Lifting of federal spending caps likely

Clinton, Congress prepare to cast aside 1997 limits as treasury coffers bulge

January 14, 2000|By Karen Hosler | Karen Hosler,SUN NATIONAL STAFF

WASHINGTON -- Good times are making life tough for penny-pinchers in Washington. An unexpected bounty of billions in new tax money that is pouring into the federal treasury, courtesy of the high-flying economy, is severely undermining the cause of restraint.

The first casualty -- expected to be dispatched jointly by President Clinton and the Republican-led Congress either openly or through subterfuge -- will likely be the spending caps that were set in 1997 to help balance the budget.

"We created unrealistically low spending ceilings to pretend we balanced the budget," Rep. Benjamin L. Cardin, a Baltimore Democrat, said sarcastically. "Now that we've actually balanced the budget, we don't need them anymore."

What's more, the taxpayers whose money is producing the surplus are hardly screaming for their money back.

"If the price of stock dropped 25 percent, people would be coming to Washington with pitchforks," said Stephen Moore, of the libertarian CATO Institute. "Otherwise, they don't care."

A revised estimate of federal revenue due at the end of this month is expected to show that the federal budget surplus over the next 10 years -- not counting money collected for Social Security -- may be $1 trillion higher than estimates made last year.

That means that if Congress and the president abide by the 1997 spending caps, the 10-year surplus could be twice the level that was anticipated a year ago.

But Democrats say Clinton will propose boosting the spending caps, with spending to rise somewhat less than the inflation rate, the Associated Press reported yesterday. Clinton's plan will be in the fiscal 2001 budget he will present Feb. 7.

Even if the budget makers exceed the spending ceilings by about $35 billion , as they did last year, there might be $1 trillion left over for tax cuts, other new programs or perhaps for paying down the federal debt.

"It's a wonderfully favorable position to be in," said William G. Hoagland, staff director for the Senate Budget Committee. "Except for maintaining discipline."

The bonanza comes from record economic growth -- the longest-ever peacetime expansion -- combined with low inflation.

Federal revenue -- much of it generated by taxes on capital gains from stock holdings that have risen steadily in recent years and from estimated payments on income tax -- grew by a stunning 13.3 percent during 1999, compared with the 4.5 percent built into earlier budget projections, Hoagland said.

Meanwhile, government spending, particularly on costly health care programs such as Medicare, is rising much more slowly.

The questions of where to channel these riches is among the hottest issues on the presidential campaign trail. The Republican candidates are debating how much to cut taxes, while the Democrats are sparring over how much new spending to add to health care and other programs.

While long-term policy will not be made until the next administration takes office, spending decisions made this year will affect how much of the surplus -- if any -- is left for the new president to put toward his fiscal goals.

Lawmakers of both parties appear sympathetic to the interests of their presidential nominees. But their first priority will be their own election victories this year.

Toward that end, a violation of the spending ceilings is a near-certainty. To comply with the ceilings would require a reduction in spending of about $35 billion below last year's levels. A difficult goal under any circumstances, it is considered unreachable with a big surplus apparently available.

"Experience teaches us we aren't going to meet those budget caps," said Robert Bixby, executive director of the Concord Coalition, a budget watchdog group. "Even those of us fiscal conservatives who argue for cutting spending like a root canal, realize you can't deny [lawmakers] a little fun."

Despite its tight-fisted orientation, the Concord Coalition is urging Clinton and Congress to formally raise the spending cap levels this year rather than use bookkeeping gimmicks to circumvent them, as they did last year. "Fiscal discipline has to be redefined in an era of surplus," Bixby said.

A heated debate has raged within the Clinton administration about whether the president should take the lead in proposing that the spending ceilings be lifted. Doing so would allow Clinton to offer a budget plan that allocates some of the surplus to his spending priorities, while arguing that he has not abandoned fiscal discipline altogether.

"I think it's a good idea," said Robert Reischauer, a former director of the Congressional Budget Office. "To keep the caps unreasonably low and use gimmicks to circumvent them just undermines the credibility of the whole process."

Some in the White House have argued that the breathing room that could be gained from raising the spending caps would not be worth the political cost of giving congressional Republicans the chance to tar Clinton and the Democrats as fiscally reckless.

Republican leaders aren't quite clear on their approach yet, either. They say they are firm in their determination to resist spending any of the surplus that is expected to flow into the Social Security trust fund -- the line in the sand they drew last year. They also hope to put aside a portion of the remaining surplus to pay down the $5.7 trillion federal debt.

But they will probably finagle their way around the spending ceilings as they did last year -- if Clinton doesn't take the lead on the issue.

Rep. Tom Coburn, an Oklahoma Republican who tried in vain last year to persuade his Republican colleagues to curb their spending, said he given up on honoring the spending caps. Instead, he is advocating a tax cut for middle- and lower-income workers who may not be benefiting from today's heady days on Wall Street.

"With this president and this Congress," Coburn said, "if we don't get the money out of Washington, it will all be spent."

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