As End of Deficit Spending Looms, Policy Differences Add Up

With a federal budget surplus suddenly within sight, both Republicans and Democrats soon may find themselves free of the fiscal constraints that have shackled their aspirations for decades.

But who knows what they’ll do without their chains.

The looming surplus, brought even closer by President Clinton’s decision to propose a balanced budget for the next fiscal year instead of waiting until 2002, has thrown both parties into rollicking disarray over exactly what their post-deficit agenda should be.

Republicans are squabbling over whether to use the impending fiscal leeway to cut taxes, increase spending or reduce the remaining national debt. Democrats are steaming toward a parallel debate--which could pit Clinton against the liberal wing of his party--over whether or how to spend the surplus.

The cacophony is the sound of an entire generation of politicians, who have always operated in the shadow of the deficit, preparing to navigate a fiscal landscape bathed in the sunlight of surplus.

“Fighting deficits has been the principal goal of public life for almost 15 years now, and it’s driven almost everything else in public policy,” said Alan Brinkley, a professor of modern American history at Columbia University. “The parties for a while will be somewhat uncertain about how to move in any direction.”

It probably will be a couple of years before there is a sizable surplus to throw around. And Congress’ immediate options may be narrowed by Clinton’s decision to push for a balanced budget in fiscal year 1999--making it harder for Republicans to cut taxes and for liberals to increase spending. But it could bring the day closer when lawmakers will get their hands on any kind of budget surplus for the first time since 1969.

Official Washington has been eagerly awaiting the transformation of the budget’s ink from red to black, but the magic moment is coming faster than anyone thought possible.

Ever since Clinton and congressional Republicans last year agreed to a plan to balance the budget by 2002, politicians and other analysts have watched in awe as the booming economy has defied all expectations and driven down the deficit as if on autopilot. At the end of November, the Treasury Department reported that, for the first time since 1970, the government had run a surplus over a 12-month period.

No one can be sure that the economy will continue to hum and sustain a deficit-free government, but Clinton’s upcoming budget request will signal his commitment to that end three years before the budget deal stipulated.

Elimination of the deficit is not just an accounting milestone. It is a political watershed that is the domestic equivalent of the end of the Cold War. Just as a generation of politicians took its bearings in foreign affairs from the U.S. power struggle with the Soviet Union, policymakers at least since the early 1980s have been constrained by pressure to limit spending and raise revenues to control the burgeoning deficit.

“Virtually everything that’s gone on in Washington over the last 20 years has been based on the idea that the deficit has to be reduced, and the political parties have created images for themselves based on how the deficit should be reduced,” said Stanley L. Collender, a budget expert with Burson-Marsteller, a Washington public relations firm. “None of those images now are going to hold. All the players in Washington are having to redefine themselves.”

Hence, the spectacle of the Republican Party--which long has cast itself as the party of tax and spending cuts--now riven into factions over whether to spend the impending surplus.

House Transportation Committee Chairman Bud Shuster (R-Pa.) was first in line, calling for a big spending increase for highway programs. Many others, including House GOP Conference Chairman John A. Boehner (R-Ohio), want to earmark any surplus for tax cuts. A smaller faction, led by Rep. Mark W. Neumann (R-Wis.), wants to insist that at least some of the excess revenues be used to begin paying off the national debt--$5.5 trillion as of last September, according to the Treasury Department-- accumulated over years of deficit spending. House Majority Leader Dick Armey (R-Texas) and others seeking a radical overhaul of the tax code are eyeing the surplus as a way to help smooth the transition to a new system. House Speaker Newt Gingrich (R-Ga.) wants a little bit of everything: He has called for annual tax cuts, some buy-down of the debt and increased spending for highways, defense and science.

Clinton’s decision to propose a break-even budget all but guarantees that the Republican-controlled Congress will follow suit and move up the timetable for eliminating the deficit. House Budget Committee Chairman John R. Kasich (R-Ohio), for one, had already planned to do so. But that will make it harder for Republicans to cut taxes, unless they come up with fiscal offsets to pay for them.

It also will make it harder for Democrats to initiate new spending programs. That has soured some liberals on Clinton’s decision to accelerate the budget-balancing schedule.

“It puts the squeeze on us Democrats who were hoping to go in a whole different direction,” said an aide to one leading liberal in Congress. “Democrats were looking in the direction of what to increase.”

House Minority Leader Richard A. Gephardt (D-Mo.), who led the Democratic opposition to last year’s budget-balancing deal, is taking a wait-and-see attitude toward Clinton’s upcoming budget. But in a December speech that was pointedly critical of his party’s move to the center in recent years, Gephardt argued that Democrats “must have greater goals than merely achieving numerical balance in the federal budget.”

Asked Gephardt’s view of Clinton’s decision to balance the budget, spokeswoman Laura Nichols said: “If a perfect zero balance becomes the goal rather than making badly needed investments, that’s where he might part company.”

Even if Democrats accept the budget-balancing parameters of Clinton’s proposal, there will be a lively intraparty debate about spending priorities. For example, one top strategist predicts that many House Democrats will be more interested in restoring social spending that was cut in last year’s budget deal than in Clinton’s recently announced proposal to increase spending for the Peace Corps.

“You’ve got a lot of people wanting to do a lot of different things,” the strategist said. “It may turn out to be cacophonous. But that’s got to be part of what goes on this year.”

The whole fractious scene suggests that the looming surplus has reopened divisions between and within the parties that were submerged by consensus that the deficit should be eliminated.

“To some degree, big deficits constrained ideological fights because everyone had to put their own favorite project on hold,” said William Kristol, a Republican analyst who edits the Weekly Standard magazine. “Now people can really fight about defense spending, what government should do, what kind of tax reform we should have.”