Congressional budget analysts yesterday predicted much larger budget surpluses than were forecast only six months ago, giving lawmakers and presidential candidates potentially $1 trillion more for tax cuts and new spending over the coming decade.
The improved forecasts from the Congressional Budget Office had been expected for several weeks, but the actual estimates--as much as $1.92 trillion in potential surpluses in the coming decade, not counting Social Security--underscored how the booming economy has opened the door to spending and fiscal initiatives unimaginable a few years ago.
For Republicans, especially presidential front-runner George W. Bush, the new numbers could bolster their contention that the country can afford a big tax cut while protecting Social Security and Medicare. And for many Democrats, the numbers hold the promise of new spending on health care and education initiatives.
But echoing the concerns of many fiscal analysts, President Clinton cautioned yesterday that the most optimistic CBO scenario is unlikely to materialize because it is based on assumptions about government spending that are highly unrealistic. For instance, the CBO's best-case scenario for future surpluses assumes that Congress will make deep cuts in domestic spending mandated by the 1997 balanced-budget agreement--something lawmakers have been unwilling to do for the past two years.
"To use the '97 [limits], when they were totally shredded last year, as a basis for estimating how you should spend everything else on a tax cut, means you're going to get back in deficit problems," Clinton told reporters.
Clinton did say that his administration is responding to the surge of revenue into government coffers by moving its target date for eliminating the national debt to 2013, two years earlier than was previously projected.
House Speaker J. Dennis Hastert (R-Ill.) and Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) hailed the new CBO numbers as vindication of Republicans' claims last fall that they could balance the budget and enact new spending bills without dipping into surplus funds generated by the Social Security program. The new CBO report concludes that the government will fund programs this year without using money from Social Security.
Bush said the new projections underscore his claim that the country can afford a big tax cut without threatening to throw the budget into deficit again. He also said it would give him the advantage over his chief Republican presidential rival, Arizona Sen. John McCain, in their ongoing tax debate.
"I do think this is a big benefit [for my campaign] because it makes the case I've been making, and it certainly cuts the legs out from underneath the fellow who says, 'Bush spends all the money in the surplus,' " the Texas governor said in an interview.
The improving surplus projections are largely the result of higher-than-anticipated tax revenue--owing to continued economic growth--and the declining costs of Medicare and unemployment insurance. The CBO has boosted its forecast for economic growth this year from 2.4 percent to 3.3 percent.
In its latest report, which CBO Director Dan Crippen will formally present to Congress today, the nonpartisan agency made clear that the size of the surplus will depend greatly on how aggressive Congress is in limiting the growth of federal spending.
Still, even under the most cautious scenario, surpluses will be far greater than anything the government has enjoyed in a generation, according to the CBO. If annual spending growth is kept to the rate of inflation, for instance, the surplus outside the Social Security program will reach close to $1 trillion over the next decade. Only six months ago, the CBO estimated that steep spending cuts would be necessary to produce such a surplus.
The administration and Republicans have agreed informally to wall off surpluses from the Social Security system as a means of strengthening the retirement system. That policy leaves about half of the overall surplus up for grabs, which has fueled an increasingly lively debate over tax cuts and spending.
Bush has proposed across-the-board tax cuts totaling more than $1 trillion over the coming decade, while McCain says that plan is unaffordable and calls for smaller cuts. On the Democratic side, former senator Bill Bradley has proposed spending as much as $65 billion a year on a national health care plan in his uphill battle against Vice President Gore.
Meanwhile, Clinton has unveiled more than $150 billion in spending initiatives he intends to seek in his final year in office, including a major expansion of affordable health insurance, while using most of the surplus to pay down the debt.
Yesterday, Clinton framed the issue the same way he has for the past two years--as a choice between debt reduction and broad tax cuts.
"Yes, we can have a tax cut," Clinton said, emphasizing how his idea of tax relief differs from the GOP approach. "It ought to be modest; it ought to be targeted; it ought to be in the context of fiscal discipline."
Also, Clinton for the first time acknowledged what many political observers have long since concluded--that it is unlikely a comprehensive overhaul of Social Security will occur before he leaves office.
GOP leaders on Capitol Hill appear to be taking a more cautious approach on taxes than they did last year. Senate Majority Leader Trent Lott (R-Miss.) said this week that while he agrees with Bush on the importance of a tax cut, "we should do that after we're sure that Social Security and Medicare are protected and we have addressed some of the needs we have in areas like education and defense and perhaps Medicare."
McCain said yesterday that a larger surplus still does not solve the long-term problems of the Social Security and Medicare systems, nor is it enough to retire the $5.6 trillion national debt. "The problem has probably been slightly lessened by the new surplus numbers," he said. "Another trillion dollars helps, but it certainly doesn't solve the problem."
As one sign of the enormous political sensitivity of the latest figures, the CBO took the unusual step of making three separate projections of the surplus. One, likely to be endorsed by Republicans, assumes that expenditures on government programs other than Medicare and other entitlements will be unchanged for the decade and will produce a $1.9 trillion non-Social Security surplus. This "freeze baseline" approach assumes less spending than Democrats favor and more money left over for tax cuts.
The second approach, largely favored by Democrats, assumes that annual spending will keep pace with inflation, while yielding a 10-year surplus of only $838 billion. The third approach, which would yield the largest surplus but is considered the least realistic, would require Congress to continue to adhere to the balanced-budget agreement and make sharp cuts in domestic spending.
Staff writers Edward Walsh and Dan Balz in New Hampshire contributed to this report.