The White House Office of Management and Budget projected a fiscal 2001 surplus of $158 billion Wednesday, $1 billion above the tax receipts that flow to Social Security.
The surplus will be the second largest ever, but the revision is $123 billion less than the last estimate in April.
The forecast envisions a non-Social Security surplus of $1 billion in fiscal 2002, which begins Oct. 1. That represents a $58 billion drop from the April estimate, for an overall surplus of $173 billion next year that is almost entirely Social Security receipts.
Despite the reductions, White House Budget Director Mitch Daniels said, the government's fiscal health is sound even as the economic woes continue. "The nation is awash in money, and it will be," Daniels said.
Republicans, led by the president, say that an economic slowdown is part of the reason for the smaller surplus figures for fiscal years 2001 and 2002. But Bush says plenty of money is available to meet government spending needs, to protect Social Security and Medicare and to pay for the tax cut he successfully pushed through Congress earlier this year.
The OMB predicts that economic growth will pick up next year, partly due to the stimulus provided by the tax cut, which in turn would boost government revenues.
"We cut the taxes. It was the right thing to do," Bush said Tuesday during a visit to Independence, Mo. "It was the right thing to do for our economy."
But the revised numbers are adding fuel to Democratic charges that Bush's 10-year, $1.35 trillion tax cut is squandering the surplus.
"I see no more irresponsible act than that of the Bush administration's tax cut," Sen. Robert C. Byrd, D-W.Va., who chairs the Senate Appropriations Committee, said in an interview Tuesday. "It was a tax cut based on faulty projections."
Some key points in the OMB budget outlook:
—The economic downturn will reduce government revenue by $148 billion over the next 10 years, mainly in lower income and corporate taxes in the early years. But an improving economy will increase revenue in 2005 and beyond, leading to an overall upward revision of almost $74 billion for the decade.
—The 10-year surplus is forecast at $3.1 trillion, of which $2.5 trillion is Social Security. That leaves $575 billion for spending or tax cuts, down from $850 billion forecast in April. The total surplus before the tax cuts or other spending was pegged at $5.6 trillion.
—The administration is proposing a 10-year, $198 billion increase in defense spending and an extra $37 billion over the decade for a Medicare overhaul, including a prescription drug benefit.
—Growth in the nation's gross domestic product, estimated at just 1.7 percent in 2001, is projected to improve to 3.2 percent in 2002 and remain above 3 percent for the balance of the decade. The tax cuts and interest rate reductions by the Federal Reserve should improve the economy dramatically, the OMB says.
The document also says that further tax relief or spending initiatives beyond those proposed by Bush would have to be offset, either by other spending cuts or by raising other taxes. Republicans say that will force Congress to adhere to strict spending limits that were ignored in previous years.
"We must contain spending over the coming year," the OMB document says.
The nonpartisan Congressional Budget Office, whose estimates Congress must follow, plans to release its own surplus update next week.
The Associated Press contributed to this report.