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First Balanced Federal Budget In 30 Years Offered by Clinton

By Eric Pianin
Washington Post Staff Writer
Tuesday, February 3, 1998; Page A01

President Clinton yesterday did what he promised in his State of the Union address and submitted the first balanced budget in 30 years, one that would bar substantial new spending and tax cuts until a plan is in place to preserve Social Security.

"This budget marks an end to decades of deficits that have shackled our economy, paralyzed our politics and held our people back," Clinton said at a White House ceremony. "It can mark the beginning of a new era of opportunity for a new American Century."

The 368-page document the administration sent to Congress yesterday is the first formal move in what will be a series of political and legislative maneuvers throughout the coming months to craft a final budget and tax plan for fiscal 1999, which begins Oct. 1.

Senate Majority Leader Trent Lott (Miss.) and other GOP leaders quickly challenged some of the president's spending priorities and how he intended to pay for them. "You're talking about the lollipop budget . . . with lollipops for everyone," Lott told reporters.

The biggest criticism of Clinton's proposal is his use of $65 billion of a proposed tobacco industry settlement to offset about two-thirds of the cost of new spending and tax relief initiatives for education, child care, expanded health care, research and other measures.

Republicans and some Democrats – including Rep. John M. Spratt Jr. (S.C.), the ranking Democrat on the House Budget Committee – warn that the settlement itself may be in serious trouble in Congress. Unless Clinton or his top lieutenants get more aggressively involved in trying to work out the tobacco legislation than they have in the past, "I don't see it happening," Lott said. "Right now the tobacco agreement is losing ground rather than gaining ground," Spratt said.

Yet unlike many presidential budgets, Clinton's $1.7 trillion budget – projecting a $9.5 billion surplus next year and packed with an estimated $130 billion to $150 billion of new spending and tax cuts over five years – was not declared dead on arrival. All of that spending, Clinton insisted, will be paid for.

With polls showing growing support for Clinton's spending priorities and his desire to use the surplus to bolster Social Security against the tide of baby boom retirements that threaten its long-term solvency, Republicans have little choice but to take seriously the president's proposals – even as Clinton struggles with the White House sex scandal.

According to a new Washington Post poll, 75 percent of those interviewed approve of Clinton's call to strengthen Social Security before using any of the projected surpluses. While nearly half of the Americans surveyed described Social Security reform as their top priority, only 17 percent called for further reductions in income taxes – as favored by many Republicans – and 10 percent favored new domestic programs.

Republican criticism was further tempered by widespread voter approval of Clinton's handling of the economy and the fact that the president's new budget is tied into last summer's bipartisan balanced budget agreement that both parties heralded as a turning point in GOP-Democratic relations.

"It's obvious that the president of the United States is popular," Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) told reporters. "It's obvious that he has put forth a series, long litany, of popular programs . . . [but] it's absolutely preposterous, the contradiction of telling the American people government's getting smaller." He said Clinton's plan to use proceeds from a tobacco settlement that may not materialize was irresponsible and could lead to spending in excess of limits established by last year's budget agreement.

Overall, Clinton's budget projects a 3.9 percent increase in federal spending over the current fiscal year. The biggest winners are child care, with $21 billion for increased subsidies, tax credits and grants; and education, with large increases to add 100,000 teachers and reduce class size for grades 1 through 3 as well as build or remodel 5,000 schools. Clinton has also proposed greatly expanding the Medicare national health program for seniors by extending eligibility to Americans 55 to 64 years of age who can afford the premium.

Republican budget leaders promised to come up with a leaner budget plan of their own that emphasized tax cuts, not new spending.

"Looking at this budget, the era of big government is back," House Budget Committee Chairman John R. Kasich (R-Ohio) said of Clinton's proposal.

During a spirited budget celebration in the White House's ornate East Room with Vice President Gore, members of the Cabinet and three dozen congressional Democrats, the president declared that a legacy of surpluses totaling $1 trillion by 2008, strong economic growth and a financially solid national retirement system was within the country's grasp. By contrast, the previous two decades have been marked by historic peacetime deficits that peaked at $290 billion, the year Clinton first took office, and that largely colored the political debate in Washington.

"We have a great opportunity now to take action to avert a crisis in the Social Security system," Clinton said. "We don't need to take any shortcuts, we don't need to take any short-term benefits. Before we do anything with that surplus, let's save Social Security first."

Gore, who has been serving as the administration's chief cheerleader in recent days, hailed Clinton's 1993 anti-deficit and tax increase package passed without a single GOP vote as the turning point in the decades-old battle to break the deficit and urged Republicans and Democrats to resist the temptation to begin spending the surplus.

"Now, with momentum on our side and our economy thriving, this is no time to go back to Washington, D.C.'s bad old days," Gore said. "Already, some of the very same voices who were so wrong in opposing our '93 plan, and opposing our '97 agreement, have been urging us to start spending again like there's no tomorrow, or giving away the store in huge budget-busting tax breaks."

Spending in 1999 would total $1.733 trillion under Clinton's budget, compared with $1.66 trillion this year. Clinton's plan would raise $106 billion in new revenue over the next five years, including $65.5 billion from the tobacco settlement and $23 billion from tax increases on the insurance industry, Wall Street and investors. Billions more to pay for the spending would come from levies on polluters and others.

More than half the budget will go for Social Security, Medicare, Medicaid and other entitlement programs, which would receive a 6 percent increase over this year.

Spending for all other domestic programs and agencies would rise by about 5 percent, with the Environmental Protection Agency's budget jumping by nearly 11 percent and the National Institutes of Health receiving an 8.4 percent increase – the single largest dollar increase in its history. The Energy Department and National Science Foundation are also slated for sizable increases, reflecting administration priorities in medical research, energy efficiency, climate studies and science education.

Treatment of AIDS patients would grow by $100 million and food safety efforts would increase by $101 million, or 12 percent.

Democrats praised Clinton for these and other spending initiatives, but House Speaker Newt Gingrich (R-Ga.) scoffed: "This is a budget only a liberal could love."

Defense and foreign aid spending, meanwhile, would remain virtually static, with $266.5 billion in outlays for the Pentagon and $18.6 billion earmarked for international affairs. The administration will seek $18 billion in lending authority for the International Monetary Fund, funding that fell victim last year to a congressional battle with the administration over international family planning and abortion language.

Clinton will also seek $1.02 billion to pay this country's debt to the United Nations, but those funds will be requested as part of a separate supplemental appropriation for the current year.

In a period of renewed abundance and surpluses, the Agriculture Department was the only Cabinet-level agency to take a hit. The department would suffer a relatively mild 1.3 percent spending cut under the president's proposal. However, the budget would restore the eligibility of 730,000 legal immigrants for food stamps next year, providing a $1.6 billion boost in the government's biggest feeding program.

The new budget plan would reduce taxes by $24.2 billion through 2003, mostly for low- and middle-income families' child-care costs, to promote energy efficiency and for tax credits to spur construction of new schools.

Clinton's plan would achieve balance three years ahead of the 2002 target date set in last summer's bipartisan balanced budget deal. Thanks to a booming economy and record profit-taking on Wall Street, government tax revenue has far exceeded previous estimates and helped produce the surprising surpluses that Clinton now wants to dedicate to preserving Social Security.

The president's plan would effectively wall off the projected surpluses – which will be substantial beginning early next century – until Congress and the administration work out a plan in 1999 to shore up Social Security. The president's budget document describes the future surpluses as "Reserve Pending Social Security Reform."

Unless steps are taken, by 2029 the Social Security system will be able to take care of only three-quarters of the estimated retirees. The problem will continue to get worse without intervention as the number of retirees continues to grow while the work force contributing through the payroll tax continues to shrink.

Staff writer Helen Dewar contributed to this report.


RESEARCH: A $161 billion civilian science and technology research fund, financed primarily through tobacco legislation and savings in mandatory programs. Targeted areas include biomedical research, climate change and NASA.

ENVIRONMENT: A $35 billion environmental resources fund for national parks and public lands, clean water and hazardous waste cleanup, funded primarily through a Superfund tax extension. Budget also includes $6.3 billion to reduce greenhouse gas emissions.

TRANSPORTATION: A $184 billion fund for highways and bridges, air pollution mitigation, transit grants and the Federal Aviation Administration, funded mainly by fuel taxes and new FAA fees.

EDUCATION: Funds to add 100,000 teachers and reduce class size for grades 1-3, tax incentives for school construction and reforms in the student loan program.

CHILD CARE: $21 billion to double the number of children getting child-care subsidies, increase child-care tax credits for working families, give grants to enhance the quality and safety of care for children under 5 and give tax credits to businesses that provide child care, among other programs.

IMMIGRANTs: $2 billion to restore food stamps for 800,000 legal immigrants who lost them in the 1996 welfare bill.

MEDICARE: Provisions to allow people ages 62-64, and people ages 55-61 who have lost their jobs or their retiree health coverage, to buy into Medicare.

© Copyright 1998 The Washington Post Company

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