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Budget Surplus Forecast Grows

Budget Chart
By Eric Pianin and John F. Harris
Washington Post Staff Writers
Tuesday, June 29, 1999; Page A1

President Clinton announced yesterday that the surging economy will pump an extra $1 trillion into government coffers over the next 15 years, a bonanza that he said should give Washington the money it needs to secure the long-term stability of the nation's two largest social programs and eliminate the federal government's public debt by 2015.

The administration's annual midyear review showed that the government's budget picture has brightened even beyond the sunny forecasts issued in February, into a line of black ink that it predicts will stretch far into the next century. The new projected budget surplus for this year is $99 billion, up $20 billion from five months ago, and the largest government surplus as a percentage of the economy since 1951. Cumulative surpluses, officials said, will be $517 billion larger than anticipated in February, and $1 trillion greater over 15 years.

The bounty that Clinton announced yesterday -- just days before Congress was set to release similar upbeat projections -- could transform Washington's politics on the brink of an election year. The extra money, Clinton and some lawmakers in both parties said yesterday, could provide the lubrication needed to strike agreements shoring up Medicare and Social Security, and boosting increasing defense and education spending -- even while accommodating Republican demands for a tax cut larger than anything Clinton has previously said he would consider.

"The surplus is the hard-earned product of our fiscal discipline," Clinton said. "We should use it to prepare for the great challenges facing our country -- caring for our parents, caring for our children, freeing our nation from the shackles of debt so that we can have long-term, sustained economic prosperity."

Beyond this boasting, Clinton and his aides made plain their desire that more money would allow the closing phase of his presidency to be marked by large legislative achievements, with both parties realizing some of their objectives rather than descending into a season of stagnation and partisan acrimony. Until yesterday's new projections, it appeared that some of the big-ticket items on Washington's agenda -- including an agreement to shore up Social Security's finances -- were in deep trouble.

Before leaving on a political fund-raising trip to New York yesterday, Clinton signaled a new willingness to meet Republicans halfway on taxes and other issues.

Clinton, for instance, matched Republican proposals that all Social Security taxes -- a significant source of the budget surpluses -- be spent solely on the retirement program, rather than diverted toward other purposes as they have been for many years. Without acknowledging it, he even borrowed the GOP's slogan about creating a "lockbox" to prevent raids on Social Security.

Clinton is now proposing that the excess funds generated by Social Security taxes be used to pay down the accumulated national debt over the next 15 years, putting the federal government in a stronger fiscal position to cope with the pending retirement costs of the baby boomers.

At the same time, Clinton wants to use other new revenue flowing into the Treasury to accommodate other Democratic priorities. These include more money for Medicare, including a popular new drug benefit for senior citizens that Clinton will detail today. He also proposed a new Children and Education Trust Fund. That fund would essentially be an accounting device -- albeit a nonbinding one -- designed to pressure Congresses into spending $156 billion of the projected surpluses on social programs such as Head Start and assorted childhood health programs.

The new money, said one senior White House official, means "the wind is at our backs."

While some lawmakers in both parties believe their election prospects next year are better without compromises, the White House is betting that there is a centrist majority in Congress that would rather face voters with a record of solving the major fiscal issues confronting the government. "My sense is that the numbers make all things more possible," said one senior White House official. "More resources mean fewer excuses for not getting things done, and that includes a tax cut."

"I think it makes it more likely we can get some kind of agreement," agreed House Budget Committee Chairman John R. Kasich (R-Ohio). "I think fundamentally any time you have more dollars in the hunt it makes it more easy to reach a compromise than if you don't."

There remains plenty of reason for caution, with distrust of Clinton high in the Republican Party, and many Democrats hostile to any effort to help the fractured GOP majority overcome its political liabilities by passing bills that would lead to Rose Garden ceremonies.

House Majority Leader Richard K. Armey (R-Tex.) said he hoped Clinton's comments "indicate a summer of cooperation, saving Social Security and Medicare, maintaining fiscal discipline and restoring fairness to the tax code."

But others, including Senate Majority Leader Trent Lott (R-Miss.), were far more skeptical that the new numbers would make much difference, insisting that Clinton and congressional Democrats have yet to demonstrate that they are more interested in working through legislation this year than attacking the Republicans as "do-nothing" leaders.

"I don't know whether he's serious or not, but if he is we're going to have to see more than words. We need deeds," Lott said.

For the last two years, Clinton has effectively stymied the Republican drive for a big tax cut by arguing that the lion's share of the surplus must go to buttress the Social Security system and to retire more of the debt.

The president has said there could be no discussion of a tax cut until the national retirement system had been put on solid financial footing for the next 75 years, the actuarial benchmark for the retirement system's solvency. Moreover, he insisted that future tax cuts be paid for -- meaning they are offset by raising other revenues, such as with a tobacco tax, or reducing spending.

But in the wake of the new administration estimates yesterday, Clinton has shifted his stance in several important respects. For instance, he is now requiring that only some of the surplus be shifted to Social Security beginning in 2011, to extend the system's solvency to 2053. And he is saying that tax cuts can be financed as well with the expected surplus.

Under Clinton's approach, tax relief would be offered in the form of so-called Universal Savings Accounts that would supplement retirement benefits. House and Senate Republicans are preparing tax packages providing a broad range of changes, including the elimination of the so-called marriage penalty, putting more people in the lowest 15 percent income-tax bracket, reducing or eliminating the inheritance tax and possibly cutting the capital gains tax.

Congressional Democrats appear divided on the tax issue, with a majority in the House backing Clinton's approach, while some in the Senate, including Sens. John Breaux (D-La.) and Bob Kerrey (D-Neb.) favor a more ambitious tax package.

But while continuing to advocate tax cuts totaling less than half the $775 billion demanded by Republicans over the coming decade, the president yesterday seemed more conciliatory, saying he was open to a compromise. "Within the framework of achieving these objectives, obviously I'll be working with the Congress to achieve them," Clinton told reporters.

Administration officials said that relentless real growth in the economy, coupled with declining unemployment and low inflation, were major factors in the surge in projected federal revenues and the huge surplus growth.

The report issued yesterday forecasts that budget surpluses will total $6 trillion over the next 15 years, a $1.1 trillion increase from the Office of Management and Budget's February estimate. This total consists of two parts: a $3.1 trillion surplus in the Social Security program and $2.9 trillion in the rest of the budget.

Both parties say they are committed to using the Social Security surpluses only for the retirement program, but Clinton outlined a range of uses for the rest of the money, including $794 billion for Medicare and another $543 billion for Social Security -- on top of any surpluses in the program.

The remainder would finance the Universal Savings Accounts or be pumped into defense readiness programs and key domestic programs.


© 1999 The Washington Post Company

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