CBO sees higher economic growth, meaning big surplus boost 

ALAN FRAM / AP 14nov00

WASHINGTON -- The next president and Congress could have hundreds of billions of additional dollars to use for tax cuts and spending increases under preliminary estimates of economic growth being considered by the Congressional Budget Office.

Preliminary CBO estimates -- which are likely to be scaled back -- are that the economy would grow by an average 3.3 percent per year over the next decade, said budget specialists who spoke Monday on condition of anonymity. CBO is Congress' nonpartisan budget analyst.

Though that would match the projections of many economists, it would be a dramatic increase over the 2.7 percent average annual growth that CBO envisioned as recently as July. And along with another change, it would have a substantial impact on the agency's budget surplus forecasts, adding as much as $2 trillion to the 10-year, $4.6 trillion surplus the CBO projected in July, the budget experts said.

CBO staff presented the 3.3 percent figure to the agency's panel of economic advisers last Wednesday, as part of the agency's semiannual budget update. Its newest budget figures will be published in January.

The economists, who range from liberals to conservatives, suggested that the figure seemed too bullish. As a result, the figure is likely to be reduced, though no final figure has been set, the budget specialists said.

Even so, with one rule of thumb that every 0.1 percent of economic growth adds $175 billion in revenue to federal coffers over a decade, the projected surplus seems likely to grow appreciably.

Barry Anderson, CBO's deputy director, would not comment on the 3.3 percent figure. But an agency official who spoke on condition of anonymity said it was the preliminary number CBO staff had presented to the advisers, and confirmed that the advisers urged the agency to reduce the growth estimate.

The enormous increase would be a bonanza for the tax-cutting and spending plans of the next president and Congress.

Of the $4.6 trillion surplus projected last summer, President Clinton and members of Congress from both parties consider the $2.4 trillion portion of it that comes from Social Security to be available only for deficit reduction or strengthening the retirement and pension program. Republican presidential candidate George W. Bush and Democrat Al Gore, locked in an inconclusive presidential election, share that view.

Politicians consider the remaining $2.2 trillion portion available to pay for tax cuts or higher spending. That figure would rise if the overall projected surplus goes up, creating more room for the tax cuts Bush has proposed and the added spending that Gore wants.

Republican and Democratic congressional analysts have estimated that if Congress approves all the tax cuts and spending increases it has been considering this year, it would consume at least $800 billion of those projected surpluses. But the new CBO figures under discussion could more than compensate for that.

Economic growth is one of the most important factors in estimating the size of the surplus because it directly affects the revenue the government collects.

CBO itself has not calculated how stronger economic growth would affect its surplus projections. But budget experts said it could add $1 trillion to $1.5 trillion to the surplus over the coming decade.

Several hundred billion more would be added because when CBO releases its new budget figures in January, it will be examining fiscal 2002 through 2011. That is a slightly different 10-year window than the 2001-2010 period that CBO's figures covered in July.

The projected surplus for fiscal 2011 is expected to be several hundred billion dollars larger than the projected surplus for fiscal 2001. That will make the new 10-year figures that much bigger than the old ones -- even without any changes in economic growth estimates.

The 3.3 percent growth estimate matches the most recent projection by Blue Chip economic indicators, a respected survey of private economists.

In recent years, CBO estimates of economic growth have consistently fallen below the Blue Chip projections -- and below the economy's actual performance. The Clinton White House has also underestimated economic growth.

This has resulted in a steady series of pleasant budget surprises, in which CBO and administration surplus projections kept rising but were always surpassed by the actual performance.

This has benefited both the White House and Congress by making them look cautious and prudent.

On the Net: Congressional Budget Office site: http://www.cbo.gov