Clinton Unveils a $1.7-Trillion Balanced Budget

President Clinton on Monday unveiled the first balanced-budget proposal in 30 years, sending Congress a $1.7-trillion federal spending plan that projects a decade’s worth of surpluses.

Declaring an end to “an era of exploding deficits,” Clinton forecast a $9.5-billion budget surplus for fiscal 1999, which begins Oct. 1, and steadily growing surpluses that would add up to $1.1 trillion 10 years from now.

As he did in his State of the Union address, the president warned Congress not to use up the projected surpluses--on tax cuts or massive new spending programs--until lawmakers can decide how to overhaul the financially troubled Social Security system.

He also proposed more than $113.5 billion worth of spending initiatives over the next five years--from funds to hire more teachers to increased subsidies for child care--to be financed in part by a fee that would boost cigarette prices by $1.24 a pack over five years, a move he said would raise $65.5 billion.

Clinton said none of his initiatives would be funded with money from the budget surpluses. Besides the proposed increase in tobacco prices, he is recommending about $71.6 billion in tax hikes over the next five years, primarily for corporations and investors.

Budget analysts described the package as one of the most openly political budgets in recent memory, designed to give Democrats an upper hand in November’s congressional elections and provide Vice President Al Gore with an edge as the 2000 presidential election approaches.

Clinton’s admonition to “save Social Security first”--before spending any of the budget surplus--already has taken some of the steam out of Republicans’ plans to use the extra money to finance a new round of tax cuts.

Congressional strategists conceded that Clinton’s insistence on hinging the new domestic initiatives to a vaguely described increase in cigarette prices has heightened prospects for imposition of some kind of cigarette fee, despite widespread opposition in Congress.

Significantly, the budget did not specify how the administration would seek to boost tobacco prices, but aides said privately that it probably would be done by imposing some sort of industry fee, which might enable the White House to avoid seeming to raise taxes.

“The more you look at this budget, the more you realize how political it is,” said Stanley E. Collender, a Congress-watcher at the Burson-Marsteller lobbying and public relations firm. “The issue for Republicans is simple: Either pass the tobacco-tax increase, or explain why you’re against child care.”

Surpluses Hinge on Many Factors

Even so, budget analysts cautioned that the projected surplus could easily be eroded if the economy worsens, the United States gets into a prolonged military offensive against Iraq or Congress refuses to go along with the full range of tax increases that Clinton is proposing.

Robert D. Reischauer, former director of the Congressional Budget Office, said it is unlikely that lawmakers will approve the full increase in tobacco taxes or all the increases in corporate taxes that Clinton has proposed.

And if the financial turmoil in Asia continues longer than expected, that could hurt U.S. corporations and workers, reducing the amount of federal tax revenues.

The White House forecasts are in line with those of most economists.

Full congressional approval of Clinton’s fiscal 1999 spending plan would bring the budget into the black three years ahead of the 2002 deadline envisioned in the budget accord worked out last May between the White House and GOP lawmakers.

As recently as 1992, the White House had expected the 1999 deficit to reach $347 billion, up from $290.4 billion that year.

In recent years, lawmakers of both political parties have been so preoccupied with showing voters they were working to eliminate the budget deficit that they eschewed many major new spending proposals. And presidents forfeited stimulating the economy in bad times to keep the deficit from exploding.

“This budget marks the end of an era, an end to decades of deficits that have shackled our economy, paralyzed our politics and held our people back,” the president said during a White House ceremony. “It can mark the beginning of a new era of opportunity” for America.

Franklin D. Raines, Clinton’s budget director, told reporters that if Congress maintains “fiscal discipline” this session, the budget may be balanced in this fiscal year, which ends Sept. 30. Current projections are for a $10-billion deficit for fiscal 1998.

Although Clinton claimed credit for the turnaround--citing his budget agreements with Congress in 1993 and last May--analysts said a similar accord negotiated by former President George Bush in 1990 also helped curb spending.

The booming economy also has played a major role, pushing tax revenues up sharply and reducing the amount of money the government spends on welfare and unemployment benefits.

Partisan Reaction Greets Proposals

Reaction to Clinton’s budget from Congress was predictably partisan.

Republicans contended that, rather than maintaining fiscal discipline, the president’s new budget violates the formal spending caps set by last year’s budget agreement, and would launch the nation on a new spending spree.

“You can’t expect a leopard to change its spots, and you can’t expect President Clinton to embrace the concepts of a smaller and smarter federal government,” Rep. Tom DeLay (R-Texas), the House majority whip, told reporters.

Democrats praised the president’s spending plan and accused Republicans of trying to tar a fiscally sound proposal.

“They can’t claim that these proposals are fiscally irresponsible,” said Rep. John M. Spratt Jr. (D-S.C.).

Clinton’s proposed initiatives and tax credits include programs aimed at reducing tobacco use, expanding child-care services, extending Medicare to some Americans aged 55 to 64 and broadening coverage to include uninsured children.

The spending plan also includes grants and tax incentives to help reduce class size in schools by recruiting 100,000 more teachers and building thousands of new classrooms; and $17.9 billion in new lines of credit to increase the lending coffers of the International Monetary Fund, the 181-country organization that is leading the global bailout of financially troubled Asian economies.

His $252.6-billion proposed defense budget holds overall military spending near current levels for the next five years but would reduce personnel to pay for new weapons systems.

Clinton’s plan would decrease the budgets for several federal agencies and programs, including the U.S. Army Corps of Engineers, recreational resources, farm price supports, the space program, the Nuclear Regulatory Commission and highways and railroads.

Besides the proposed tax increases, Clinton is recommending about $24.2 billion in tax cuts for Americans, including $5.6 billion in expanded tax credits for child-care expenses and low-income working families; and tax credits to encourage the purchase of highly fuel-efficient cars and homes, as well as cleaner business machinery and equipment.

The budget also would provide tax credits to companies that set up new retirement plans for their workers. Other measures would encourage establishment of more portable pension plans, which employees could carry with them if they changed jobs.

The budget would raise billions of dollars in new revenues by limiting business deductions on life insurance policies for employees and limiting deductions for annuity contracts.

Although the White House gave the impression that Clinton wanted the coming surpluses kept in reserve until the Social Security program can be overhauled, officials said the money actually would go back to reduce the national debt, which now totals $5.4 trillion.

Times staff writers Janet Hook, Paul Richter and Marc Lacey contributed to this story.

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WHERE YOUR TAX DOLLAR GOES

Direct benefit payments to individuals: 50

National defense: 15

Grants to states and localities: 15

Interest: 14

Other federal operations: 5

Surplus: 1

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Key Targets

President Clinton’s federal budget for 1999 would:

Education: Hire more teachers, build more schools.

Defense: Reduce personnel, boost weapons systems.

Tobacco: Raise cigarette tax to pay for domestic programs.

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The Federal Tax Burden

Under President Clinton’s budget for fiscal 1999, individual income tax burden would drop slightly, while payroll taxes would go up.

INDIVIDUAL INCOME TAX PERCENTAGE SHARE OF GROSS DOMESTIC PRODUCT

PAYROLL TAX PERCENTAGE SHARE OF GROSS DOMESTIC PRODUCT

Note: Figures for 1998 and beyond are estimates

Sources: Federal budget historical tables, fiscal year 1999