A huge surge in projected budget surpluses had Republicans' mouths watering yesterday on Capitol Hill, as they celebrated the prospects of a new round of tax-cutting with a Fourth of July-style rally--complete with a colorful fife and drum corps.

House Speaker J. Dennis Hastert (R-Ill.) pronounced the nation on the cusp of a new era of economic security and challenged President Clinton to join with Republicans in passing major tax cuts and reforms of Social Security and Medicare. "As we commit ourselves to finding ways to secure our retirement programs, we also commit ourselves to bringing fairness to the tax code," Hastert said.

But despite new forecasts of soaring surpluses, Republican leaders were finding that it may be as hard to balance competing GOP interests as nailing down a deal with the White House.

Moderates and conservatives disagreed over the size and scope of future tax cuts. Appropriators and budget leaders fought over whether to use some of the surplus windfall for increased domestic spending. And confusion reigned over precisely how to go about revamping Medicare so it offers a prescription drug benefit.

"There's more red meat on the table now, but that doesn't guarantee the dinner party will be polite," said Robert D. Reischauer, former director of the Congressional Budget Office. "We could have more snarling over the division of the red meat rather than an attempt to reach some accommodation and compromise."

As a foretaste of that snarling, House Budget Committee Chairman John R. Kasich (R-Ohio) yesterday chastized appropriators for "dragging their heels" in drafting major spending bills in the hope that the leadership and White House would eventually agree to use part of the surplus to beef up next year's spending. Kasich told reporters he is "absolutely" opposed to lifting the spending ceilings to accommodate more spending, and suggested that appropriators who think otherwise need a "reality check."

Rep. John Edward Porter (R-Ill.), whose subcommittee controls spending for labor, health and education programs, fired back that it is Kasich who needs to get real about the inadequacy of available funding that will make it impossible to pass key domestic spending bills this summer.

"The name of the game is governing, and that means at a minimum passing the appropriations bills," Porter said. "We're looking at the numbers . . . and we don't know where the votes will come to pass these bills."

While Kasich took a strong line against raising the spending caps, Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) took a different tack, saying he favors a comprehensive deal with the White House that would provide more money for domestic programs, safeguard Social Security and Medicare, and enact a healthy tax cut.

"I want to put together a package to accomplish all our goals," Domenici said.

Three days after the White House issued revised estimates showing a $1.08 trillion bonanza of non-Social Security surpluses over the coming decade, the Congressional Budget Office released yesterday an only slightly less rosy update showing $996 billion of surpluses. According to the CBO, the surplus will total $120 billion this year and $161 billion in fiscal 2000, including about $14 billion more than expected in surpluses outside the Social Security program. That $14 billion windfall is likely to be the subject of vigorous competition, as congressional appropriators and tax writers both attempt to claim it.

During yesterday's GOP rally, House Ways and Means Committee Chairman Bill Archer (R-Tex.) outlined a tax package that includes some form of broad-based tax relief--possibly a percentage point reduction in every taxpayer's total tax obligation, according to sources--an end to the "marriage penalty," and reductions in capital gains and estate taxes.

Republicans already are calling for a tax cut of $775 billion over 10 years. Earlier this week, Archer seized on the more optimistic administration figures to say the package could grow to $1 trillion, drawing sharp protests from GOP moderates. Yesterday, as the new CBO numbers became known, Archer pulled back, saying, "It's fair to say it [the tax bill] likely will be between $800 billion and $900 billion."

House Minority Leader Richard A. Gephardt (D-Mo.) said the GOP's new tax cut plan demonstrated that "there is not any chance" for a compromise. "How can you compromise when they get new numbers and they run out immediately with a fife and drum corps . . . saying they want to spend over $1 trillion on a tax cut for the wealthiest Americans?" Gephardt said.

Staff writer Juliet Eilperin contributed to this report.


Broad elements of a 10-year Republican tax cut bill that could reach $996 billion:

Income taxes

An across-the-board reduction phased in over 10 years that could include gradual cuts in all tax rates, making more income subject to lower tax brackets or adding a line to IRS forms allowing all taxpayers a new flat deduction after they've figured their tax.

Capital gains

Retroactive to July 1, 1999, an unspecified cut in taxes on investments and other passive income. One leading proposal would reduce the top rate for longer-term investments from 20 percent to 10 percent.

Estate taxes

Cutting taxes on inheritances, either by raising the amount now exempt or gradually reducing the tax rate.

Marriage penalty

Fixing a part of the tax code under which about 21 million married two-income couples pay more than they would had they remained single. Options include boosting the standard deduction for married couples or adjusting income tax brackets so married people's earnings are subject to lower rates.


Creating tax-free savings accounts for people to use for education costs and changing rules on revenue bonds to raise more money for school construction.

Health care

Unspecified tax incentives to enable more people to buy health insurance.


Increase incentives for personal savings, such as raising the annual limit on contributions to individual retirement accounts from $2,000 to as much as $5,000.

SOURCE: Associated Press

CAPTION: J. Dennis Hastert, House speaker (R-Ill.)

CAPTION: Robert D. Reischauer, Former CBO director