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October 27, 1997 12:00 AM

LESSON STILL TO LEARN

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    The anticipation of a federal budget surplus has created a frenzy in Congress on how to spend it. There isn't even a surplus yet. In reality the supposed surplus is the result of government accounting tricks. Continuing the spree in government spending means we won't see a real surplus anytime soon.

    Based on Congressional Budget Office projections, the federal budget is just beginning to come close to breaking through the surface after being underwater in a sea of deficits for almost 30 years.

    Yet some in Congress can't wait to get their hands on the estimated surplus. How can we spend it? they ask. How perverse. How typical of so many in Congress.

    The agreement to eliminate the deficit by 2002 was adopted only earlier this year. But the debate on spending the surplus already has begun. People in Congress haven't learned their fiscal lesson.

    There has been a dramatic drop in the projected deficit. A report by William M. Mercer Inc., New York, citing the Congressional Budget Office, showed a deficit of only $23 billion as of the latest estimate this month. It is the smallest shortfall in 23 years, according to another report. By contrast, only last February, the deficit was estimated at $126 billion, the Mercer report points out. What a decline.

    Some speculate - salivating - a surplus could begin to grow next year, well ahead of the budget agreement's plan.

    The continuing robust economy has led to the dramatically lower deficit projections. But a downturn in the economy, which no one is forecasting, would quickly end the sweet dream of a surplus.

    In reality, the prospect of the surplus is based on a government accounting gimmick. The budget includes Social Security revenue, money that shouldn't be in the budget calculations. So any surplus anticipated to materialize includes Social Security revenue.

    How ironic that Social Security is used to restore the health of the government budget when the retirement program, while generating a surplus itself now, is heading toward disaster in the next decade. Social Security aside, its related Medicare and Medicaid programs are in severe financial trouble now. Yet, Congress is balancing the budget using these troubled programs. Somehow it's as if the Social Security and Medicare problems have magically disappeared.

    The surplus promoters in Congress are generating a false sense of optimism, both about its own handiwork and the improving fiscal health of the federal government. Before Congress does any more talking about a projected surplus, it has to recognize a true budget surplus must take Social Security out of the equation. It needs, accordingly, to change its accounting methodology.

    Instead, many in Congress continue their spendthrift talk and forget their new supposed fiscal discipline that has so far achieved a narrowing of the deficit, but no surplus.

    It's questionable how much of the deficit reduction is attributable to the economy or the fiscal discipline of Congress. The recent budget agreement failed to slow spending.

    Federal social spending, despite the dramatic decline in the deficit, "has now surged to record levels in real dollars and as a share of national output," according to an analysis by the Cato Institute, Washington.

    Leaders of Congress should be embarrassed by attempts to portray the budget as near balanced and fiscal affairs under control; they need to rein in spending and improve accounting to make it so.

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