

Mr. Fleischer said the change was an effort by an administration in its first year to start keeping the books more accurately and coherently.

But many Democrats said it was obviously intended to help offset the effects of Mr. Bush's tax cut and a provision that moved the deadline for about $33 billion in corporate tax payments into the next fiscal year. The moving of the deadline made those payments available as revenue for the 2002 budget, the Bush administration's first, but also lowered revenue this year, depressing the non-Social Security surplus.

"Political budget gimmicks create a negative cycle that creates the need for more political budget gimmicks," Mr. Sperling said. "Their first $33 billion gimmick," he added, "has now forced them to go back to the gimmick well a second time," to make the Social Security accounting change.

* Notice the distortions. As of July 31, 2001, the Social Security Trust Fund stood at $1.160 trillion. A rise of $153 billion with two months to go in the fiscal year. Naturally, it's going to be very close to a $160 billion rise, perhaps more, during this year. Very close to the same amount predicted as surplus. But what the propagandists fail to tell you is that more than $60 billion of the final figure will be from interest simply handed the trust, no money involved. This is not stupidity on their part. It is a definite attempt to keep you from looking at where the rest of the surplus will be coming from and to give the Democrats the phony argument that Bush will have to go elsewhere for money.

Let's just take a fairly accurate hypothetical. The interest simply handed the Social Security Trust Fund as of July 31st is very close to $53 billion. Subtract that from its current increase of $153 billion and you've got a nice even $100 billion in actual cash surplus generated so far during fiscal 2001. Now, if the final "surplus" is estimated at $160 billion -- where does the rest of the money come from? Are you starting to see the sort of propaganda put forth by the Democrats and their loyal media???