'Grand political bargain' may end up as modest one

The phenomenon of a surging federal bank account has kindled rare hopes in Washington: not merely for tax cuts, an assault on the national debt, or bolstering Medicare, but possibly a grand political bargain in which several major goals are furthered.

The question is whether two rival political parties can conspire to make the most of this magic fiscal moment.

The heating up of the 2000 election campaign, along with the nagging mistrust from the impeachment battle, portend a hard fight for President Clinton and his newly unveiled domestic agenda.

Yet other factors - namely the Republicans' desire to show they can govern and their reluctance to be accused of opposing popular entitlement programs - could help advance a pragmatic compromise.

The result, several analysts predict, will be at best a modest accord. "I think there is a quite high prospect for some form of deal, but I don't expect it to contain any substantial reform of Social Security or Medicare," says William Niskanen of the Cato Institute, a Washington think tank that favors limited government.

But the potential for convergence on less sweeping changes is growing, especially given this week's projections of $1 trillion in additional cumulative budget surpluses over the next 15 years. That forecasts are often wrong appears not to faze politicians eager to divide a bigger pot.

Already, Mr. Clinton enjoys some leverage over the Republicans in Congress, judging by the cautious optimism with which GOP leaders greeted the president's announcements this week.

With GOP lawmakers divided, Clinton is equipped to seize the initiative, define the debate, and win public attention for his programs, analysts say.

"If nothing happens, he can blame Republicans," says Stan Collender, a budget watcher at Fleishman-Hillard in Washington.

Veto power add to the president's arsenal. As fall deadlines approach, Congress must pass the 13 annual spending bills that fund the government or be blamed for causing another government shutdown.

Still, opposition to any deals by factions of liberal Democrats and conservative Republicans could hold up a deal.

"Many Democrats in the House say their best chance recapturing majority status is gridlock," says Robert Reischauer, former director of the Congressional Budget Office.

Here's how compromise prospects look, issue by issue:

Social Security. Both sides may support a "lock box" to make it harder to spend the current surplus from Social Security payroll taxes. In May, House Republicans passed a bill to protect an estimated $1.8 trillion of surplus in the coming decade. Democrats so far have blocked a Senate version of the plan, but now Clinton's support may push it along.

Both the White House and Republicans envision using some of the surplus to pay down the national debt, which Clinton pledges to eliminate by 2015.

Big differences remain. Clinton would funnel general tax revenues into Social Security starting in 2011. Also, the government would invest in the stock market, while the GOP favors private accounts where people could invest in stocks. Moreover, many experts see "lock box" proposals as more show than substance.

Spending. The president called for $150 billion in spending on domestic programs including education, health care, and child care. Republicans are likely to go along on education, but will battle for money to go directly to the states, not federal programs.

Medicare. Compromise over Clinton's plan for shoring up Medicare appears far more uncertain. Especially controversial, as Medicare faces insolvency, is the president's proposal to add prescription-drug coverage costing $118 billion from 2002 to 2012.

Taxes. Clinton also inched closer to Republicans on tax cuts this week, holding out the possibility of tax relief if the GOP backs his other plans. But where to cut? Clinton favors targeting relief for child care, schools, and low-income saving. Republicans want far larger across-the-board relief or cuts in capital gains and inheritance taxes.