Stock market bonus: even bigger budget surplus
BOSTON — Ah, the wonders of a bustling stock market and economy - full employment, cheap mortgages, and, now, a budget surplus nearly double the official estimates.
Only two months ago, the Clinton administration predicted this year's budget surplus at $79.3 billion.
But economist Fred Ross - remarkably reliable - predicts an amount closer to $150 billion.
For several years, the Schwab Washington Research Group consultant has been far more accurate in pegging budget deficits, and now surpluses, than the two official budget agencies, the Office of Management and Budget and the Congressional Budget Office (CBO).
The CBO last month said the surplus will be $111 billion.
"[April] is the month when reality overtakes our best projections," notes a CBO spokesman. The CBO revenue counters will see if there is a surge in tax payments, reflecting a still-hot stock market and corporate executives raking in huge profits from stock options.
There's another good result from the boom. The Social Security Trustees have just put off the day of reckoning for the system by two years.
They now say the system will come up short in 2034. At that point its reserves will be gone and payroll taxes will cover only 71 percent of benefits.
At this rate, "we could wait a couple of decades and the whole [Social Security] problem will be gone," quips Mark Weisbrot of the Preamble Center, a Washington think tank.
Such a no-worries view is anathema in Washington.
Both the White House and the Republican leadership in Congress need a sense of urgency to push Social Security reform before the next election.
Higher wages, too
Another Preamble economist, Dean Baker, questions a new assumption of the Social Security actuaries - that real wages will rise only 0.9 percent a year on average over the next 75 years. Earlier, they had said 1 percent.
The change may look small, but the impact is huge. Wages mean payroll taxes, and a small increase, over decades, means significantly higher tax revenues.
Real wages rose 1.6 percent in 1996, 3.4 percent in 1997, and 4.4 percent last year.
That leads Mr. Baker to push the Social Security shortfall even farther out, to 2037, possibly 2040.
At that point, baby boomers will be in their 80s. The real Social Security problem is not the large number of boomers. It is that future retirees are expected to live longer, collecting pensions, says Baker. That's hardly a bad trend.
The trustees also had good news for the Medicare fund. It will last until 2015, rather than 2008.
More money in, less money out
Mr. Ross's optimistic projection of this year's budget surplus hangs largely on trends in federal revenues and outlays through February.
He's expecting receipts to grow 7 percent in the fiscal year ending Sept. 30. That hasn't been the case yet. But with electronic filing of taxes, individual refunds are up 20 percent and business refunds 30 percent through February. Ross assumes refunds will be relatively less during the present tax-crunch time.
Outlays are up only 1 percent so far, rather than the 4 percent assumed in the budget. Ross expects that by the time the year is over, they will be up 2 or 3 percent.
Defense spending is moderate. Even if Kosovo costs $10 billion, it won't change the budget picture much, he reckons.
The big saving has come in Medicare and Medicaid. Managed care and the prosecution of some hospital administrators for billing fraud has made a change (see page 18). Costs that had been rising 6 to 8 percent a year rose 1.5 percent last year.
"The great crisis in health care - it's not a crisis," Ross says.
Both the White House and the Republicans have "boxed themselves in" with their promises to set aside most of the surplus for Social Security, he figures.
But with 80 to 90 percent of the surplus set aside, not much money will be left over if Congress follows its budget rules.
So, Ross predicts, come late September or October the president and Congress will agree to fudge. They will "rebase" the budget as they have done every couple of years in recent years.
Only sophisticates in the press and politics will notice this trick to get some billions for tax cuts and spending, he says.
Most of the surplus will reduce federal debt, saving $40 billion to $50 billion of interest a year in two or three years.
An OK resolution, Ross reckons.