Kwame Holman details Thursday's hearing on the shrinking projections for this year's budget surplus.
KWAME HOLMAN: North Dakota Democrat Ken Conrad started the year as his party's point man on budget matters. But with Republicans in charge, he could do little to influence tax and spending policy. Now with Democrats controlling the Senate, Conrad chairs the Budget Committee and is using that bigger megaphone to predict a fiscal meltdown. (Gavel pounds)
SPOKESMAN: Good morning.
KWAME HOLMAN: For weeks he has warned President Bush's tax cuts, combined with falling tax receipts could wipe out the rosy budget surpluses projected just a few months ago. Today, Chairman Conrad put White House Budget Director Mitch Daniels in the witness chair to talk about the budget outlook.
SEN. KENT CONRAD: We have a pie. It is somewhat smaller. (Laughter ) And it represents the shrinking surplus. So, Mr. Director, I'm going to send this pie down to you. I'm told it's actually rather good pie.
SPOKESMAN: Is there another pie that represents the tax cuts?
SEN. KENT CONRAD: You know that is part of the shrinking surplus. That is part of the reason of the shrinking surplus.
KWAME HOLMAN: In May, the Congressional Budget Office estimated the budget surplus for this year at $275 billion. That included $156 billion of excess Social Security funds and $28 billion extra dollars for Medicare. However, that's reduced by $75 billion by payments this year from the Bush tax cut, so that if the Social Security and Medicare funds are set aside, the remaining surplus is only $16 billion. And further, according to Conrad, the current economic slowdown along with new spending that is sure to occur, mean Congress will have to dip into the Social Security and Medicare surpluses to pay the bills.
SEN. KENT CONRAD: Do we use trust fund money from Social Security and Medicare to fund other programs of the federal government? Perhaps even more serious is that we see these shortfalls before the administration's request for new before money for natural disasters and we've just had rather serious natural disaster in West Virginia -- before new money for education and the Senate has passed almost unanimously an authorization bill for substantial increases for education.
KWAME HOLMAN: Budget Director Daniels challenged Conrad's dire warnings saying the Social Security and Medicare accounts still are running huge surpluses and that money is being used to pay down the national debt.
MITCHELL DANIELS: The idea, first of all, of arbitrarily dismissing the Social Security and Medicare trust funds has never been one that I understood. It's like saying Tiger Woods had a very mediocre season if you don't count the masters, the two opens, and the PGA. You know, these are massive surpluses, and further, I'd like to point out that we've got to be careful about our language. Just as it is, I think, utterly inaccurate to even use the word deficit when we are running surpluses on the order of $200 billion or that neighborhood... I think it is highly inaccurate to use phrases like "go into, touch, and use" these funds when we have done that always. The only purpose, we've talked about using them for other programs, the other program these funds have been used for and are today is debt reduction. This is a goal we all share. We are only disagreeing about how much debt reduction is should occur.
KWAME HOLMAN: But Conrad pressed the budget director further singling out the administration's requests for more military spending.
SEN. KENT CONRAD: You're into the trust funds of Medicare and Social Security next year before the President's request for $18 billion more for defense. And so, the only conclusion one can come to is that means you intend to finance that out of taking more money from the trust funds. Is that your intention?
MITHCELL DANIELS: Clearly not. Our intention is the President has made repeatedly clear is to start by ensuring a surplus at least at the size of Social Security, retiring debt with that amount. Your charts assume certain things not in evidence, specifically additional spending in a variety of areas, which for which room is made in the budget resolution, but there's nothing more changeable or discretionary than spending the public's money
KWAME HOLMAN: New Mexico Republican Pete Domenici chaired the Budget Committee until last month. He said no one predicted the economic slowdown that is cutting into the budget surplus.
SEN. PETE DOMENICI: What is happening is we have an economy that did not come back as quickly, as desired, and in fact, stayed down as compared with the assumptions of the previous administration and plain and simple, the receipts from corporate America fell. Because you read every day corporate America is not making money when they don't make money they don't have profits -- when they don't have profits they don't pay taxes. I don't think you'll ever change that.
KWAME HOLMAN: Republican Don Nickles of Oklahoma reiterated a GOP refrain-- that more tax cuts would help strengthen the economy.
SEN. DON NICKLES: If we really want to stimulate the economy, if we want to help lift the economy, let's make a capital gains reduction. Let's make the tax cut permanent so people can count on it.
KWAME HOLMAN: But Ernest Hollings, a South Carolina Democrat, pointedly reminded Daniels that the government still is running a big national debt.
SEN. ERNEST HOLLINGS: And the debt to the penny has gone up since the beginning of the fiscal year $36 billion. You say it's dangerous to use the word "deficit." I'm saying it's dangerous to use the word "surplus." I can't find any surplus. I can't find any in the actual fact, in the actual document. So, counting all the so-called surpluses that we've had about up there, whether it's there or not there, or whatever it is, I can tell you the Treasury has spent every bit of it and still comes up with an increase in the debt.
KWAME HOLMAN: Daniels countered that the overall debt picture is improving.
MITHCELL DANIELS: The national debt is coming down and those interest costs your are talking about are coming, our total debt remains interest cost that you talk about is dropping very quickly. It's one of the things that will help us keep a surplus in years ahead.
KWAME HOLMAN: The Congressional Budget Office will release its latest estimate of budget surpluses next month.