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With Black Ink, Clinton Draws a Line

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  • By Eric Pianin and George Hager
    Washington Post Staff Writers
    Thursday, January 21, 1999; Page A06

    He was a master of co-opting his opponents' best ideas, as he did in championing GOP proposals to balance the budget, reform welfare and combat crime. But in unveiling his plan to preserve Social Security this week, President Clinton drew the sharpest distinction possible over the fundamental issue of how best to divide vast government resources in the coming decades.

    With trillions of dollars of potential budget surpluses at stake in the next 10 years, Clinton wants to use most of it to shore up the nation's two largest social programs, Social Security and Medicare. Republicans, by contrast, favor using a large chunk of the surplus for across-the-board tax cuts.

    This debate is at the heart of an unfolding budget and political struggle with profound implications for the outcome of the 2000 election, even as Congress focuses on Clinton's impeachment trial. The key variables are conflicting approaches to saving the politically sacrosanct Social Security system, the Republican leadership's seemingly unquenchable thirst for additional tax relief, and mushrooming projections for the largest budget surplus in modern times.

    Prospects for a major deal this year covering Social Security, taxes and possibly new spending for defense and education are slim because of the political bitterness over Clinton's impeachment trial, but administration and congressional aides insist it is not out of the question.

    "There's clearly a deal to be struck here," said G. William Hoagland, the veteran Republican staff director of the Senate Budget Committee. "We all have to go through this Kabuki dance at the beginning, but I can see it coming together at the end of the day."

    Clinton squelched Republican tax cuts a year ago by insisting that future surpluses be set aside until his administration and congressional leaders thrash out a compromise to ensure the long-term survival of the Social Security system. He took a similar tack in Tuesday night's State of the Union address, but this time Republican leaders refuse to acquiesce and are bracing for what could be a critical showdown over fundamental differences.

    "The essence of the debate this year is how much will taxpayers pay this government when the government currently doesn't need [all] their money," said Senate Budget Committee Chairman Pete V. Domenici (R-N.M.).

    House Ways and Means Committee Chairman Bill Archer (R-Tex.) added: "The more the American people look at this, the more they will realize that we can have tax relief while we save Social Security."

    During a rally in Buffalo yesterday, Clinton said that while "it may sound good if somebody says this is your surplus and we ought to give it back to you . . . what I'm trying to do is give you a way to maximize the chances that we will have a strong economy" in the future.

    "We're going to have a big argument about this, and we should," he said.

    The White House and Congress have been divided over tax policy for years, and even within the GOP ranks there have been sharp differences. Last year, for example, Clinton stopped GOP tax cut plans in their tracks with his demand to save Social Security first, which struck a popular chord with voters. The House pushed through an $80 billion, five-year package of tax cuts that would have ended the so-called marriage penalty and cut a variety of other taxes, but the plan ran into strong resistance from moderate Republicans in the Senate and was tabled.

    This year, however, Republican leaders insist that the political climate is changing and that Clinton and congressional Democrats will feel mounting pressure to go along with some tax cut compromise.

    For one thing, the long-term budget picture has improved immensely, raising the prospects of huge windfall surpluses that could be used to finance major tax cuts. Last year's projections showed that while the Social Security trust fund was generating huge surpluses, the remainder of the budget was operating in the red and would produce no appreciable surpluses with which to pay for tax cuts until 2005.

    Now, however, preliminary Senate Budget Committee estimates show vast non-Social Security surpluses arriving much sooner -- 2002 -- and growing much larger: some $522 billion in 1999-2008 and almost $700 billion in 2000-09.

    The surplus numbers themselves are highly confusing, but key to the debate. On Tuesday night, Clinton proposed devoting $2.7 trillion, or about 60 percent of what the White House projects will be the total surplus in federal accounts (combined revenue from the Social Security payroll tax and other taxes) over the next 15 years, to Social Security alone. He proposes spending the remaining 40 percent on Medicare, new retirement savings accounts and defense and domestic programs.

    The $700 billion Senate Republicans are talking about devoting mostly to tax cuts is their estimate of what the non-Social Security surplus will be over the next 10 years.

    The new projections have emboldened Domenici and other Senate GOP leaders, who previously resisted efforts by House Budget Committee Chairman John R. Kasich (R-Ohio) and other House GOP leaders to pass major tax cuts.

    Senate Majority Leader Trent Lott (R-Miss.) this week announced GOP plans for a 10 percent, across-the-board tax cut, as well as the elimination of the marriage penalty. Yesterday, Domenici upped the ante, proposing to gradually phase in a tax cut of as much as 14 or 15 percent over 10 years.

    "We must pursue a very large and comprehensive tax cut," said Domenici, who has begun talks with Kasich for a new budget plan that provides for major tax relief.

    Republicans quickly agreed to Clinton's proposal to set aside some 60 percent of the federal budget surplus for Social Security alone, chiefly because it implicitly freed up the remaining 40 percent for other things, primarily GOP tax cuts.

    "Sixty-forty is the split," Domenici said.

    Clinton's proposal to spend another chunk of the surplus on Medicare complicates matters for Republicans by conjuring up memories of attacks by Clinton and the Democrats on the GOP in 1995 for attempting to cut Medicare to help finance tax cuts.

    "The president will have the seniors arrayed 10 deep behind him on this. The Republicans, should they charge on their tax-cut steed, might have second thoughts," said Robert Reischauer, a senior fellow at the Brookings Institution.

    Clinton will formally unveil his budget and policy proposals Feb. 1, and House and Senate Republicans subsequently must devise a budget and tax package of their own. For now, there is no agreement among House and Senate GOP leaders on an alternative plan to overhaul Social Security or on the details of a tax cut.

    While Clinton and congressional Democrats say they support targeted tax cuts that are paid, they warn they will staunchly oppose tax cuts from future surpluses. Moreover, polls show Americans overwhelmingly oppose using the surplus for tax cuts.

    A senior White House aide characterized the president's view as: "I'm resisting spending. Can't they [Republicans] resist some tax cuts?"


    © Copyright 1999 The Washington Post Company

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