U.S. Budget Posts a Rare 12 Months of Black Ink

In a sign that the federal budget may be balanced long before most people had thought possible, a new Treasury Department report shows that the federal government has run a surplus over a 12-month period for the first time since 1970.

The news is expected to increase pressure on President Clinton and Congress to decide what to do with the looming budget surplus--to leave it alone, or to finance tax cuts or spending increases.

Republicans hailed the report, which showed a $2.4-billion surplus for the 12 months ending Nov. 30, as a monument to the success of their drive to balance the budget since they took control of Congress in 1995.

“In our first three years, we have been able to pull off something remarkable,” said House Speaker Newt Gingrich (R-Ga.) in a telephone interview Saturday. “I think this is a great Christmas present to the American people.”

The Clinton administration, while also welcoming the news, cautioned that Gingrich’s enthusiasm may be premature. The budget, which showed a $21.9-billion deficit for the fiscal year that ended Sept. 30, could easily swing back into the red by the time the current fiscal year ends next Sept. 30.

“It is obviously wonderful news, but we shouldn’t read too much into it,” said Lawrence Haas, a spokesman for Clinton’s Office of Management and Budget. “We have an unusual combination of good economic factors, but prudence would suggest you shouldn’t project perfection into the future.”

Whether or not the 12-month surplus proves ephemeral, both sides agree that the latest budget report is a milestone in the progress of the federal budget from red to black--and at a rate much faster than Clinton and Congress expected when they reached an agreement last summer to eliminate the deficit by 2002.

Ever since that agreement, the booming economy has brought in far more revenue than had been expected.

That trend continued last month, as reflected in the Treasury Department’s November report on budget receipts and outlays, which was released Friday. According to the department, revenues fell a hair short of $1.6 trillion for the preceding 12 months and outlays totaled only $1.597 trillion.

The last time the government ran a surplus for 12 months was the period ending in March of 1970, according to the OMB.

Haas cautioned that although the budget is clearly headed toward balance, the current 12-month surplus may be a fluke resulting in part from temporary windfalls that will not be available next year.

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For example, he said, revenues in 1997 were driven up because the government sold some thrift institutions whose sales had not been expected until 1998. The tax law enacted earlier this year, he pointed out, will erode government revenues starting next month because many of its major tax cuts take effect Jan. 1.

What’s more, Haas said, cautious analysts are hesitant to predict that the economy will continue to grow at the boisterous rate it enjoyed in 1997.

Gingrich acknowledged that some additional spending restraints or changes in the budget agreement could be needed to produce a balanced budget at the end of the next fiscal year, which begins Oct. 1.

But he said the Treasury report shows that balance is clearly within grasp at a time when Clinton is preparing to submit his new budget to Congress, after delivering his State of the Union address in January.

“The president could, in his State of the Union address and budget, come forward with a budget that could be in balance in 1999,” Gingrich said. “We would be prepared to work with him.”

If the deficit is in fact eliminated next year, it could have important political significance for Republicans, who would like nothing better than to face the voters in 1998 with a budget actually in the black, instead of just a promise.

A top Gingrich aide recently voiced frustration at polls indicating that voters, burned by past promises to balance the budget, still do not believe that this year’s budget agreement will actually eliminate the deficit by 2002.

“This is no longer political talk or hypothetical,” said Rep. Mark W. Neumann (R-Wis.), a member of the House Budget Committee, after analyzing the Treasury Department’s report. “It’s in the books.”

Gingrich said the many Democrats who voted for the budget deal could share in the political credit, but he added that the good economic news isolated the liberal wing of the party headed by House Minority Leader Richard A. Gephardt of Missouri, who opposed the budget agreement.

“They are the ones who have to go home and explain why all this good stuff is going on,” Gingrich said. “It makes it virtually impossible for someone to run as a Gephardt Democrat in an open seat or a swing district.”

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The accelerating deficit drop also adds an increased sense of political urgency to a debate already raging between and within the two political parties about how to use the budget surplus. Republicans are divided among those, like Neumann, who insist on leaving at least some of the surplus alone so it can buy down the national debt, and those who give priority to proposals with wider political appeal--tax cuts or increases in spending on highways and other GOP priorities.

Democrats are also debating among themselves about whether or how to spend the surplus on education, health and other programs. Clinton has been cautious on the subject, saying that Congress should not rush to gobble up a surplus that has not materialized.

But the news from the Treasury could put more pressure on Clinton to say in his budget or State of the Union address what he would do with a surplus that no longer seems far in the future.

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* NO CLINTON TAX CUT

White House has no plans to cut or simplify taxes in ’98. A23