GOVERNMENT to borrow $51 billion this quarter, in part to pay for Bush's tax rebates
Wednesday, August 1st 2001, 12:00 am
News On 6
WASHINGTON (AP) _ The government, in a sharp reversal of last spring's borrowing plans, announced Wednesday that it will tap $51 billion from the credit markets this quarter in part to cover the cost of tax-rebate checks arriving in mailboxes around the country.
The Treasury Department's turnaround from a previous projection that it would actually retire a big chuck of debt rather than increase its borrowing in the quarter, drew fire from Democrats.
Democrats argued that President Bush's $1.35 trillion 10-year tax-cut package, which includes the rebate checks, is too large, and they expressed fears it will sow the seeds for a return to days of government red ink.
``The whole Republican rationale for passing such a big tax cut is that we needed to send the surpluses back to the people,'' said Rep. Charles Rangel of New York, the senior Democrat on the House Ways and Means Committee. ``How ironic is it that we are now borrowing from the people in order to pay them their checks?''
The Bush administration said the need to borrow in the third quarter reflects a short-term cash squeeze and doesn't signal a move from budget surplus to deficit.
``The net borrowing for this quarter should not be looked at as anything more than a cash management factor,'' said Brian Roseboro, assistant secretary for financial markets.
``To put it in perspective: The year 2000 _ record surplus year. There were several months in which Treasury had to borrow,'' he added. ``Looking back over the last 19 quarters, nine of them Treasury had to borrow.''
On April 30, Treasury said it expected to pay down $57 billion of the publicly held portion of the national debt this quarter. Now, it plans to sell $51 billion worth of securities.
Besides the tax rebates, the other main factors for having to borrow in this quarter are slowing tax revenues from a slumping economy and the shift of the due date for corporate tax payments from mid-September to Oct. 1, the start of the next fiscal year, the department said.
Treasury's April projection was made before congressional passage of Bush's tax-cut package, which includes the rebates, and before Congress changed the due date for corporate tax payments.
Given the ailing economy and weakening tax payments, the Congressional Budget Office has estimated that the 2001 surplus will fall below $200 billion. Bush's budget chief, Mitchell Daniels, has said the figure could be as low as $160 billion.
Against this backdrop, Roseboro estimated that the Treasury will pay down $120 billion of publicly held debt this fiscal year, less than half the $252 billion previously estimated.
Instead of buying back $10 billion of government debt this quarter, Treasury will buy $9 billion. Another $9 billion will be bought back in the fourth quarter.
``The long-term prospects of debt repayment are not as bright as many hoped for,'' said Mark Zandi, chief economist at Economy.com.
``We're not going to get the budget surpluses that we thought we were, but we're not going back to the pools of red ink that prevailed a decade ago,'' he added. ``This does say policy-makers need to be conservative with future tax policy and spending decisions or the red ink will return very soon.''
The decision to borrow $51 billion this quarter marks the largest single quarter of borrowing by the government since $77.2 billion in the first quarter of 1996.
The delay of corporate tax payments to the Treasury from September to October means that around $30 billion in tax revenue will be shifted into the next fiscal year. And, the tax-rebate checks of up to $300 for individuals, $500 for heads of households and $600 for couples will cost $38 billion.
``The turnaround in our financing ... basically is being driven by fiscal policy changes,'' Roseboro said.