Risky politics of big surpluses

This year's battle over the federal budget - which opens today with the unveiling of President Clinton's proposed spending plan - may be the most unusual Washington has ever seen.

There will be the usual wrangling over spending priorities: Both parties want to spend more on education, but they differ on how to do it. The president favors increases in defense spending, and Republicans agree, but liberal Democrats don't. Mr. Clinton wants to raise the minimum wage; most Republicans don't.

But lurking on the horizon sits the most extraordinary economic development of our time: projected budget surpluses that are vastly larger than anyone dreamed possible. And budget hawks fear fiscal discipline could go out the window.

According to one projection just released by the Congressional Budget Office, the surplus could balloon to $2.6 trillion over the next decade, hundreds of billions of dollars more than was predicted just a few months ago. Most of that money will belong to the Social Security Trust Fund. But the $787 billion that doesn't presents an enormous temptation to politicians eager to enact long-held policy dreams and please voters.

"It seems to me the politics of surpluses are far more dangerous than the politics of very large budget deficits," says Carol Cox Wait, president of the Washington-based Committee for a Responsible Federal Budget. "The deficit at least operated to constrain these folks a little bit. This is awful."

Before today's presentation of the White House budget, the battle lines were being drawn.

At a hearing on Friday, Sen. Pete Domenici (R) of New Mexico, chairman of the Senate Budget Committee, signaled that his party intends to proceed with tax-cut legislation, despite stern warnings from leading economists that the expected budget surpluses might not even materialize.

Tax-cut popularity

For now, the most popular proposal among Republicans would cut income taxes across the board by 10 percent.

The White House has its own designs on the projected surplus - more money for Medicare, 401(k)-style retirement accounts, and new spending on other programs.

"The battle over the surplus is the big battle, and it looks like Republicans will want to use every penny that's not nailed down to Social Security for a tax cut," says a senior White House official. "We're going to be insisting that we set money aside for Medicare as well."

This official says Clinton's proposed Universal Savings Accounts, or USA accounts - government-financed retirement accounts for workers that function like 401(k) accounts - could act like a tax cut. The difference, he says, is that they're "significantly smaller and more affordable than what the Republicans have in mind."

New laws hard to change

If either side gets what it wants - or at least a version of it, once the political wrangling has finished - the real risk is that any new laws will be difficult to reverse.

"Any time you put in place permanent law, like a tax cut or spending increase, it's tough to take it away," says Stan Collender, a budget expert at Fleishman-Hillard Inc. "That's the danger here."

The reality, Mr. Collender notes, is that no Congress or presidential administration has ever had this much seemingly excess money to play with.

If policymakers were to look just at the near term - government revenue forecasts for the next three years - Washington wouldn't make any substantial changes in current taxing and spending policies, Collender says. But that's not how politics works.

Meanwhile, the White House's proposed budget will flesh out much of what the president outlined in his State of the Union address two weeks ago.

On the biggest policy issue of the year, Social Security, Clinton and the Republicans have already agreed that 62 percent of any budget surplus should be set aside for the federal retirement system, which faces long-term financial difficulties.

The question is how to use that 62 percent. Clinton would like the government to invest some of it in the stock market, but Republicans are leery of any plan that might allow the federal government a say in how businesses are run.

Education division

On education, Clinton wants to provide tax credits to help school districts repair and build schools. The Republicans, on the other hand, want to give block-grant money to school districts to allow them more leeway in how the money is spent.

Clinton will also propose a boost in military spending that is $12 billion greater than what the administration had said it would propose for fiscal year 2000; an increase in the minimum wage from $5.15 an hour to $6.15 an hour; and big increases in funding for federally financed family-planning clinics, long a controversial issue.

The budget will also outline goals for improved service by 32 federal agencies, an outgrowth of Vice President Al Gore's longstanding "reinventing government" initiative. One program that gets special attention is Medicare, until recently one of the fastest-growing parts of the federal budget.

More than ever, analysts say, the Clinton administration budget will reflect Mr. Gore's priorities - just in time for him to launch his bid for the presidency in 2000.