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_ Part I: After Decades, the Expectations of a Surplus (Washington Post, Feb. 1)

_ Discuss the budget with The Post's Clay Chandler live on Wednesday at noon.

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On Budget Eve, Congress Feels
Surplus Fever

Second of two articles

By Eric Pianin
Washington Post Staff Writer
Monday, February 2, 1998; Page A01

The sudden promise of huge surpluses for as far as the eye can see is radically altering the way some politicians and economists think about spending money and has raised expectations of bolder government programs in years to come.

"We are on the edge, if we will have discipline, of a generation of surpluses," House Speaker Newt Gingrich (R-Ga.) said in a recent speech. "The time has really come for us to start talking about a generation of goals."

But discipline is the last thing on the minds of many anticipating the $9.5 billion surplus in the fiscal 1999 budget President Clinton will present to Congress today and the billions more projected in years to come.

Liberal Democrats and economists such as Robert Eisner of Northwestern University argue that Congress should plow any surplus into education programs, child care, medical research, new technology and highways to sustain the economic expansion and assist the underclass. Some conservatives, including William Kristol and David Brooks, are goading Republicans to pursue a more "robust conservatism" by spending more on defense, schools, parks, buildings and national monuments that "appeal to American greatness."

Scores of other Republicans and Democrats see in future surpluses a politically painless way to shore up troubled entitlement programs and begin paying down the national debt, while having enough left over for cherished tax cuts.

More than two decades of domestic policymaking largely driven by concerns over increasing red ink is giving way to more ambitious thoughts about government's potential for making a difference in people's lives as a booming economy and soaring revenue wash away the last vestiges of the deficit. The budget Clinton presents today is the first in 30 years that does not project higher spending than revenue. The fiscal 1999 document projects cumulative surpluses of nearly $1 trillion over the coming decade.

"We have a 10-year window to get our economic house in order," said House Appropriations Committee Chairman Bob Livingston (R-La.). "There's a whole new environment and it allows us to pay more attention to the tough issues like Social Security, Medicare and education. I can't say we have done a sufficient job on those . . . but we're going to be able to do that now."

While the potential is great, the White House and Congress intend to move cautiously in that direction in the early going. Alarmed by the surplus fever sweeping Washington, Clinton and House and Senate GOP budget leaders last week sought to tamp down talk of altering last summer's balanced budget agreement to make room for more spending for highways and another round of tax cuts.

Budget Graphic

Budget Graphic

Budget Graphic
SOURCES: National Committee on Retirement Policy, Congressional Budget Office

In his State of the Union address, Clinton urged a moratorium on spending budget surpluses until Congress and the White House work out a long-term plan to preserve Social Security against the tide of baby boom retirements that threaten its long-term solvency. Rep. John R. Kasich (R-Ohio) and Sen. Pete V. Domenici (R-N.M.), the chairmen of the House and Senate Budget committees, vowed to preserve the spending caps in the budget agreement that will begin to squeeze domestic and defense spending through 2002.

Adding to the chorus, Federal Reserve Board Chairman Alan Greenspan warned Congress that "until we really know that we have a chronic surplus . . . it's far too premature to discuss what one is going to do with a surplus." Greenspan, whose words are taken seriously by congressional leaders, argued that future surpluses should be used exclusively to begin retiring the $5.6 trillion national debt. That would help bring down long-term interest rates that in turn would spur savings and investment, Greenspan said.

Echoing the call for Congress to keep its hands off the surplus, Sen. Charles E. Grassley (R-Iowa), a Budget Committee member, declared: "If we just do nothing and keep to the policies we adopted last year, we have the ability of doing great things."

But as the election year heats up, it will be difficult for some members to resist going after some of the looming pot of money for more tangible and politically rewarding measures than debt retirement. "Though it's not a good idea, there's a great temptation [among members] to spend it right now . . . on things that would make people feel good," said Rep. Jim Kolbe (R-Ariz.), a senior member of the House Budget Committee.

Even before Congress returned last week, Gingrich proposed using future surpluses for year-to-year reductions in taxes, a significant buildup of U.S. armed forces, and a big boost in spending on research and new technology, as well as for debt retirement.

Rep. Mark W. Neumann (R-Wis.) has won many converts to his proposal to split the surplus three ways for tax cuts, debt retirement and new spending. And Rep. Bud Shuster (R-Pa.), chairman of the House Transportation and Infrastructure Committee, is mounting a bipartisan effort to increase highway spending by $34 billion more over the next five years than is permitted by the budget agreement. The first major test of the staying power of the spending caps will come early this year, when Congress takes up the highway reauthorization bill.

Shuster and an army of GOP and Democratic supporters argue that with government revenue running far ahead of estimates, Congress should be able to draw down more in highway funds than now permitted under the spending caps. But if Shuster gets his way, GOP leaders well understand, others will demand further adjustments in the caps to accommodate their pet programs.

"There's an enormous resolve regarding [preservation of] the caps," House Majority Leader Richard K. Armey (R-Tex.) told reporters last week.

Even as Clinton counsels prudence in using future surpluses, the president is mounting an aggressive lobbying effort to boost domestic spending as part of his 1999 budget plan. Clinton has proposed scores of social initiatives, including lowering the eligibility age for the Medicare health care system for the elderly, a public-private partnership to create after-school programs for millions of youngsters, and billions of dollars in funding to build or refurbish 5,000 schools and to reduce class sizes in elementary schools.

White House officials say the initiatives would all be paid for, with a proposed cigarette tax increase and other offsetting revenue. But GOP leaders suspect that the president's spending wish list -- totaling roughly $45 billion annually -- could well end up breaching the spending caps if Congress refuses to go along with his proposed tax increases.

Last year, Republicans rejected Clinton proposals for $50 billion of increased taxes and fees as part of the president's budget submission. "If he renews that and we reject it again, it puts a big hole in all the other things he wants to do," House Ways and Means Committee Chairman Bill Archer (R-Tex.) said.

The last time the United States had a balanced budget was in 1969, when former president Lyndon B. Johnson's 10 percent income tax surcharge helped raise enough revenue to offset temporarily the cost of the Vietnam War. Six presidents and a dozen Congresses were unable to repeat that feat, and once small and irregular deficits became large and chronic.

For more than 20 years, the deficit grew into the reigning obsession of modern politics, dominating the congressional agenda the way civil rights and Vietnam had in previous decades. But that mindset is beginning to change, as the effects of a series of major budget deals and years of record economic expansion have virtually wiped out the deficit. The deficit, which totaled $290 billion when Clinton took office six years ago, is projected to dip to less than $5 billion during the current fiscal year, which ends Sept. 30.

"Our policymaking process for years was out of whack," said Office of Management and Budget spokesman Lawrence J. Haas. "Ideas did not get an honest discussion based on their merits. Cost was the all-consuming bottom line. We feel that as we move ahead, the policymaking process can be a more rational one . . . where cost is only one consideration."

"We're just in a new world," added Archer. "And we're in a world where we are going to begin to start thinking more about the moral and social impact of tax policy than we ever have before."

The federal government will spend a total of $1.7 trillion this year and that figure will rise to $2.4 trillion by 2008, according to the Congressional Budget Office. While spending will rise in absolute terms, it will decline as a percentage of the overall economy. This year total spending constitutes 20 percent of the gross domestic product; but by 2008, under current projections, it will dip to 18 percent of GDP.

Many Republicans and conservative Democrats are alarmed that, as spending for Social Security and other entitlements consumes more and more of the budget (56 percent last year and a projected 63 percent by 2002), the share for defense and domestic programs will continue to shrink. Total spending for all domestic programs other than entitlements represents only 17 percent of the budget, while defense -- once the dominant spender -- represents about 16 percent.

If the economy continues to roar, future surpluses could well exceed the $1 trillion the administration is projecting over the next 10 years -- providing Congress and the White House with the opportunity to beef up some of these areas.

But Henry Aaron, an economist with the Brookings Institution, said surpluses of that magnitude would have only a marginal impact on the economy -- perhaps resulting in a modest decline in interest payments on home mortgages or car loans -- and that competition for the money will be fierce.

"The benefits of surpluses are small and diffuse," he said. "And the threats to them come from tax cuts and expenditures that benefit targeted groups that are likely to be the most vocal. The broad public benefit loses out to focused or private gain."

Go to Part I

© Copyright 1998 The Washington Post Company

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