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Clinton to Propose '99 Balanced Budget

By John F. Harris and Eric Pianin
Washington Post Staff Writers
Tuesday, January 6, 1998; Page A01

President Clinton announced yesterday that a new surge of money into government coffers will allow him to propose a balanced budget this year, the first time in nearly three decades that a president has presented Congress an annual spending plan with no red ink.

Under earlier agreements with Congress, the federal budget was not projected to come into balance until 2002. But Clinton, catching many on Capitol Hill by surprise, pledged that he would beat that target by three years with a fiscal 1999 budget in which the government would spend no more money than it takes in.

"This will be the first time in 30 years we've had a balanced budget, and that's good news for the American people and the American economy," Clinton boasted to reporters at the top of a White House meeting with his budget team. He warned that those who would cut taxes or substantially increase spending instead of balancing the budget early invite a return to the high deficits that "paralyzed our government and paralyzed our own people's potential in 1992 when I took office."

Clinton's budget also envisions some $10 billion in new spending that is contingent on Congress enacting a comprehensive settlement with the tobacco industry, administration officials said.

In moving up his schedule for ending the deficit, Clinton was taking advantage of a national economy that for five years running has outperformed the best estimates of forecasters. The annual deficit for this fiscal year was initially projected to be $120 billion; in fact, Clinton announced yesterday, the deficit will finish at $22 billion.

The new money is rapidly transforming the Washington debate. After more than a decade in which the deficit created the politics of austerity – with the two parties arguing over whether and how to cut spending – the debate has suddenly pivoted to a new politics of prosperity. The main arguments this winter, White House and congressional officials predicted, will revolve around whether to use unexpected money to cut taxes, increase spending on domestic programs or pay down accumulated debt.

This new political dynamic, aides said, helped prod Clinton to make his latest announcement a month before he will formally unveil his budget. They said he wanted to make sure that it was his plan – featuring the powerful symbolic appeal of balancing the budget for the first time since 1969 – that dominates public attention, not GOP tax-cut proposals.

By declaring his intent to balance the budget, the president also creates a powerful tool to hold down pressures to spend more. Robert D. Reischauer, a former director of the Congressional Budget Office, agreed that Clinton's sudden push for a balanced budget "is a way to constrain the voracious appetites of tax-cutters and big spenders."

Clinton's sudden move divided the Republicans on Capitol Hill. Some GOP leaders – including House Speaker Newt Gingrich (Ga.) and Rep. John R. Kasich (Ohio) – had earlier called on Clinton to take such a step, and yesterday praised him for doing it.

But a spokesman for House Ways and Means Chairman Bill Archer (R-Tex.) responded skeptically, and warned that Clinton was making a "preemptive strike against tax relief."

Administration officials said it was only over the past few weeks that balancing the budget this year moved to the forefront of Clinton's planning, and only in recent days that budget analysts demonstrated that he could do so and still preserve a variety of domestic spending increases that he will propose.

As it is, much of the spending Clinton will propose comes with an important string attached: passage of a comprehensive tobacco settlement including some $10 billion of new money for the federal government. Administration officials said they expect those funds to come from either a new per-pack tax on cigarettes or in direct payments from leading tobacco companies.

While many administration officials and lawmakers are optimistic that Congress will pass tobacco legislation, this is by no means assured. They added that Clinton's plans to balance the budget in fiscal 1999 do not hinge on whether the government gets the extra tobacco money.

Instead, several health and education-related programs in his budget – including new money on bio-medical research – will be specifically "earmarked" to passage of a tobacco bill. Clinton's plan to use a possible tobacco settlement to pay for new domestic spending was first reported in the Wall Street Journal yesterday.

The emphasis on early deficit reduction is a remarkable turnabout for Clinton. Three years ago, Clinton had concluded that the 1993 deficit-reduction package had been politically disastrous for him; the budget he submitted at the start of 1995 was lambasted by Republicans as containing annual deficits in the hundreds of billions of dollars "as far as the eye can see."

Under the administration's current forecasts, White House national economic adviser Gene Sperling said, "you will see surpluses as far as the eye can see." As recently as a few weeks ago, administration officials were vigorously discounting the possibility that Clinton would propose a balanced budget, and dismissing Republican pleas that he do so as unrealistic.

GOP deficit hawks applauded. "I think it's a very positive step," Kasich said. "The quicker we get in balance and the longer we stay in balance, the better it is for all Americans. There is no [political] downside to this – zero."

Republicans and Democrats agree, however, that passing a balanced budget for the fiscal year that begins next Oct. 1 will not be easy. They say an abrupt departure from last summer's painstakingly crafted budget and tax-cut agreement could invite a free-for-all over new spending and tax reduction.

Capitol Hill is awash in proposals for additional tax relief this year – including elimination of the "marriage penalty" and reductions in payroll taxes – while Gingrich and scores of others from both parties favor a substantial increase in spending for highways, defense, scientific research and other priorities in the event a surplus materializes. However, reaching a balanced budget could necessitate a new round of spending cuts and fiscal prudence.

One source of opposition might be House Democrats, led by Minority Leader Richard A. Gephardt (Mo.), who opposed last year's budget deal. "We thought it was a pretty hard squeeze last time," said a leadership aide. "How much tighter can you squeeze programs again?"

The budget was last in balance at the close of the Johnson administration; the last president to propose a balanced budget was Richard M. Nixon in 1971. Fueled by economic bad times, Reagan and Bush administration fiscal policies and Democratic congressional spending initiatives, the deficit soared during the 1980s and early 1990s, reaching its zenith at $290.4 billion in 1992 – an astounding peacetime figure representing 4.7 percent of the overall economy.

Since Clinton first took office, the deficit has steadily come down, due in part to anti-deficit measures pushed through by the Democrats in 1993 and last year's bipartisan budget deal but mostly because of six years of relentless economic growth. The combination of an expanding economy, low unemployment and declining demand for Medicaid, welfare and other entitlement programs produced a flush of revenue.

© Copyright 1998 The Washington Post Company

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