WASHINGTON (AP) The Bush administration is pinning its budget hopes on a rapid, robust economic recovery driven by its huge tax cut despite figures released Wednesday that show a steep drop in the government surpluses projected for 2001 and 2002.
The White House Office of Management and Budget is expecting an economic rebound next year, including a growth rate of 3.2 percent in gross domestic product. That's nearly double the anemic 1.7 percent rate forecast for this year and higher than the 2.8 percent rate consensus of many private economists.
Budget Director Mitch Daniels said the 10-year, $1.35 trillion tax cut President Bush signed into law in June coupled with restrained government spending and the Federal Reserve's interest rate cuts would boost U.S. economic growth and fortify the budget bottom line.
The impact of the economic slowdown and the $40 billion in tax refund checks was apparent in the midyear budget outlook released Wednesday by the White House. It estimated a fiscal 2001 surplus of $158 billion, only $1 billion above the tax receipts that flow to Social Security. The revision is $123 billion less than the last estimate in April but the surplus still will be the second-largest ever.
A similarly tiny non-Social Security surplus of $1 billion is now expected in fiscal 2002, which begins Oct. 1. That represents a $58 billion drop from the April estimate, for an overall surplus of $173 billion next year that is almost entirely Social Security.
An even starker view of the shrinking surplus may come when the nonpartisan Congressional Budget Office issues a rival forecast next week. Budget analysts widely believe the CBO projections will show a less favorable 2001 surplus and be less aggressive in predicting future economic growth rates.
Despite the near-term decline, the OMB expects an overall surplus of more than $3.1 trillion over 10 years down from $5.6 trillion before the tax cut and other changes even accounting for the tax cut and proposed spending increases. Among these spending increases: $198 billion more for defense and $37 billion extra for a Medicare overhaul that includes a prescription drug benefit.