Strong Economy Boosts Clinton’s Surplus Estimate

The Clinton administration said Monday that the booming economy will allow the government to shore up Social Security, pay off the federal debt within 15 years, increase spending on the military and education and still cut taxes.

The combination of spending increases and tax cuts is built on a foundation of cheery predictions assuming that, over the next 15 years, U.S. economic strength will produce a surplus $1 trillion greater than projections of five months ago.

“That is an amazing thing,” President Clinton said.

Presenting his most optimistic assessment yet of the federal government’s financial health, Clinton outlined an economic plan that would include more government spending as the economy booms, while seeking to undercut potential objections from Republicans.

Clinton used the new estimates to boost his argument that the nation’s taxpayers can afford both guns and butter. After roughly a decade of decline, he said, the Pentagon’s slice of the federal budget would climb. But so too, would spending on Head Start, other education programs and government assistance promoting children’s health.

The predictions were contained in the administration’s midyear review of the federal budget, an annual assessment required by Congress to present a second look at the budget originally drawn up in February.

Among the updated figures: The $79-billion surplus expected at the end of the current fiscal year, Sept. 30, is likely to balloon to $99 billion, the largest surplus in the nation’s history. And a surplus initially anticipated to be $393 billion in 10 years is now seen as $473 billion.

Within 15 years, the government figures show, the cumulative savings from the surplus will be $5.94 trillion.

At its heart, the administration’s plan to spend that money focuses on Social Security, Medicare and other programs aimed primarily at providing a secure future for the baby boom generation--which will begin to retire in a decade or so--and subsequent generations. The Clinton proposal would extend Social Security solvency through 2053.

Without an infusion of cash from the surplus or a reduction in benefits, the retirement and health insurance programs would dry up early in the next century.

It is on these programs--and on a retirement plan that would contribute federal dollars to individual retirement investment accounts--that Clinton is focusing with greater frequency as he nears the final months of his second term and looks toward building a far-reaching legacy for his eight years in office.

Clinton’s announcement prompted skepticism--and some mild praise--from Republicans.

House Majority Leader Dick Armey (R-Texas) said that Social Security and Medicare protections are weaker under the administration’s plan than protections already proposed by Republicans.

Rep. J.C. Watts Jr. of Oklahoma, chairman of the House Republican Conference, said the president’s proposal “does not go far enough” and should have protected the interest earned on the Social Security trust fund as well.

But each offered some backhanded praise to Clinton for opening the way to some tax reduction. “I hope he means it,” Watts said.

Rep. Bill Archer (R-Texas) seemed more receptive, pledging to search for “a bipartisan solution.” Archer favors allowing Americans to invest part of their retirement funds in personal retirement accounts. As chairman of the House Ways and Means Committee, he is likely to play a central role in the ultimate fate of Clinton’s proposals.

The president is planning to unveil details of his proposal to strengthen Medicare, the government’s program of health insurance for the elderly and severely disabled, at the White House today. It would draw on the budget surplus to pay for a new prescription drug benefit and, by administration estimates, would keep the wobbly program solvent for 25 years.

The centerpiece of Clinton’s Social Security plan is his insistence, which has been firm since he delivered his State of the Union address in January, that not a penny of the budget surplus be spent until the fiscal health of the retirement program is certain.

To accomplish this, Clinton is proposing first that the payroll taxes that feed the Social Security trust fund be devoted to reducing the debt. Second, he is insisting that after a decade the interest that is saved because the debt has been reduced be devoted to extending the actuarial solvency of Social Security, rather than being spent on other programs.

Specifically, the plan would spend $3.07 trillion on debt reduction over the next 15 years. That would cut interest payments by $543 billion, money in turn that would be used to extend by 19 years the life of the Social Security fund, the government says.

Monday morning at the White House, Clinton used measured tones when speaking of the sunny economic news. But he abandoned his reserve when he addressed Democratic Party contributors attending a luncheon in Westport, Conn.

“It means more business investment. It means more money for wage increases. It means a more stable economy. It means the next time there’s a world financial crisis, like we had in Asia a couple of years ago, we’ll be less affected by it. And it means there will be more money out there for poor countries to borrow at lower interest rates or be given, because we won’t be taking any of it” for debt payment, Clinton said.

Times staff writer Art Pine contributed to this story.

* TRILLION-DOLLAR WINDFALL: A fast-expanding economy led economists to upgrade estimates of federal surplus. A12

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$1,000,000,000,000 Windfall

February’s projections of annual budget surpluses compared to those released Monday. The cumulative difference over 15 years: $1 trillion.

How the Money Would Be Spent

MEDICARE: An investment of $794 billion over the next 15 years, including payments for new prescription drug benefits for the elderly.

SOCIAL SECURITY: An extra $543 billion over the next 15 years, which Clinton said would assure the program’s solvency until 2053.

TAX CUTS: In February, Clinton proposed $36 billion in cuts over five years. He proposed no changes on Monday.

Source: Office of Management and Budget