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U.S. surplus shrinks
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August 22, 2001: 11:27 a.m. ET
New data show narrow cushion to avoid tapping Social Security trust
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NEW YORK (CNNfn) - U.S. budget figures released by the Bush administration Wednesday show a 43 percent drop in the latest projected surplus, creating what could be the narrowest of cushions if the government is to avoid tapping the politically sensitive Social Security trust fund to balance the budget this year.
The longer-term projections continue to show substantial surpluses, with only minimal effects from the current economic slowdown and income-tax refunds that have cut sharply into the surplus for the current fiscal year, which ends in September.
The administration's mid-session budget review by the Office for Management and Budget (OMB) showed a $1.9 billion surplus outside of receipts from Social Security or the Postal Service for fiscal year 2001. The surfeit is small enough that a slight deviation in either spending or revenue in August or September may mean the White House violates a self-imposed pledge to avoid dipping into Social Security.
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"I think it's an object lesson that paying the cost of Social Security in the future is going to depend upon economic growth. If you don't have growth, our pensions and other obligations are going to become unaffordable," said Paul Hewitt, director of the Global Aging Program at the Center for Strategic and International Studies in Washington.
"Certainly what we're discovering all over the world right now – that the entire industrial world looks like it's poised to enter into a serious deficit problem," Hewitt said.
Click here for CNN' s story on the mid-session budget report
But the overall surplus, including Social Security and Postal receipts, is projected to be about $157.8 billion, almost equal to the Social Security surplus of $159 billion, and down from the record $236.92 billion in the previous fiscal year.
The surplus for fiscal year 2002, which begins in October, is projected to be about $173 billion, including planned policy initiatives. In April, the White House had estimated the current year's budget surplus to be about $281 billion and next year's at about $231 billion.
In April, the White House had estimated the current year's budget surplus to be about $281 billion and next year's at about $231 billion.
Over the 10-year period ending 2011, the overall surplus is expected to total $3.113 trillion, including proposed policy changes, down from $3.433 trillion estimated in April. Excluding Social Security, the 10-year surplus is projected to be a smaller $575 billion.
"What those Social Security cash flows are being used to do today is to pay down federal debt. If the government chooses to not use those trust fund dollars, if they do end up with a shortfall, then what they'll do is go into the public market, and sell debt to raise cash, and use the Social Security money to pay off other debt," said Dallas Salisbury, president of the Employee Benefit Research Institute in Washington.
"So there is a bookkeeping way to say that I am not using the Social Security cash flow, but the overall effect on the taxpayer and the economy is the same. The government is borrowing additional net money," Salisbury said.
But the White House notes the current year's overall budget surplus still should be the second-largest on record. And it has defended the tax cut, which totals $1.35 trillion over 10 years, as necessary to keep the shaky economy on track.
"The government's finances are in extraordinarily strong shape," said Mitchell Daniels, director of the White House Office of Management and Budget.
"The size of future surpluses, as well as continued strong growth of Social Security and Medicare trust funds, all depend on a return to sustained economic growth. All relevant policies – fiscal, trade, regulatory and others – should share this primary objective," he said.
The OMB fingered the slumping economy as the single biggest reason for the decrease in this year's surplus, citing it for a $46 billion shortfall in revenue.
The OMB's "baseline" budget numbers, which assume no policy changes in the future, are mildly more optimistic than the administration's other projections. They see a $186.6 billion surplus in fiscal 2002 and a $3.842 trillion surplus over the 2002-to-2011 period.
The new budget projections also pushed back the date by which the government pays off the portion of the national debt that it says is practical to redeem. In the new figures, budget surpluses will be larger than redeemable debt in 2010, two years later than assumed in April. 
-- from staff and wire reports
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