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Surplus? Depends on spin

Do we still have a federal budget surplus?

Republicans say yes. Democrats say no. The real answer is: It depends on how you look at it.

As always, politics and ideology are shaping the budget debate in Washington. And for Democrats, the target now is President Bush's recently enacted $1.35-trillion, 10-year tax cut.

In an attempt to build momentum for an eventual rollback of the tax cut, Senate Budget Committee Chairman Kent Conrad estimated last week that the government will run a $17-billion deficit this year, its first shortfall since 1997.

A too-large tax cut, coupled with lower-than-expected tax revenues in a slowing economy, will force Republicans to fund government operations with money set aside for Medicare and Social Security, Conrad said in a hearing on the state of the nation's finances.

"This raises a serious question about how we finance the federal government going forward," the North Dakota Democrat said.

In saying the government will run a deficit this year, Conrad fences off Social Security and Medicare surpluses from his overall budget calculation.

When those $184-billion in receipts are included, the government is running a healthy surplus, not a deficit, said Mitch Daniels, director of the Office of Management and Budget.

Not to count those funds is "like saying Tiger Woods had a very mediocre season if you don't count the Masters, the two Opens and the PGA," he said.

Instead, the real threat to fiscal health is Congress' inability to restrain the growth of federal spending, Daniels said.

And most important of all, he said, rather than be a burden on the economy, the tax cut will help it recover by giving people more money to spend on goods and services, keeping businesses afloat and people employed.

Same numbers. Two conclusions. Who's right?

"They're both right," said Steve Slivinski, a budget expert at the Cato Institute, a libertarian think tank. "That happens a lot in budget matters."

The different interpretations are about achieving political goals, he said. Democrats want to scale back the tax cut to have more money to spend on programs for education and social services.

Republicans, on the other hand, believe tax cuts are the only way to stop Congress from racking up ever-larger spending increases. Their own recent history corroborates this historical view.

In 104th Congress of 1995-96, the first controlled by the GOP in 40 years, non-defense spending shrank by 3 percent in inflation-adjusted dollars, a Cato analysis found.

Yet the political price was high. House Speaker Newt Gingrich, R-Ga., shut down the government rather than give into President Bill Clinton's demands for spending.

House Republicans were pilloried for the action and eventually gave Clinton most of what he wanted. They never tried to draw a line in the sand again and voted to increase spending every year since.

"For Republicans, the main reason tax cuts are so important is because it gets the money out of Washington so it won't be spent," Slivinski said.

Conrad arrived at his $17-billion deficit prediction by subtracting Social Security and Medicare trust fund surpluses and the $74-billion cost of the tax cut this year from projected tax revenue for 2001.

But Daniels questioned the assumption that Social Security and Medicare money can be roped off from the rest of the budget. He says they have always been used to fund the government, despite rhetoric from politicians that they are somehow locked away.

In the past, when the budget was in deficit, excess Social Security funds paid for general government operations. But since 1998, the Social Security surplus, meaning payroll taxes collected but not spent on current benefits, has gone to pay down the federal debt.

More than $300-billion has been spent on paying down a debt that stood at $3.4-trillion last year, saving the government money on interest payments.

The same has not been happening with Medicare funds, Daniels said. The federal health insurance program for the elderly will spend $50-billion more this year on benefits than it will collect through payroll taxes and premiums.

"There is not a surplus in Medicare," Daniels said. To say otherwise is a "political phony argument."

If there is no Medicare surplus, then Republicans cannot be accused of squandering it on the tax cut. Yet the tax cut could divert the Social Security surplus from its purpose of paying down the federal debt, Daniels acknowledged.

There are other problems, too, short and long-term.

Most immediately, Bush is requesting $18-billion in defense spending for next year above the $325-billion that has already been budgeted for the Pentagon. It is now doubtful that he can get it.

Democrats, meanwhile, are worried about funding a prescription drug benefit for Medicare recipients. The current budget sets aside $300-billion over 10 years for that purpose, but since that money will most likely come from existing Medicare spending, there are doubts that the pot is big enough.