Balanced budget plan submitted Clinton's blueprint of $1.73 trillion eliminates deficit; First surplus in 30 years; Some funds would come from tobacco and the well-to-do

THE BALTIMORE SUN

WASHINGTON -- In a White House ceremony heavy with political symbolism, President Clinton ushered in a new era yesterday in the way the federal government handles the taxpayers' money.

Unveiling a $1.73 trillion spending blueprint, Clinton sent, as he had promised, the first balanced budget to Capitol Hill in 30 years. The president proposed spending more on a host of issues, including child care, environmental cleanup, AIDS and cancer research and education, paid for largely by a sizable increase in tobacco taxes.

Republicans questioned whether the federal government would ever reap such a revenue windfall, and some accused the president of backsliding on his previous declaration that the "era of big government is over."

But opponents acknowledged that Clinton would be difficult to beat in the budget battles looming ahead in an election year, conceding that his plans to spend more money on such initiatives as hiring more teachers had been poll-tested and are hugely popular.

"We've done more than simply balance the budget, more than just line up numbers on a ledger," Clinton said. "We have restored the balance of the values in our policy, restored the balance of confidence between government and the public."

The 381-page budget submitted to Congress yesterday underscores how Clinton's tenure in office has transformed basic assumptions about federal spending and taxes. And to White House aides trying to shape the Clinton legacy, the 1999 budget proposal is Exhibit A in their case for a powerful new political philosophy they call "Clintonism."

This budget message, like the five Clinton budgets that preceded it, lays out a four-part formula:

It would raise some taxes on the well-to-do and on social behaviors -- such as smoking -- that the administration wants to discourage.

It would expand "investments" in programs that benefit the poor and the working class, especially those that train and move the chronically poor into the economic mainstream.

It would grant tax breaks to the middle class for activities -- such as child care and higher education -- that serve to train America's work force to compete in a high-tech global economy.

It would tighten the belt of the bureaucracy, mainly by shrinking the federal work force.

Taking from both parties

This is the essence of Clintonism, which merges and melds from both traditional Democratic policies and tried-and-true themes of Republicans. Yesterday, it came together in a budget that would balance three years ahead of the schedule that was envisioned by last year's balanced budget deal.

"The new economy was being held back by old political ideas and arrangements," Clinton said, recalling the annual deficits exceeding $200 billion in the 1980s and early 1990s that produced the $4 trillion national debt.

Mischievously mimicking Ross Perot, whose pie charts and easels were popular props in 1992 and 1996 when he ran against Clinton, the president drew a big zero next to a dollar sign on a chart as aides and Democrats in Congress burst into applause.

Actually, Clinton's 1999 budget -- the fiscal year begins Oct. 1 -- envisions a surplus of $9.5 billion, thanks in part to a remarkable streak of sustained economic growth. "We'll have a balanced budget not only next year," Clinton boasted, "but as far as the eye can see."

Republican leaders, many of whom favor using projected surpluses for tax cuts, took issue with the president's proposal and pledged to offer their own budget plan. House Speaker Newt Gingrich noted that the Clinton plan contains an array of new spending programs and described it as "a budget only a liberal could love."

"It looks like the president wants to eliminate state and local government," said Rep. John R. Kasich, an Ohio Republican who chairs the House Budget Committee. "He wants to run everything out of Washington. I think it's fair to say the 'era of big government' is back."

Sen. Pete V. Domenici, a New Mexico Republican who is chairman of the Senate Budget Committee, added: "In order to do what he's doing -- this long litany of programs -- he has to increase taxes and fees."

Budget highlights

Overall, Clinton's 1999 budget proposes a 3.9 percent increase from this year's spending levels. Highlights include:

Spending more for education and job training. One plan with bipartisan support: helping states and localities hire 100,000 new teachers. Spending for after-school programs would be increased more than threefold, from $60 million to $200 million.

More for Superfund

Increasing environmental cleanup and protection programs by 5 percent. The biggest increase would be a 40 percent boost in the toxic-waste cleanup Superfund, to $2.1 billion.

Adding $21.3 billion over five years to spending on child care. This money would double, to 2 million, the number of youngsters who receive federal child-care subsidies. It would enroll more children in Head Start and give middle-class parents who earn less than $59,000 tax breaks for child-care expenses.

Expanding the Medicare program by allowing those ages 62 to 65, along with displaced workers as young as 55, to buy Medicare coverage.

Boosting spending on biomedical research by $1 billion, to $13.9 billion, for the National Institutes of Health. This would include a 10 percent increase for cancer research and $100 million in subsidies for powerful new AIDS drugs to those who cannot afford them.

Increasing by 10 percent the money for construction and refurbishment of airports; also, earmarking money to begin modernizing the air traffic control system.

All told, the administration is proposing $24 billion in tax credits and $125 billion in new spending programs over five years. Budget officials insisted that they have found money to pay for these programs, but they appear to be relying on unspecified future spending cuts as well as on some dubious political assumptions.

The first is that auctioning government-owned airwaves would raise more than $30 billion over the next several years. Several industry experts have said these estimates are overly optimistic.

The administration foresees $106 billion in revenue from tax increases and user fees, chiefly on tobacco, corporations and Wall Street investors. Most of that money would come from sharply higher taxes on cigarettes, presumably as part of a sweeping settlement with tobacco companies.

But the future of that proposed settlement is far from certain. Even Senate Democratic Leader Tom Daschle of South Dakota said yesterday: "I am not as optimistic as I was about a tobacco agreement."

Franklin D. Raines, the White House budget director, acknowledged that the tobacco windfall was speculative, but said that even if the administration needs to alter its projections later, it remains committed to a balanced budget beginning this year.

"It's not unusual in any budget for the president to propose legislation that would fund the initiatives, so I don't view it as high-risk," Raines said.

In any case, he added, the administration factored only $9.8 billion from tobacco into its 1999 budget. So if Congress fails to pass tobacco legislation, Raines said, the administration would have time to either look for other sources of revenue or "trim back" their new initiatives.

Conservative forecasts

On the other hand, the forecasts used by the administration in its projections are not only sound, independent economists said yesterday, but probably conservative.

In their calculations, economists at the Office of Management and Budget estimated that the economy will grow at a 2.8 percent rate throughout the rest of fiscal year 1998, drop to 2 percent through the turn of the century and then rise to 2.4 percent in fiscal 2002 through 2007. The Clinton administration forecasts no significant rise in inflation and an unemployment rate between 5.2 percent and 5.4 percent through 2003.

Fred Ross, an analyst with the Schwab Washington Research Group, said these assumptions are so modest that, in using them, the administration probably understated future surpluses. "They are overly conservative on revenue growth," Ross said.

There may be a political reason for this caution: The president does not want to give Republicans the chance to establish an agenda for how to handle any surplus. And Clinton warned them yesterday that surplus revenue should be used to help shore up the Social Security system against future bankruptcy.

"We should not spend a surplus that we don't yet have," the president said.

GOP impatience

Republicans are already impatient -- they want to start repatriating that money to taxpayers immediately. One idea popular among conservatives is to repeal the "marriage penalty" that in effect requires a married couple to pay more in taxes than would two single people with the same income.

But the president appears to be proprietary about the surplus that has come about during his administration. And as his budget proposal suggests, Clinton has plans of his own for how it should be allocated.

"I think this is going to be the political battle over the next five years," said Stephen Moore, director of fiscal policy studies at the conservative Cato Institute. "This is where you draw the line between the two parties, between the Democrats who want to spend and the Republicans mostly who want to cut taxes."

Highlights of 1999 budget plan

Unless otherwise noted, the figures are five-year totals.

Spending-surpluses: Outlays for 1999 will total $1.73 trillion with a projected surplus of $9.5 billion, the first in 30 years, followed by projected surpluses of $8.5 billion in 2000, $28.2 billion in 2001, $89.7 billion in 2002 and $82.8 billion in 2003.

Child care: Spend $21.3 billion to double the number of children getting child care subsidies to 2 million, increase child care tax credits for working families, provide tax credits for businesses supplying child care and boost block grants to states to support child care programs.

Education: Provide $7.3 billion to help school districts hire 100,000 new teachers to reduce class size in grades 1-3. Tax incentives would be provided to support construction of new schools.

Medicare: Expand the government's massive health care program for the elderly to people younger than 65 by allowing those from 55 to 64 to buy into the program by paying monthly premiums of up to $400.

Environment: Encourage individuals to purchase extremely high-fuel-mileage cars by providing a tax credit of $3,000 starting in the year 2000. Other tax credits would be offered for the installation of solar rooftop panels, the purchase of highly energy-efficient homes and the installation of ultra-efficient heating and cooling systems.

Poor: Give food stamps to about 800,000 legal immigrants who lost them under the 1996 welfare overhaul, at a cost of $2 billion; and enroll 3 million uninsured, eligible children in Medicaid, the health care program for the poor.

Tobacco: Raise $65.5 billion in new revenue through congressional implementation of a comprehensive settlement with tobacco companies. The amount would be equivalent to a $1.50-per-pack increase in cigarette taxes.

Taxes: Raise an additional $24 billion through elimination of some corporate tax breaks enjoyed by commercial banks, multinational companies and real estate investment trusts.

Associated Press

Pub Date: 2/03/98

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