Strange New Land of 'Surplus'

Clinton today unveils first balanced budget in 30 years, changing dynamic of governing.

The last time the United States had a balanced budget, Simon and Garfunkel were recording "Bridge Over Troubled Water," "Rowan and Martin's Laugh-In" was the top show on TV, and Lyndon Johnson was finishing his last year as president.

Today, as another president unveils the first balanced-budget plan to come out of the White House since 1969, a generation of Americans reared on deficit spending is poised to close the books on that era.

A shift from red ink to black promises to change Washington politics as radically as the transistor changed electronics. No longer will debate revolve around what or how to cut. Instead, lawmakers flush with cash will argue over what to do with the surplus.

"The politics of the surplus are going to be at least as difficult as the politics of the deficit ever were," says Stan Collender, a federal budget expert with Burson-Marsteller here.

Already, there's a new twist in the debate. To the traditional issues of how much to spend and how much to tax is added a third option: using at least some of the surplus to pay down the national debt. Unthinkable before now, the idea enjoys the support of a bipartisan group of lawmakers. President Clinton introduced a variant of this argument last week in his State of the Union address, when he proposed saving all of any surplus until Congress has acted to reform Social Security.

Mr. Clinton will send the Republican-controlled Congress a $1.73 trillion fiscal 1999 budget that he expects will yield a $9.5 billion surplus, according to news reports. The budget plan forecasts a cumulative surplus of about $219 billion over the next five years.

For years, Republicans and Democrats waged a bitter trench warfare over how to gain control of deficits that skyrocketed from a few billion dollars a year to the $300 billion range. Last summer, aided by a booming economy, Congress and the president finally reached the elusive goal.

Since then, the budget picture has improved more than either side could imagine. The Congressional Budget Office (CBO) now projects single-digit deficits for the next three years, followed by surpluses through 2008.

Republicans first

Republicans, as the majority party in Congress, will be first to confront the new reality. "This is not a Democrat-versus-Republican debate or even a Congress-versus-White House debate. Before anything else, this has to be a Republican-versus-Republican debate," Mr. Collender says. A consensus over what to do with a surplus "could take a couple of years to develop."

As a result, new coalitions will emerge, including some strange bedfellows. "Things that seemed so understandable and predictable a couple of years ago have been turned on their head," says George Hager, a budget reporter for Congressional Quarterly magazine and a co-author of "Mirage: Why Neither Democrats nor Republicans Can Balance the Budget, End the Deficit, and Satisfy the Public."

Mr. Hager says Republicans who have argued for cutting government on fiscal grounds will now switch to an older moral argument: that it's wrong to tax people more than is necessary and that smaller government is better. Democrats, especially liberals, will retort that it's immoral not to use the funds to help people in need, such as the urban poor, legal immigrants without food stamps, and those with no health insurance. Members of both parties will want to spend more on highways and defense, arguing that they are creating jobs and fostering economic development.

"The intensity and the sort of blood-feud aspect of this aren't going to be lost. The lines are just going to be drawn differently," Hager says.

Some lawmakers argue that the budget isn't really balanced at all. That's because the trust funds for Social Security, Medicare, unemployment compensation, transportation construction, and federal retirees are counted as revenue. For example, CBO put last year's deficit at $146 billion before the trust funds were added. Include the $124 billion trust fund surplus, however, and the official deficit figure is $22 billion.

Responding to the president, Sen. Ernest "Fritz" Hollings (D) of South Carolina, a deficit foe, has introduced a bill to bar the use of the trust funds to pay for spending increases or tax cuts.

The president's proposal "freezes the debate on both sides: Democrats wanting to spend wherever they could and Republicans wanting to cut taxes wherever they could," says Al From of the centrist Democratic Leadership Council.

Too soon to breathe easy

But the end of the deficit problem is only temporary. If no changes are made in Medicare and Social Security, each will take bigger and bigger bites out of the budget until little is left to spend on anything else. Spending on entitlements has grown from 32 percent of the federal budget in 1962 to 56 percent last year. If Congress does not act, entitlements will grow to 70 percent by 2008, CBO predicts. Unchecked, that would crowd out "discretionary" spending on programs like defense, roads, and education - unless Congress votes to raise taxes.

Solving those long-term problems will be easier the sooner lawmakers get started, most agree. A bipartisan commission on Medicare will start work soon. And the White House plans to co-sponsor a series of town meetings this year to discuss Social Security. But reaching a consensus in either case will be hard slogging.