Candidates Do the Surplus Math

Dramatic new estimates of huge federal budget surpluses over the next decade immediately sharpened the central policy debate Wednesday in both parties’ presidential races: what to do with the windfall accumulating in the federal treasury.

For weeks, Democrat Al Gore and Republican John McCain have positioned themselves as defenders of the surplus--arguing that proposals for more health care spending from Bill Bradley, in the Democratic race, and a major tax cut from George W. Bush, in the GOP contest, are fiscally irresponsible.

On Wednesday, Bradley and Bush got some ammunition for the defense: projections that under certain assumptions, the surplus through 2010 could be twice as large as previously estimated--enough to clearly cover the cost of their programs. But, strikingly, neither Gore nor McCain backed off their criticism Wednesday; both insisted that Washington must maintain a cautious approach to taxes and spending until the surpluses materialize.

‘Resist Temptation . . . to Squander’

“We need to resist the temptation that some have . . . to squander the surplus, whatever that number turns out to be,” Gore said.

“These estimates are economists’ words for guesses, and I am not positive we will continue to have the surpluses as they are presently envisioned,” McCain insisted at Wednesday’s debate.

In policy terms, Gore and McCain were reflecting the belief of many budget analysts that the surplus will probably not be half as big as the largest estimate in the new report by the Congressional Budget Office.

Gore and McCain appear to be betting that voters will remain skeptical of both the swelling estimates of surpluses--and of any extensive departure from the fiscally conservative strategy that’s been associated with the nation’s roaring prosperity. “Don’t rock the boat is a powerful sentiment in this good economic environment,” says Andy Kohut of the Pew Research Center for the People and the Press.

Polls have almost universally found majorities prefer a cautious approach toward the surplus. A Times survey last week in New Hampshire found that nearly nine in 10 Democrats and three in five Republicans would rather use the surplus primarily to pay down debt and stabilize Social Security, rather than for a large tax cut.

In the GOP contest, McCain and Bush wasted no time in integrating the new figures into their long-running argument over the budget and taxes. For weeks, the Arizona senator has attacked Bush’s proposal for sweeping cuts in income tax rates as “fiscally irresponsible” and touted an alternative plan that would offer much smaller tax reductions while using much of the surplus to bolster Social Security and Medicare. Bush has called that approach a recipe for more spending, and insisted that Washington can meet basic needs and still afford his tax cut.

Bush seized on the new numbers most aggressively. In a breakfast appearance in Concord, he touted the largest of the new CBO estimates: the projection that, under certain assumptions, the government’s Social Security account and federal operating budget could each amass surpluses of about $2 trillion over the next decade. That would yield a combined surplus of $4 trillion.

“The fundamental question,” Bush declared, “is what to do with the $4 trillion.”

Bush answered his own question with a plan he first released late Tuesday. Bush said he would reserve the expected Social Security surplus for the retirement program itself. Turning to the surplus in Washington’s operating budget, the Texas governor said he would apply “a little more than $1 trillion” of it toward reducing taxes. And he said he would use the rest for other programs, emergencies and further reductions in the national debt.

Bush continued to jab McCain over his priorities, saying, “I worry about money sitting around in Washington.” Yet McCain advisors saw Bush’s new plan as a sign the senator was gaining ground in his focus on debt reduction.

Howard Opinsky, McCain’s spokesman, noted that Bush did not use the higher surplus estimates to call for an even larger tax cut; instead, he suggested that much of the new money could be used for faster debt reduction.

Forgo Further Tax Cuts

McCain, in his response to the new estimates, said he would forgo further tax cuts and devote most of any additional surplus toward further debt reduction; McCain would divide the rest between Social Security and Medicare.

Kohut said it was likely voters would be influenced far more by the broad position the leading candidates assume in this argument than the specific surplus estimates they use in preparing their agendas.

On Wednesday the CBO released not one but three estimates of the potential federal surplus over the next decade. All three assume that the government’s Social Security trust fund will amass a roughly $2.3-trillion surplus through 2010. But estimates for the potential surplus in the operating budget--the money the next president and Congress might actually have to spend--varied wildly, depending on the assumptions used.

The largest estimates in the operating budget surplus--about $1.9 trillion over the next decade--assume that Congress will make the large cuts in domestic and defense spending mandated under the existing budget caps. But many budget analysts consider it unrealistic that Congress will make such painful reductions.

For that reason, many budget experts consider the third CBO estimate the most plausible. It assumes that, over the next decade, domestic and defense spending will rise with inflation from its current level; that projection produces an operating budget surplus of $148 billion over the next five years and $838 billion over the next 10.

But that’s evidently not enough money to end the fierce debates over how much new spending and tax cuts can fit in a balanced budget.

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Times staff writers Ed Chen, T. Christian Miller and Anne-Marie O’Connor contributed to this story.