U.S. budget surplus swells

Clinton would spend billions for Medicare, Social Security, debt

$179 billion over 5 years

Increase could spark renewed Republican calls for tax cuts

June 29, 1999|By Jonathan Weisman | Jonathan Weisman,SUN NATIONAL STAFF

WASHINGTON -- Robust economic growth, lower government spending and higher tax revenue will swell the federal budget surplus by a further $20 billion this year and $179 billion over the next five years, according to new White House forecasts that are sure to increase Republican demands for a major tax cut.

But as he unveiled the projections yesterday, President Clinton proposed to lock up the new revenue by pumping more money into Social Security, Medicare, defense and children's programs, while erasing the entire federal debt by 2015.

Tax cuts, Clinton said, should be narrowly tailored to help pay for such items as child care, long-term health care, expenses for stay-at-home-parents, school construction and retirement savings.

"Do not squander the surplus by choosing short-term gain over long-term national goals," Clinton implored Republicans, who are preparing to unveil sweeping tax-cut proposals that would crowd out Democratic priorities.

The new figures are a testament to the economy's performance.

The administration now estimates that the surplus for this fiscal year -- which ends Sept. 30 -- will total $99 billion, the largest ever. As a percentage of the economy, this year's surplus will be the largest since 1951.

Next year, according to White House projections, the surplus will reach $142 billion. Even excluding payroll tax receipts intended for Social Security, the federal government will have a $5 billion surplus.

Much of the surplus is attributable to rising tax revenue that flows from capital gains and higher incomes produced by a churning economy. To lock up the bounty, Clinton has revised his own budget proposal.

Under his new plan, all Social Security tax receipts would be set aside in a "lock box" similar to the budget mechanism proposed by congressional Republicans. Those receipts would be used to pay off the federal debt.

As the debt declines, the Social Security Administration would, in effect, receive IOUs that could be redeemed for cash as the baby boom generation begins retiring.

Beginning in 2011, the savings on lower federal interest payments would also help shore up Social Security. By then, according to White House projections, the federal debt would have been reduced by $2.1 trillion, saving the government $107 billion in interest payments. That sum would go instead to Social Security.

The new plan is intended to extend by two decades, to 2053, the year that Social Security would run out of money.

The president also proposed pumping more than $794 billion into the ailing Medicare system over the next 15 years, in part to keep it solvent through 2015 and in part to help pay for an expensive prescription drug benefit for the elderly that Clinton will formally propose today.

That new figure is $108 billion more than the president proposed in February.

Clinton also laid out $41 billion in further spending increases over 15 years for defense, education and children's programs. He proposed bunching educational programs for disadvantaged children, after-school programs, school safety grants, federal scholarships, child health care and nutrition programs into a Children and Education Trust Fund that would receive $156 billion through 2014.

By joining these disparate programs together, Clinton is seeking to establish children's programs as a separate entity within the federal budget, just as the highway and airport trust funds are now, thus making those programs more difficult to cut.

Gene Sperling, the senior White House economic adviser, described the proposal as "a way of making clear that those who would seek to starve the discretionary budget are not just affecting some undefined pot of money. They are affecting things like immunizations, like Head Start."

The new Clinton budget was calibrated to sap momentum from Republican proposals for a 10-year, $778 billion tax cut, details of which could appear this week.

The White House budget office rushed out a midyear budget update that usually appears in July. In doing so, it sought to upstage the Congressional Budget Office forecasts due Thursday.

The CBO figures are likely to show even larger surpluses, perhaps up to $120 billion for this year, enough to shore up Social Security and Medicare, and cover deep tax cuts, Republican leaders contend.

But while White House officials kept the door open to some tax cuts, they signaled they did not favor any proposal approaching the size of the Republican offer. Tax cuts that large could plunge the government back into debt if the nation hit a severe economic downturn, Treasury Secretary Robert E. Rubin said yesterday.

"The future is inherently uncertain," Rubin cautioned, "and it is far more prudent, with respect to our future economic well-being, to commit surpluses to increasing national savings and fiscal discipline than to large, non-savings-related tax cuts."

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