Tuesday, October 30, 2001

U.S. surplus shrinks as economy falters, spending increases
By Jeannine Aversa
Associated Press

WASHINGTON — After nearly a decade of an improving bottom line, the government’s budget surplus shrank to $127 billion for 2001, about half the previous year’s record total.

The sour economy and rising spending will probably wipe out the surplus altogether in the current budget year that began Oct. 1, analysts said.

The smaller 2001 surplus, announced by the Bush administration Monday, followed the record $237 billion in 2000.

The latest snapshot of the government’s finances marked the first time since 1992 that the balance sheet didn’t show an improvement. At that time, the government’s deficit had bloated to a record $290 billion. In subsequent years the deficit shrank and since 1998 the government has registered surpluses.

While the Congressional Budget Office’s last official projection had forecast a $176 billion surplus for the current fiscal year, CBO officials had told Congress in late September that they expected a much smaller surplus of between $36 billion and $56 billion. Many economists believe that number will be revised in coming months and the government will end up posting a deficit in 2002, the first shortfall since 1997.

“Not only is the government having to ante up for the costs associated with terrorist attacks and the military response, but it is also struggling with weakening tax revenue and stronger growth in expenditures associated with the recessionary economy,” said Mark Zandi, chief economist at Economy.com.

Bush administration officials are hoping that a strong economic rebound next year will stave off a return of budget deficits.

“I’m optimistic about the economy,” President Bush said Monday. “How long it will take to recover to the levels that we hope is beyond my pay grade.”

Mitchell Daniels, the president’s budget director, cautioned, “We must make sure that this is not the last surplus, by limiting additional spending to purposes directly related to the nation’s battle against terrorism.”

Even with the deterioration in the government’s finances, the 2001 surplus was the second-biggest in U.S. history. Government finances have not shown so many consecutive years of surplus since before the Great Depression, an 11-year string of surpluses that ended in 1930.

The government’s final accounting for 2001 showed that it used $33.5 billion of the Social Security surplus to pay for other programs.

Both Democrats and Republicans had pledged to keep their hands off the giant surpluses in the Social Security fund. The political fight over that issue dissipated after Sept. 11 when members of both parties agreed to spend whatever it took to combat terrorism.

Separately, the Treasury Department announced Monday that it expects to borrow $31 billion in the current quarter, a reversal of plans earlier this year, when it had projected that big surpluses would allow it to pay down $36 billion of the national debt in the last three months of this year.

The smaller surplus in the 2001 budget year, which ended Sept. 30, reflects the weakening economy’s toll on tax revenues and the impact of provisions contained in President Bush’s $1.35 trillion, 10-year tax cut, which was approved by Congress in the spring. An estimated $35 billion was spent on tax rebate checks this summer.

Many economists believe the economic fallout from the attacks pushed the economy into a recession this calendar year. Analysts think economic output will show declines in the third and fourth quarters, meeting a common definition of a recession.

In the 2000 budget year, the government posted a record surplus of $237 billion as the economic boom bolstered tax revenues.

That surplus surpassed the previous record of $124.4 billion for fiscal year 1999 and came on top of a $69.2 billion surplus in fiscal year 1998. The 1998 surplus marked the first time the government had managed to finish in the black since 1969.

Revenues for fiscal year 2001 totaled $1.99 trillion, while expenditures came to $1.86 trillion.

ndividual tax payments totaled $994.3 billion, compared with $1 trillion in fiscal year 2000. Payments from corporate taxes came to $151.2 billion, from $207.3 billion.