Budget surplus divides parties

GOP pushes tax cuts, while Clinton backs funding for Medicare

July 13, 1999|By Jonathan Weisman | Jonathan Weisman,SUN NATIONAL STAFF

WASHINGTON -- Republican and Democratic congressional leaders emerged last night from a budget summit at the White House, pledging a commitment to saving Social Security and to funding President Clinton's proposed tax breaks that are designed to rejuvenate poor communities.

But beneath the surprising cordiality is a deep divide over how to spend $1 trillion in budget surpluses over the next decade.

The dispute over the surplus has become the first skirmish in a legislative war that could help determine the outcome of the 2000 presidential race as well as which party will control Congress.

Before the White House meeting, Clinton had rejected two sweeping tax-cut proposals before congressional Republicans had unveiled them. While the president also wants to lower taxes, he argues that the Republicans' proposed tax cuts are so large that they would leave no money to extend the solvency of Medicare and would require politically untenable cuts in domestic spending.

Republicans say they have given in to Clinton's first demand: saving Social Security. Senate Republican Leader Trent Lott and his Democratic counterpart, Tom Daschle of South Dakota, predicted last night that they could agree on a legislative mechanism this week to set aside nearly $2 trillion in Social Security surpluses over the next 10 years.

But Republican leaders say they are committed to passing a major tax cut.

"Two out of three dollars of this surplus we are prepared to count toward retirement security," Lott said last night. "We believe that the other dollar should go to taxpayers and the working families of America."

Two Republican plans

Rep. Bill Archer of Texas, the chairman of the Ways and Means Committee, will detail the House Republicans' 10-year, $864 billion package today, featuring a 10 percent, across-the-board income tax cut, as well as cuts in the estate tax, the capital gains tax and the "marriage penalty" that forces some married couples to pay higher taxes than they would if they were single. That package is expected to be approved by Archer's committee this week and be on the House floor next week.

Sen. William V. Roth Jr., a Delaware Republican and chairman of the Senate Finance Committee, will unveil another plan. The Roth proposal would cost about $792 billion, much of which would come from shaving 1 percentage point from the lowest tax bracket, now 15 percent.

Roth's plan would also curtail the marriage penalty and provide incentives to increase retirement and education savings. But it would leave enough money to pay for the president's proposal to provide prescription drug coverage under Medicare.

Republicans intend to send a compromise tax measure to the president before Congress' recess next month. This first attempt will likely be vetoed. The White House denounced yesterday both Republican tax-cut plans as fiscally irresponsible and politically impossible. Treasury Secretary Lawrence Summers called the plans "a dangerous reversal of course."

Over the next decade, White House and congressional budget projections foresee about $1.8 trillion in Social Security surpluses and an additional $1 trillion surplus from general revenue. Republicans and Democrats have agreed not to touch the Social Security surpluses, but their agreement ends there.

Of the $1 trillion general-revenue surplus, the president has proposed using $250 billion for tax cuts, $374 billion to extend the life of Medicare and finance a prescription drug benefit, and $328 billion for new domestic spending. Some of the remaining savings would be used to pay off interest on the federal debt.

Republicans would devote almost all of it to tax cuts, which they say are the only way to prevent politicians from spending the money on pet projects.

Surplus projections

According to White House calculations, the House's $864 billion tax cut, combined with the federal interest payments that would have to rise to cover the cost of that cut, would send the non-Social Security budget back into the red.

The White House cautions that the budget surpluses are based on crystal ball projections. Should they fail to materialize, a tax cut passed would ensure larger future deficits.

Republicans say they believe the booming economy will provide enough money for everything.

The Democrats "are trying to perpetuate the notion that all these things are mutually exclusive, that you can't adhere to the fiscal restraints that the president imposed on Congress with his signature on the balanced budget agreement of 1997 and modernize Medicare and return excess tax money to the people," said John Czwartacki, a spokesman for Lott. "You can and must do all three."

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