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American Morning

Updated Numbers Show President's Big Tax Cut and Slowing Economy Ate Up Most of 2001 Surplus

Aired August 22, 2001 - 11:02   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LEON HARRIS, CNN ANCHOR: Updated numbers show the president's big tax cut and the slowing economy ate up most of the surplus for 2001, with one asterisk here: We are talking about the non-Social Security surplus. The refrain from Democrats today is going to be big, I told you so. There is also trouble ahead for Social Security if Mr. Bush lets you put part of that money in the stock market, as he'd like to.

We get a warning on that from congressional number crunchers, CNN's Major Garrett is standing by in Crawford, Texas, where Mr. Bush is vacationing right now.

Jeanne Meserve is standing by in Washington. Let's start with Major.

MAJOR GARRETT, CNN CORRESPONDENT: Leon, the budget numbers came out from Washington, but you can bet they're being watched very closely here in Crawford, Texas, where the president is enjoying his extended vacation.

And as you said, the administration basically says two things about this midsession budget review. Number one: Things are still OK. The economy is expected to grow next year by about 3.2 percent, slightly more optimistic than the blue chip forecast, or within an optimistic range of blue chip forecasting. But the administration says the economy is going to come up out of this downturn. The other thing they say is, even though the surplus has shrunk by some $120 billion from the projections in April, there's still about $158 billion surplus left in Washington. they say that's a good thing, too.

There's one bad thing, though. The administration knows it's going to be in the middle of a big political fight when Democrats return to Congress in September. There;s only $2 billion left over from that Social Security surplus to spend on other programs. There's going to be a huge fight over defense, education, health care, all sorts of things.

Mitch Daniels of the Office of Management Budget -- director rather, said the key to all of this, all of these arguments, is getting the U.S. economy back on track.

(BEGIN VIDEO CLIP) MITCH DANIELS, OMB DIRECTOR: Economic growth is the key to continuing this very strong fiscal picture. It is growth that produces surpluses, not vice versa, and return to economic growth will be the focus of the president and the administration. In the months ahead, the economists have agreed unanimously that the single best hope the economy has for a quick recovery is the tax relief which is now in the process of beginning.

(END VIDEO CLIP)

GARRETT: The administration says that tax cut will in fact spur economic growth. If it does, budget surpluses will be larger next year and political atmosphere favorable to the president. If the economy doesn't turn around, just the opposite is true -- Leon.

HARRIS: Major Garrett in Crawford, Texas, thank you very much.

To focus on your money and what lawmakers plan to did with it, let's go now to Jeanne Meserve, standing by in Washington, where Social Security is going to be under the microscope quite a bit today -- Jeanne.

JEANNE MESERVE, CNN ANCHOR: Leon, the president's commission on Social Security is meeting this morning. A member is playing hooky to join us here today, Tim Penny. He is also a former member of Congress.

Thanks a lot for joining us.

New numbers from OMB showing a shrinking surplus. Does that limit your maneuverability as you try to fix Social Security?

TIMOTHY PENNY, COMMISSION MEMBER: Well, in many ways, it is irrelevant to our work, because we are focused on the long-term sustainability of the Social Security system, and whether or not private accounts can be supplemental to Social Security as a way providing better retirement income for future generation. So in that respect, we rally have a much different issue, a longer-range issue, and the near-term projections on budget surpluses are somewhat irrelevant.

MESERVE: One of the things you are discussing today how to fund any changes to the system. Is there any consensus of opinion.

PENNY: First thing how do we fund the current system. When the trust fund is dipped into, we've got to find a way to put revenue in that trust fund, to honor the current obligations that are being promised to retirees. That's not an easy takes in and of itself. So we're looking at a lot of options how to keep the system financially secure and make real the promise of that trust fund to future retirees. In addition, to that, of course we will ultimately looking at private accounts as an element of Social Security for future retirees.

MESERVE: But at this point, no consensus of opinion on how to do that? PENNY: No, we're just looking at a lot of options.

MESERVE: OK, so new numbers out from the Congressional Research Service. They looked at private accounts and said it could result in a drop in benefits of between 4.7 to 10.8 percent. As someone who supports private accounts, what is your response to those numbers?

PENNY: Well, all of these are very speculative right now. I mean, the fact is, the current system if it is to be honestly financed would result in about 50 percent payroll tax increase or a 25 percent benefit cut, so that's not a very happy outlook either. We think if done properly, private accounts of future retirees can actually enhance the retirement income of today's workers, and we will just have to run a lot of options to come up with a plan we think the president can take to Congress.

MESERVE: If the commission has stayed on track, you will be issuing your recommendations...

PENNY: We mean, late November, early December, sometime in the fall.

MESERVE: But as a member of Congress, former member of Congress, what's the prospect any action before the 2002 election?

PENNY: Well, our role do our best to come up with a recommendation that fits the president's principles, his job, looks at the political landscape, and decide how to proceed in terms of submitting proposal to Congress, working with Congress to get something didn't.

MESERVE: But before 2002 likely.

PENNY: That's up to the president.

MESERVE: Tim Penny, thank you for joining us the day. Back to you in Atlanta.

KAGAN: Jeanne, thank you very much.

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