Slowdown, rebates will force U.S. to borrow $51 billion

WASHINGTON -- The economic slowdown, along with rebate checks for President Bush's tax cut, will force the government to borrow $51 billion by September, an about-face from its previous predictions, the Treasury Department said Monday.

Treasury officials said Washington expects to be a net borrower of $51 billion during this quarter. The department had said earlier it would pay back $57 billion during those months.

Officials said $38 billion of the borrowed money would pay for tax rebates Americans have begun receiving, money that officials hope will fuel more spending and help the economy avoid recession.

About $28 billion will be used to cover the cost of putting off until October the collection of corporate tax payments usually due in September. And up to $8 billion will go for spending Congress approved that is beyond its normal budget.

That still leaves about $34 billion of the $108 billion swing unaccounted for. Analysts said a substantial portion was due to lower tax collections caused by the economic slowdown.

"The tax bill included rebates because we wanted to stimulate the economy," said Treasury spokeswoman Michele A. Davis. "People are getting money now instead of next year when they file their income taxes."

The $51 billion borrowing will not be the first time Washington has had to take out a loan since it began running budget surpluses in 1998. It borrowed $46 billion between January and March of this year, according to Treasury figures.

Nor does it signal the end of the era of surpluses. Mitchell Daniels, the Bush administration's budget chief, predicted this month that the government's surplus for the fiscal year that ends in September would be between $160 billion and $190 billion. Either figure, though substantially less than the $275 billion that had been forecast by the Congressional Budget Office this year, would have seemed an unimaginable windfall even a few years ago.

Nevertheless, the Treasury Department's disclosure of the new borrowing suggests that the era of the big budget surplus is coming to a close as the combination of the tax cut and the economic slowdown takes its toll.

Some victims have already been claimed. A second round of tax cuts this year, with provisions ranging from repeal of the steep federal liquor tax to generous tax breaks for the charitable works of faith-based institutions, seems increasingly unlikely.

And on the spending side of the budget, Congress will have to scrape to come up with the funds for Bush's favored programs, notably defense and education.

The tax-cut measure, which the president signed into law June 7, will reduce the amount Washington collects and keeps by $1.35 trillion over the next 10 years, including the $38 billion in rebates over the next three months. The tax bill also shifted the due date for corporate tax payments out of the current fiscal year, which ends Sept. 30, and into the next one.