BUDGET PANIC CLOUDS ENERGY POLICY OUTLOOK

News of a shrinking federal budget has touched off a ridiculous round of hysteria in the US that could hurt producers of oil and natural gas.

The government says the budget surplus for the fiscal year ending Sept. 30 will be about $160 billion. That's the second largest surplus in US history. But it's far below the $275 billion projected earlier in the year.

Out-for-blood Democrats used this news to whip up hysteria over popular social programs. They claim the administration of President George W. Bush went too far with tax cuts and now must siphon money from Social Security and Medicare, which the administration denies.

There's no real money to siphon in those programs. But Democrats and Republicans alike have promoted the fiction that there is in order to have something to defend at all costs.

To the peril of national prosperity, they now feel obliged to treat the surplus the same way. On behalf of the revered surplus, Republicans want to slash government spending, and Democrats want to raise taxes.

At this moment in history, neither tactic makes sense. What the government should be worrying about is general economic health, which is wheezy.

The budget surplus has fallen below expectations mainly because the economy stalled. Two large and coincident factors in that development were spurting energy prices and rationalization of the stock market after the internet craze. It appears that the slowdown began in the summer of 2000.

Correction probably has begun. Energy prices have subsided. And capital is finding its way back into adult hands.

The surplus shrinks as taxable incomes reenter the atmosphere and government payments increase to the low fliers. The shrinkage is not something over which politicians need to panic.

The last thing the government should do while this essential adjustment is under way is calibrate either spending or tax rates to fiscal balances. The priority should be economic growth.

When the economy grows again-and it will-so will the budget surplus unless Congress lets spending outrun revenues.

Political shadows cast by the current budget shrinkage, however, darken prospects for producers in looming debates over energy policy.

Tax adjustments favorable to producers and long overdue are part of energy legislation passed by the House and awaiting action in the Senate. Inevitably, they will be mischaracterized as breaks for oil companies that keep funds out of government hands.

In fact, most of the changes have to do with timing, not dollar amounts, of tax payments. For producers or anyone else, timing changes favorable to taxpayers encourage investment and thereby stimulate economic activity.

That's what the government should be doing now-stimulating economic activity.

Growth eliminated the deficit. And growth, when it resumes, can arrest shrinkage of the surplus.

Producers need to be ready to make that argument when the Senate turns its attention to energy policy.

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