White House Budget Aims at Medicare, U.S. Surplus

The White House, posing a stark choice between its spending aims and Republican wishes for a large tax cut, unveiled details Sunday of a fiscal 2001 budget that contains an array of spending initiatives, including prescription drug coverage for elderly and disabled Americans in the Medicare program.

The administration’s blueprint for spending and taxes, to be released today in full, would eliminate the $3.5-trillion national debt owed to the public by 2013, largely by using expected surpluses in the Social Security program. As interest payments on the national debt--now 13 cents of every federal dollar spent--shrink to zero over 13 years, federal spending would continue a steady decline as a share of the U.S. economy.

Documents made available to reporters showed a $746-billion surplus over the next 10 years in the budget’s non-Social Security accounts. That was considerably lower than the $1.9 trillion that the Congressional Budget Office estimated two weeks ago could be achieved if spending for most programs was frozen. But it was still enough to let the administration postpone the Medicare program’s projected insolvency by 10 years to 2025, with plenty left over for a grab-bag of other initiatives.

It was unclear how many of President Clinton’s priorities would be adopted by a GOP-controlled Congress in an election year in which many of its members are committed to a larger tax cut and lack the president’s affection for activist government.

In the $1.8-trillion budget for the fiscal year beginning in October, the administration also set aside money to hire 100,000 teachers, renovate schools, provide health insurance for needy working families and even boost defense spending.

Clinton’s final budget will be the opening volley in what appears to be a novel era of federal black ink, in which Democrats and Republicans will strive to capture the loyalty of voters through distinct spending proposals. It is an unfamiliar state of affairs, pitting such priorities as tax cuts, health care and national debt reduction in competition with one another for a federal windfall that once seemed unimaginable.

“If the tax cut grows, it’s going to squeeze out some of the other priorities,” warned Jack Lew, director of the Office of Management and Budget in an interview Sunday. “. . . It becomes a trade-off between Medicare and a tax cut.”

The administration, he said, has achieved budget surpluses, such as the $167-billion forecast for this year, “not by accident--but by a policy of fiscal discipline that we’ve stuck to.”

Republicans were quick to criticize the administration priorities, which they said leaned far too much toward new government programs rather than toward tax relief, which the surplus has made much more affordable. Some also sought to tag Vice President Al Gore with responsibility for increased spending plans.

“This is a political document,” declared G. William Hoagland, staff director of the GOP-controlled Senate Budget Committee and one of the senior budget experts on Capitol Hill. “It’s not a long-term futuristic budget for the 21st century. It’s going back to the roots of the Democratic Party.”

Even the estimates of the surplus have political overtones. The administration said it assumed that much of federal spending would continue to grow with inflation. (The administration would use the much larger projected surpluses in the Social Security program to buy down the portion of the national debt now held by the public.)

The CBO’s surplus forecast assumes no growth, even for inflation, beyond the spending caps that Clinton and Congress agreed to in 1997. Those caps were already breached last year.

The size of the surplus is of more than accounting importance. The larger the surplus, the easier it is to find money for a tax cut--as the GOP Congress seeks. The smaller surplus would make a tax cut more difficult to finance.

The administration would plow more than half of its expected surplus in the non-Social Security accounts--$432 billion over the next decade--into Medicare, the government health insurance program that covers 39 million elderly and disabled Americans. In addition, the administration would devote $35 billion to establish an additional benefit to help seniors who have high prescription drug bills because of severe or prolonged illness. It would expand government subsidies for health insurance covering needy working parents and their children.

The White House would increase efforts to renovate and modernize schools by adding $1.3 billion on top of a separate 10-year, $8-billion plan of tax incentives to help school districts borrow money for the same goal. It would add $450 million to existing plans to hire 100,000 teachers and thereby reduce class sizes in schools.

The White House also would increase defense spending by 4% next year to more than $292.2 billion.

The budget contains a previously proposed tax cut, originally characterized as a $350-billion package, that includes a range of proposals aimed at providing tax relief for moderate-income families. According to the White House, the tax proposal would actually cost $256 billion, after various loophole-closing provisions and other measures are taken into account.

It is clear that the battle over budget surpluses and competing, partisan priorities could be a dominant theme on Capitol Hill for a long time.

Although the administration is quick to take credit for the vast improvement in the federal government’s finances, outside analysts suggest that Clinton has benefited from an extraordinary set of forces coming together during his term. Fueled by the strong economy, tax revenue has spiraled beyond all projections at the same time that cost-saving measures in the government’s health-care programs have held down seemingly uncontrollable spending.

The surplus levels pave the way for a broad election year debate about how best to use the unexpected fruits of prosperity, with both parties struggling to define their priorities.

On some large points there is striking agreement: Republicans and Democrats both say they would use the $2.2-trillion near-term surplus in Social Security at least partially to pay down the debt, despite past GOP declarations to keep the retirement fund off-limits. There is also significant bipartisan agreement on some tax cuts, such as reducing or eliminating the so-called marriage penalty paid by joint filers.

But sharp contrasts remain. Clinton has put out a long list of politically popular new spending programs with an emphasis on health care, but including initiatives in education, the environment and other areas. Republicans argue vehemently that more of the black ink should be returned to the public in the form of larger tax cuts.

“This is the first Gore budget, and the first Gore budget is higher taxes, more spending,” said John Feehery, spokesman for House Speaker J. Dennis Hastert (R-Ill.), hitting a theme that Republicans will attempt to hammer in the coming months.

“The president has . . . a long laundry list of little programs, and then their cost and scope explode when he’s no longer in office,” said Eric Ueland, chief of staff to Senate Majority Whip Don Nickles (R-Okla.). “I’m not sure we want presidents down the line wrestling with new domestic entitlement programs which have been dreamed up by pollsters and focus groups.”