Clinton to Propose the First Balanced Budget in 30 Years

President Clinton said Monday he plans in February to propose the first balanced budget in 30 years, but he warned against enacting any big new tax cuts, which he said would only bring back the deficit.

If Congress approved Clinton’s fiscal 1999 spending plan intact, it would bring the budget into the black three years ahead of the 2002 deadline envisioned in the accord worked out between the White House and Congress last May.

White House officials said Clinton’s new budget would project surpluses at least through 2002 and most likely for several years beyond that, barring any major tax cuts or spending increases.

“To somewhat recoin an old phrase, you’ll see surpluses as far as the eye can see,” Clinton’s chief economic strategist, Gene Sperling, told reporters at a briefing.

The president also confirmed that the federal budget deficit for the current fiscal year--which ends on Sept. 30--is likely to be less than $22 billion, far below the $58 billion that had been projected last August.

The revision reflects larger-than-expected tax revenues stemming primarily from the booming economy, which outpaced the expectations of even the most optimistic forecasters last year and seems likely to do so this year as well.

Clinton’s budget director, Franklin D. Raines, said the tax windfall has come across the board--from corporations, individuals and investors, who pay capital gains taxes.

The president’s warning about the dangers of enacting a major tax cut too soon was designed to head off efforts by some GOP congressional leaders to push through such a reduction this year, before there is a guarantee that the deficit will disappear as projected.

House Speaker Newt Gingrich (R-Ga.) laid out a legislative agenda on Monday calling for a large tax reduction guaranteeing that no American would pay more than one-fourth of his or her income for federal, state and local taxes combined.

Gingrich also proposed increased efforts in the war on drugs and improvements in the nation’s education system. Other GOP leaders have proposed hefty tax cuts or spending increases, although some are urging caution as well.

But Clinton warned Monday that proposals to use up the projected surplus by enacting tax cuts or spending programs for fiscal 1999 would only jeopardize the projected surplus and could even force the budget back into deficit.

“We can project a surplus [for fiscal 1999], but we don’t have one [yet],” the president said at an impromptu press conference. “We cannot take risks with the future that we have worked so hard to build.” At the same time, Clinton himself is reported to be considering about $25 billion worth of new tax incentives and credits--which some analysts say would use up any surplus as quickly as spending measures would.

Although White House officials insisted on Monday that Clinton’s new programs would either be self-financing or would not disturb the projected surplus, the analysts said the president’s proposals would be almost certain to spark rival plans from Republican leaders.

Both Clinton and his top budget advisors sidestepped questions about reports that he is planning to propose up to $10 billion a year in new cigarette taxes as part of a program to discourage smoking among young people.

Raines told reporters that any legislation directed at the tobacco industry would likely include “a substantial revenue component,” but he declined to say how much in new taxes it would be designed to bring in.

At the same time, Raines asserted that the modest surpluses that Clinton will be projecting for fiscal 1999 and later would not be dependent on any increases in tobacco taxes. “The tobacco legislation will be self-contained,” he told reporters.

The debate over how to spend the still-unrealized budget surplus is expected to become the major legislative battle in the congressional session that convenes later this month, as both parties scramble to use any excess to cement their own political agendas.

Many fiscal watchdog groups--and mainstream economists--want the government to maintain any surplus at least for the next several years so it can retire some of its existing debt and have more on hand for Social Security in 2010, when the first wave of the baby boom generation reaches retirement age.

The national debt--the total amount of money the government owes on what it has borrowed to finance its deficit spending over the years--is about $4 trillion.

Critics also warn that the budget surplus may not even come about if the economy slows more sharply than most economists expect and the surge in tax revenue declines. Some analysts warn that the U.S. economy may be hurt as a result of the Asian financial turmoil.

Reaction to Clinton’s comments Monday was mixed. Rep. Bill Archer (R-Texas), chairman of the House Ways and Means Committee, said he agreed with Clinton’s goal of balancing the budget, but said it should be done by making government smaller, “not . . . thanks to high taxes.” Archer asserted that cutting taxes quickly, as the Republicans propose, would force the administration to reduce the overall size of the government, which in turn would trim its power as well. He said the tax burden on Americans currently is “excessive.”

But Robert D. Reischauer, former director of the nonpartisan Congressional Budget Office, said Clinton was correct in seeking to ward off any “squandering” of the projected budget surpluses.

Clinton is especially sensitive to the impact of large budget deficits, because the red-ink figures of the 1980s and 1990s prevented him from embarking on the spending programs he had hoped to propose during his first term in office.

The budget deficit soared after the huge tax cuts and large increases in military spending enacted when Ronald Reagan was president, peaking in 1992 at $290 billion. Most of the reduction since then has reflected the boom in the economy.

If a surplus does evolve in fiscal 1999, as Clinton is projecting, it would mark the first black-ink performance for the federal budget since 1969, when Richard Nixon was in office. Nixon proposed a surplus in fiscal 1970, but the budget slipped into deficit.

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Shrinking Deficit

The continuing strength of the U.S. economy has caused a dramatic drop in projections of the federal budget deficit during the last year. Here is how the estimates have changed for fiscal 1998, which ends Sept. 30, and fiscal 1999, which starts Oct. 1.

FISCAL 1998 (Billions of dollars)

2/97: $120

5/97: $90

8/97: $58

1/98: $22 (Current estimate)

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FISCAL 1999 (Billions of dollars)

2/97: $117

5/97: $90

8/97: $57

1/98: estimate: 0*

* Surplus of less than $500 million

Source: White House Office of Management and Budget