-Caveat Lector-
>From www.cbpp.org
>
>
> <Picture><Picture>
> Revised July 2, 1999
>
> Much of the Projected Non-Social Security Surplus Is a Mirage
> Large Majority of Surplus Rests on Assumptions of Deep Cuts in
> Discretionary Programs that Are Unlikely to Occur by Sam Elkin
> and Robert Greenstein
>
> Congressional Budget Office figures released today indicate that
> the substantial majority of the surplus projected outside Social
> Security is essentially artificial because it depends on
> unrealistic assumptions that large, unspecified cuts will be made
> in discretionary programs over the next 10 years. When the more
> realistic assumption is made that total non-emergency
> expenditures for the discretionary part of the budget will
> neither be cut nor increased, and will simply stay even with
> inflation, nearly three-fourths of the projected non-Social
> Security surplus disappears. (An even larger share of the
> projected surplus vanishes if emergency spending is taken into
> account. Some discretionary expenditures designated as emergency
> spending this year do not really represent responses to
> short-term emergencies; they constitute expenditures that
> policymakers are likely to continue.)
>
> The new CBO projections released today show that under current
> law, the federal government will begin running surpluses in the
> non-Social Security budget in fiscal year 2000 and will run
> cumulative non-Social Security surpluses of $996 billion over the
> next 10 years. But these projections — like those OMB issued
> Monday — assume that total expenditures for discretionary
> programs, including defense expenditures, will remain within the
> austere and politically unrealistic "caps" the 1997 budget law
> set on such programs.(1)
>
> •To remain within the FY 2000 caps will entail cutting
> discretionary programs billions of dollars below the FY 1999
> level. No one expects this to occur. Leaders of both parties have
> acknowledged that a number of appropriations bills cannot pass
> unless funding for these programs is restored.
>
>
> •The caps for FY 2001 and 2002 are even more unrealistic than the
> FY 2000 cap; the caps for those years are significantly lower
> than the FY 2000 cap when inflation is taken into account.
> Moreover, the CBO and OMB projections assume that for years after
> 2002, total expenditures for discretionary programs will remain
> at the level of the severe cap for FY 2002, adjusted only for
> inflation in years after FY 2002. This means the surplus
> projections assume levels of discretionary program expenditures
> for fiscal years 2001 through 2009 that are lower, when inflation
> is taken into account, than the highly unrealistic FY 2000 cap
> that almost certainly will not be met.
>
>
> •Moreover, both parties have proposed significant increases in
> defense spending in coming years. Defense spending constitutes
> about half of overall discretionary expenditures. In addition,
> legislation enacted last year requires increases in highway
> spending in coming years.
>
>
>
> CBO must issue budget projections based on current law. The
> discretionary spending caps are current law. CBO has acted
> appropriately developing its projections. But policymakers who
> act as though the $1 trillion in non-Social Security surpluses
> projected over the next 10 years all represents new funds that
> can go for tax cuts or program expansions appear to misunderstand
> the meaning of the projections.
>
> •Because they rest on the assumption that discretionary
> expenditures will be held to the levels of the discretionary
> caps, the new CBO projections assume that over the next 10 years,
> discretionary spending will be reduced $584 billion below current
> (i.e., FY 1999) levels of non-emergency discretionary spending,
> adjusted for inflation. (A CBO table prepared this week shows the
> $584 billion figure.)
>
>
> •Since defense spending is widely expected to rise, all of these
> $584 billion in cuts would have to come from non-defense
> programs, primarily domestic programs. Achieving cuts of this
> magnitude in domestic discretionary programs would be
> unprecedented and would dwarf the cuts Congress was able to pass
> in these programs when the nation was mired in large deficits.
>
>
> •Cutting federal expenditures results in lower levels of debt.
> The $584 billion in discretionary program reductions assumed in
> the CBO baseline are projected to generate approximately $150
> billion in additional savings through lower interest payments on
> the debt. Consequently, the reductions in discretionary programs
> that the CBO projections assume result in total savings of
> approximately $735 billion over the next 10 years.
>
>
>
> These $735 billion in assumed savings account for all of the
> non-Social Security surplus through 2001 and approximately 74
> percent — or nearly three-fourths — of the non-Social Security
> surplus projected over the next 10 years. Since most or all of
> these cuts are very unlikely to materialize, the majority of the
> surplus projected in the non-Social Security budget is
> essentially a mirage.
>
>
>
> Dividing Up the Surplus
>
> CBO projects a non-Social Security surplus of $996 billion over
> the next 10 years. Some policymakers have made statements that
> seem to suggest all of this amount can be used for tax cuts and
> program expansions. Such statements are not realistic.
>
> The CBO and OMB surplus projections assume that all of the
> surpluses will be used to pay down debt, resulting in a lower
> national debt and hence lower interest payments on the debt. To
> the extent the surplus is used for tax cuts or program expansions
> rather than for debt repayment, interest payments on the debt
> will be higher than those the CBO projections assume.
>
> If all of the available non-Social Security surplus is used for
> tax cuts or program expenditures, interest payments will be at
> least $175 billion higher over the next 10 years than the CBO
> forecast assumes. Hence, about $820 billion is potentially
> available for use for tax cuts and program expenditures, not $996
> billion.
>
> From this $820 billion, approximately another $30 billion over 10
> years must be subtracted for the administrative costs of
> operating the Social Security program. CBO counts these costs as
> a Social Security expenditure. But Congress treats them as part
> of the non-Social Security budget. (CBO discusses this matter on
> p. 6 of its new report.) This reduces the remaining non-Social
> Security surplus to $790 billion.
>
> Simply keeping discretionary expenditures at the FY 1999
> non-emergency spending level adjusted for inflation would cost
> $584 billion, as discussed in this analysis. Hence, if one
> assumes that overall expenditures for these programs will stay
> even with inflation, rather than rising or falling, roughly $205
> billion would be available for tax cuts and program expansions.
> To provide amounts larger than this for tax cuts or program
> expansions entails cutting discretionary (or other) programs.
>
> The Congressional budget resolution approved earlier this year
> assumes a much larger tax cut. The resolution can accommodate
> such a tax cut because it assumes that none of the surplus will
> go to placing discretionary spending at a more realistic level.
> Furthermore, the budget resolution assumes that additional cuts
> in discretionary programs of nearly $200 billion over 10 years
> will be instituted, on top of the already unrealistic reductions
> assumed in CBO’s projections. (These additional discretionary
> reductions would come in years after 2002.) Under the budget
> resolution, overall expenditures for non-defense discretionary
> programs would be cut 29 percent between FY 1999 and FY 2009,
> after adjusting for inflation.
>
> The Clinton budget would add back somewhere in the vicinity of
> $500 billion over 10 years for discretionary spending, or most of
> what is needed to keep overall discretionary spending even with
> inflation. But the Clinton budget only uses $328 billion of the
> surplus for this purpose. The remaining funds would be raised
> through a series of offsetting cuts in entitlement programs and
> tax increases, such as a cigarette tax increase. Many, if not
> most, of these offsets are given little chance of passage on
> Capitol Hill. If these offsets are not passed — and no more funds
> are provided from the surplus for discretionary programs than the
> $328 billion the Administration has proposed — discretionary
> programs would, over the next 10 years, be cut approximately $250
> billion below current levels, adjusted for inflation. (To compute
> the exact amount that discretionary programs would have to be
> reduced under this scenario requires data on the Administration’s
> new budget framework that are not yet available.)
>
>
>
>
> How Much of the Surplus is Available for Tax Cuts,
> Medicare, and Social Security if More Realistic Assumptions Are
> Used?
>
> If a more realistic assumption is used — that overall
> expenditures for discretionary programs remain at the fiscal year
> 1999 level, adjusted for inflation — a very different picture
> emerges of how much in surplus funds is available for tax cuts,
> shoring up Medicare and Social Security, and other initiatives.
> Under this more plausible scenario, the non-Social Security
> surplus would total approximately $260 billion over the next 10
> years. Of this amount, roughly $205 billion would be available
> for tax cuts and Medicare. (At least $25 billion would be needed
> for the higher interest payments on the debt that would result
> from tax cuts or increases above the baseline in Medicare
> expenditures, while $30 billion is needed for Social Security
> administrative costs; see the box above)
>
> It may be noted that to assume total discretionary expenditures
> in future years will be no higher than the level of non-emergency
> discretionary expenditures in FY 1999, adjusted for inflation, is
> to use a conservative assumption. A sizeable share of the FY 1999
> discretionary spending that has been designated as "emergency"
> spending represents ongoing expenditures that policymakers will
> want to continue, rather than one-time expenditures to respond to
> short-term, unforeseen crises. The assumption we use here,
> however, assumes that all such "emergency" expenditures will end
> (or that other discretionary programs will be cut to enable them
> to continue). Furthermore, it is a foregone conclusion that
> defense spending will rise faster than inflation. Hence, for
> overall discretionary expenditures to remain even with inflation,
> as we assume here, non-defense discretionary programs would have
> to be cut. Finally, spending in some domestic discretionary
> areas, such as highways, is already slated to rise, and the House
> recently passed legislation to boost aviation spending as well.
> Thus, the assumption used here for discretionary program
> expenditures may itself be unrealistically low.
>
> These findings have major implications for policymakers. For
> there to be sufficient surplus funds to finance the large tax
> cuts that some policymakers advocate, Congress must make cuts of
> unprecedented depth in the discretionary part of the budget over
> the next 10 years — cuts substantially deeper than those that
> policymakers already are balking at passing this year.
>
>
> -----------------------------------------------------------------
> -------
>
>
> End Notes:
>
> 1. Technically, OMB assumes discretionary expenditures that
> exceed the caps but also assumes mandatory program reductions and
> tax increases that offset the discretionary spending in excess of
> the caps.
>
>
>
>
>
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