Surplus, but No Gravy Train

The budget surplus is arriving faster - and perhaps growing bigger - than Washington expected.

Just last month, President Clinton's budget forecast a $10 billion deficit this fiscal year.

"Nah!" say business economists. The nation will enjoy a handsome surplus. Congress can't and won't do much to alter that happy prediction.

"To be conservative, a minimum $50 billion surplus," says Fred Ross, a consultant at the Washington Research Group. "It could be as high as $70 billion to $80 billion."

The Congressional Budget Office, more conservative, forecast a $5 billion to $10 billion surplus Friday.

But don't look for big tax cuts or costly new spending programs as a result.

Washington observers expect Congress to use the bulk of any surplus in the next few years to pay down the $3.8 trillion in federal debt held by the public.

Another option is to stuff surpluses in the Social Security Trust Fund.

Tucking away 10 years of surpluses outlined in the budget could make a sizable dent in Social Security's long-term projected deficit, cutting it by a third, reckons Henry Aaron, an economist at the Brookings Institution, a Washington think tank.

The surplus could grow even more. Mr. Ross sees "well over $100 billion" for fiscal 1999, starting Oct. 1. The White House says $9.5 billion.

For the past few years, he has been somewhat of a loner in making cheerful budget forecasts.

No longer.

Ian Shepherdson, chief economist of HSBC Markets in New York, sees a $75 billion surplus in fiscal 1998. At least $30 billion, says John Youngdahl, an economist with Goldman, Sachs & Co..

But David Wyss of Standard & Poor's DRI, a Lexington, Mass., consulting group predicts mere balance. "I want to see what April brings before I get excited," he says.

All this budget cheer stems from stronger-than-expected revenues in the first four months of this fiscal year. That pattern has recurred for a few years.

Revenues are growing more than 10 percent, well above the 7.5 percent seen in the budget. Outlays are up 3.8 percent, about the same as in the budget.

A "mindless extrapolation" of that trend, says one congressional expert, yields a $50 billion to $60 billion surplus.

Even a recession starting in a few months would not hurt 1998 revenues much, though it would in 1999.

Mr. Clinton's budget officials have not yet joined the gladsome budget-forecasting crowd. They may fret this would encourage politicians on Capitol Hill to freely cut taxes or spend the surplus.

In fact, Washington has gone into a deep freeze on the budget.

Clinton's call for using any surplus to bail out Social Security makes it hard for Republicans in Congress to do much more than symbolic tax cuts.

Perhaps they will ease capital gains holding times and the "marriage tax penalty." Some couples pay more when married than as two separate individuals.

Clinton also proposed using any revenues from a tobacco settlement and some loophole-closing measures to increase programs helping college students, working mothers, and other important voting blocs. The Republicans will likely say these are too expensive.

Most observers expect a compromise - small tax cuts and a bit of new spending, such as on highways.

In a $1.7 trillion budget, "we are arguing over small change," says Mr. Wyss of S&P.

Anything ambitious could prompt a point-of-order in Congress that it violates the 1997 Balanced Budget Act. Passage would then require an unlikely 60 Senate votes.

And any spending and tax bills that do pass will take time to have their full impact - maybe by 2000.

If used for Social Security, surpluses could put off the day - now projected at 2029 - when payments exceed revenues.

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