The White House is preparing a new federal budget that will ignore the spending limits reached in a 1997 breakthrough agreement with Congress, a move that could open the way for new policy initiatives but also help Republicans escape a fiscal restraint that had become a political embarrassment.
Aides to President Clinton said yesterday that jettisoning the spending caps won't result in irresponsible budget-making because substantial political pressures remain to retire the federal debt, safeguard Social Security and offer realistic proposals to pay for any new spending plans.
Still, the move underscores how the spending caps, once hailed as a vital tool to help balance the budget and impose discipline on the government, have been rendered all but meaningless as the booming economy has created budget surpluses for the first time in a generation.
Faced with continuing pressures to spend more on defense, farms and other domestic programs, Congress and the administration have found numerous tactics to breach the caps informally. The administration's new approach, which appears likely to be embraced by congressional leaders, would allow for a more honest and credible approach to budgeting, aides said.
"Through the gimmicks, [Congress] destroyed the caps, made them meaningless," one senior White House official said. "Our budget will still maintain fiscal discipline, but will let us make investments to keep the economy going. We're going to have tough budget rules that will have meaning." He said Clinton will call for eliminating the $5.7 trillion federal debt by 2015.
The formal collapse of the spending caps, which would have meant deep cuts in domestic spending next year, highlights how the political debate in Washington has shifted to shoring up Social Security, which analysts now consider the biggest incentive to curb spending or new tax cuts. Both parties have pledged to finance government programs without dipping into surplus revenue generated by Social Security payroll taxes.
That pledge appears to have replaced the caps as the only brake on tax and spending policy. According to the latest Congressional Budget Office estimates, the government will end fiscal 2000 with a $129 billion surplus--all in Social Security, which collects more now than it pays in benefits but could run out of money when baby boomers retire. Without the Social Security funds, the government actually would be running a $17 billion deficit, the CBO projects.
In a preview of anticipated optimistic CBO estimates later this month, Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) said yesterday that his staff believes this year's surplus--excluding Social Security--will be $10 billion to $20 billion and as much as $40 billion next year.
But until the CBO revises its projections, Congress and the White House have little maneuvering room for new initiatives or tax cuts--if they uphold their pledge not to use the Social Security surplus.
Last week, House GOP leaders announced that they were abandoning, at least temporarily, their quest for a massive tax cut and instead would focus on a more modest package of tax relief and debt reduction. This week, GOP presidential candidate John McCain limited his proposed tax cut to leave more for shoring up Social Security--and attacked rival George W. Bush for pushing a tax plan he says would drain the surplus.
White House officials, meanwhile, acknowledge that they are scaling back proposals for education, health care and medical research, among others, because of the Social Security pledge. Clinton's budget director, Jack Lew, has told reporters that concern about preserving the Social Security surplus "clearly limits our ability to undertake large new spending policies and is an impediment to tax cuts."
"The Social Security surplus is more of a restraint on spending than the [budget] caps ever were," said Robert D. Reischauer, a Brookings Institution economist and former CBO director.
Privately, aides to GOP House and Senate leaders said they are unlikely to attack Clinton on the spending caps issue because Congress damaged its own credibility last year with budgetary contortions needed to remain technically within the limits. For example, it declared the 2000 census to be "emergency spending," even though the census is conducted every 10 years.
But the White House used ruses last year too, such as offsetting some of its spending proposals with a large cigarette tax increase that Congress never seriously considered. By disregarding the spending caps, White House officials said privately, such charades can be dropped in shaping the fiscal 2001 budget.
With both the White House and Congress widely criticized last fall for engaging in budgetary gimmicks, the main question was which side would act first to declare the spending limits irrelevant. Administration officials said yesterday they're willing to give congressional Republicans a break in order to offer a more honest budget with a bit more room for new spending initiatives. Besides, they say, congressional Republicans can't take much political advantage because their own accounting tactics last fall were often ridiculed.
Clinton has yet to put the final touches on the budget package he will present to Congress on Feb. 7, but several top aides said current plans call for treating the spending caps as nonexistent. "It's clear that's the way they are leaning," said an aide to a Democratic congressional leader who has consulted with White House budget-makers.
With both political parties apparently eager to drop the debate over spending caps, they are likely to focus on the question of who is best able to protect Social Security.
"If this lame-duck budget risks Social Security with more fairy-tale tax increases like it did last year, this Republican Congress will stop him," said John Czwartacki, spokesman for Senate Majority Trent Lott (R-Miss.). He said he was alluding to Clinton's cigarette tax proposal.
Even on the presidential campaign trail, where Republicans and Democrats are touting generous tax cuts and health care and education programs to try to attract voters, candidates are treading carefully at least not to appear to be dipping into Social Security.
Both Democratic candidates--former senator Bill Bradley (N.J.) and Vice President Gore--have attacked each other for spending proposals they contend would eat into surplus tax revenue generated by Social Security. On the Republican side, similarly, Bush and McCain are clashing over tax policy, with McCain charging that Bush's plan to cut taxes $483 billion over five years is too big and could endanger long-term efforts to bolster Social Security.
Bush argues that a huge tax cut is vastly preferable to allowing politicians in Washington to spend much of the projected non-Social Security surplus. But wary of being accused of planning to dip into the Social Security part of the surplus, Bush has also played down the long-term cost of his tax proposal.