Clinton Hails First Fiscal Year Surplus in 3 Decades

President Clinton heralded America’s first deficit-free fiscal year in 29 years Wednesday, announcing that the “spell that had gripped America and led to the quadrupling of the debt” had been broken by a $70-billion surplus.

“Tonight at midnight, America puts an end to three decades of deficits and launches a new era of balanced budgets and surpluses,” Clinton said in a White House ceremony.

From the White House to Congress, there was a rare mood of celebration as both Republicans and Democrats basked in the accomplishment brought about by a combination of fiscal discipline, a hardy economy and good luck.

But Republicans claimed that they deserved the accolades, saying that they had pressured Clinton in 1995--after Democrats had lost control of Congress in the 1994 elections--to adopt their commitment to balancing the budget.

“Who led? Who followed? And who got out of the way?” asked Sen. Phil Gramm (R-Texas). “The American people led with a dramatic election in 1994. I believe the Republicans followed. And I believe the president reluctantly got out of the way.”

Clinton was equally stingy with praise, claiming the credit for himself and congressional Democrats, who helped him pass an austere economic plan in 1993 without a single Republican vote. He also used the occasion to attack Republicans for trying to spend the surplus with a five-year, $80-billion tax cut.

“Now, I am well aware that it is a popular thing . . . just four weeks and change before an election day, to serve up a tax cut,” Clinton said. But “I think most Americans would like to see the ink change from red to black and then just dry a little before we put it at risk.”

Neither side spent much time talking about the much-acclaimed bipartisan balanced-budget agreement of 1997, which Clinton signed with House Speaker Newt Gingrich (R-Ga.) in the background. At the time, the leaders applauded their mutual achievement and emphasized the cooperation that went into it.

Little Talk of Collaboration

What a difference a year makes.

With congressional elections around the corner and Clinton facing Republican-led impeachment proceedings, there was little talk of collaborative efforts.

But lawmakers of both parties did agree that balancing the budget--when federal deficits were running as high as $290 billion just six years ago--has been good for the economy, which continues to chug along despite a global economic crisis.

Budget expert Robert D. Reischauer stressed that three factors produced America’s balanced budget: sensible fiscal policy, enlightened monetary policy at the hands of Federal Reserve Board Chairman Alan Greenspan and “Lady Luck.”

“Just about everything broke right that could have broken right,” said Reischauer, a former director of the Congressional Budget Office who is now at the Brookings Institution, a Washington think tank.

Positive influences on the economy included the peaceful dissolution of the Soviet Union, which allowed restraint in U.S. military spending; a slowdown in the growth of health care costs, which allowed employers to increase taxable salaries instead of nontaxable benefits, and the boom in the stock market, which brought additional capital gains taxes into federal coffers, he said.

The outlook for keeping the budget balanced or in surplus over the next several years is very good, as long as the U.S. economy stays out of recession and politicians do not dole out too many good-time tax cuts and spending increases, experts say.

“Assuming the economy stays relatively as it is now, we’re talking about surpluses in the $100-billion range for the next five or six years,” said Stanley E. Collender, budget expert at Fleishman-Hillard, a public relations group. “You could have a mild downturn and still have a surplus or something close to a balanced budget. Life has changed.”

Experts Critical of Tax Cut Bid

Budget experts joined Clinton in criticizing Congress for trying to cut taxes. The House passed a measure Saturday, which Clinton has vowed to veto, that would offer popular tax breaks to married couples and people receiving inheritances.

“Dipping into the surplus to pay for a tax cut is really uncalled for,” said Reischauer, a Democrat. “We have a piggy bank that has been empty for 29 years. The first jingle that occurs with it, the Republicans want to bust the bank and run out and buy candy with it. I think it’s unwise on virtually every front.”

Clinton has vowed to reserve the surplus until the White House and Congress decide what to do about the impending crisis in Social Security, which is expected to run short of funds as millions of baby boomers hit retirement age early in the next century.

But Republicans and budget analysts charged that the president was breaking his promise to save the surplus. He has proposed $14 billion in additional emergency spending to fund U.S. troops in Bosnia, the 2000 census, disaster relief, beefed-up security at embassies and efforts to fix the Year 2000 computer problems. Under last year’s budget agreement, emergency spending does not have to be offset by spending cuts.

Gramm derided the notion that Clinton’s proposals are the kinds of unanticipated expenditure lawmakers had in mind when they provided an exception to the balanced budget agreement for emergency spending.

“Nobody can say that it is a shock that the year 2000 is coming,” said Gramm.

And Sen. Pete V. Domenici (R-N.M.), chairman of the Senate Budget Committee, suggested that, if Clinton could chip away at the surplus for emergency spending, Republicans should be allowed to do so for tax cuts.

This is exactly the kind of thinking that worries the budget experts.

“Everybody is guilty,” warned Carol Cox Wait, a budget specialist at the bipartisan Committee for a Responsible Federal Budget. “In this climate, when they start trying to cut deals, you run the risk of getting expedient outcomes. The most likely compromise from this sort of thing is for the president to agree to a tax cut and Congress to agree to the spending the president wants--and you get the worst of all possible worlds. Let’s don’t be too anxious to spend the money before we actually see the greenbacks.”

Throwing off fiscal discipline at this time could have a negative effect on the economy, she warned.

“The world economy is in a much more fragile state than it was a year ago,” Wait said. “For the president and Congress to be signaling a departure from the attitude of fiscal restraint could be very damaging.”

The balanced budget came with costs for both Republicans and Democrats. The first big political figure to pay a price was President Bush, who lost the 1992 election in part because he supported a deficit-fighting tax increase in 1990 after vowing not to raise taxes. The tax increase now is credited with helping turn around the economy and make this balanced budget possible.

Clinton and Democrats took the next blow, losing control over the House of Representatives for the first time in 40 years in 1994, after Clinton pressured Democrats to vote for tax hikes in his 1993 economic plan.

Attending the White House surplus celebration Wednesday were five former members of Congress who lost elections in 1994 after voting for Clinton’s economic package, which increased taxes on gasoline and for wealthy Social Security recipients and the richest Americans.

GOP May Benefit From Budget Talk

While Republicans may resent Clinton’s trying to claim credit for the feat they believe is their own, his boasting did serve their political interests in another way: It may help rescue from scandal-induced obscurity the biggest legislative accomplishment of the 105th Congress.

Republicans had long planned on running for reelection on last year’s budget-balancing deal, and they have produced little of that magnitude since then. But the memory of that legislation has been fading and has been eclipsed by the Monica S. Lewinsky scandal in the crucial weeks leading up to the election.

Clinton’s fanfare over the budget may remind voters of the deal and its bipartisan parentage.

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Budget Rebound

The 1998 federal budget surplus is the first in three decades. A look at the budget since 1969:

1969: $3.2 billion

1992: $290.4 billion

1998: $70 billion*

* Estimate based on preliminary data

Source: White House