Surplus Causes Bending of Political Party Lines

Who says you can’t have it all? Ever-expanding estimates of the federal budget surplus are allowing both parties to not only have their cake, and eat it too, but to order an extra piece of pie on the side.

From George W. Bush’s proposal to partially privatize Social Security to Al Gore’s flotilla of new spending initiatives on health care and education, the torrent of cash flowing into the federal treasury has given both parties the freedom to pursue far more ambitious agendas than either side offered four years ago.

In some ways, the politics of plenty are sharpening the differences between the parties and their presidential contenders: Bush’s desire to use the surplus for an across-the-board cut in income tax rates, and Gore’s call for eliminating the federal debt, remain perhaps the clearest contrast between them.

But in other ways, the roaring economy is blurring familiar debates between the two sides. With Washington operating in the black, Bush and the congressional GOP have essentially shelved the drive to eliminate federal agencies that characterized the Republican revolution of the mid-1990s.

In a parallel shift, Democrats are growing more enthusiastic about tax cuts: A stunning one-third of House Democrats earlier this month joined with all House Republicans to support the elimination of the estate tax, a move that liberals have fiercely opposed as a boon to the wealthy. Even Gore recently doubled the size of the tax cut he’s proposing to $500 billion over 10 years--almost two-thirds as large as the congressional GOP tax cut that President Clinton last year vetoed as fiscally irresponsible.

“Prosperity is turning Republicans into big spenders, and it is turning Democrats into tax cutters,” says Steven Moore, president of the Club for Growth, a conservative political group.

That convergence hasn’t eliminated the disputes between the parties about the government’s role--differences still apparent in the contrasting ways that Gore and Bush want to use the surplus. But most analysts agree the swelling surplus numbers increase the odds that the next president and Congress--no matter which party is in control--will be able to overcome those differences and break the stalemate over budget policy that has immobilized Washington since the balanced-budget agreement in 1997.

“These numbers are getting so big, we can both get what we want,” says Moore, an advisor to House Republicans. “So you can start to envision big deals where everybody walks away from the table happy. Just think about how different that is from 10 years ago.”

Reports of Another Increase in Estimate

The immediate source of this optimism are recent reports that the administration will soon dramatically increase its estimate of the federal budget surplus over the next decade. In January, the Office of Management and Budget estimated the operating budget surplus--that is, funds in federal accounts excluding Social Security--would total $746 billion through 2010. But revenue growth linked to the booming economy has been running so strong that OMB is expected to estimate the on-budget surplus will be as much as $1 trillion larger over that period.

Deficit watchdog groups still caution that this money exists only in projections that could fail to materialize if the economy unexpectedly slows. Yet those warnings have lost some of their force as the surpluses have consistently exceeded estimates in recent years.

The anticipated OMB estimates could bring the administration’s 10-year operating budget surplus projection roughly in line with the Bush campaign’s own estimate of $1.8 trillion. Gore still forcefully maintains that won’t be enough to pay for Bush’s proposed tax cut (whose 10-year cost has been estimated as at least $1.3 trillion), and his proposals for new domestic spending, a massive national missile defense program and individual investment accounts under Social Security, which might eventually need to be funded with general revenue.

But the soaring projections of future revenue will probably make it more difficult for Gore to argue that Bush’s tax cut is unaffordable, at least on paper. Likewise, the anticipated future bounty makes it tougher for Bush to argue that the money won’t be available for Gore’s plan to bolster Social Security with infusions from general revenue.

In that way, the prospect of these future windfalls may affect the campaign primarily by shifting the focus of the budget debate from math to priorities. With less capacity to argue that their rival is over-promising, the two men may face increasing pressure to focus on the choices in the competing agendas themselves.

And those choices still present important contrasts. Even with Gore offering more tax cuts and Bush proposing modest new spending on education and health care, for instance, the two men still offer very different paths on the surplus.

Using his own calculations, Bush would apply nearly three-fourths of the expected surplus to tax cuts, partly on the grounds that Washington will otherwise spend the money. “This is where it is an important election,” says Ari Fleischer, Bush’s deputy communications director. “If Al Gore uses our prosperity to build for a bigger government, there is no experience to suggest anybody will ever be able to pare it back.”

Even after his recently enlarged tax proposals, Gore, by contrast, would apply only a little more than one-quarter of the anticipated surplus to tax cuts. Gore would use the rest of the money to increase education spending by about 10 times as much as Bush, to create a prescription drug benefit under Medicare, to expand health care for the uninsured and to pay off the national debt by 2012; Bush’s plan doesn’t set a target date for eliminating the debt.

In an interview, Gore maintained that his heavier focus on eliminating the debt represented a more fiscally prudent strategy than Bush’s plan for a sweeping tax cut: “The surpluses are predicted, projected surpluses,” Gore said. “If we squander all the money before it ever arrives, then that is ironically the best way to guarantee that they never will actually arrive.”

Surplus Revives Retirement Plan

The new money has encouraged a similar pattern of convergence and contrast on Social Security. Last summer, when he prepared his budget blueprint, Gore was forced to eliminate Clinton’s proposal for federally subsidized accounts that would help middle-income workers save for retirement. Gore had to abandon the proposal because he needed the money to fund his education and health care ideas, initiatives that went beyond administration proposals. But the surplus projections have grown so large that Gore today, without retrenching any of his other spending plans, is scheduled to unveil a variation on Clinton’s retirement account plan.

That narrows the difference between Gore and Bush in the sense that each is proposing that Washington help workers invest in the stock market for retirement. But it underscores the contrast in their approach for doing so.

Bush has proposed a “carve-out” plan where Washington would allow workers to divert two percentage points of their Social Security taxes into individual accounts they could invest for their own retirement. Gore is proposing an “add-on” plan, where all of the Social Security tax revenue would still be applied to paying benefits, and government would use general revenue money to subsidize additional retirement savings by matching investments from middle- and lower-income families.

These differences reflect divergent ideological instincts; Bush’s Social Security plan begins to shift the balance of risk and responsibility for funding retirement away from government toward individuals, while Gore would, in effect, broaden the existing safety net to include a new entitlement to subsidized retirement savings. The debate over tax cuts versus new spending embodies a similar dispute about government’s proper reach.

After the election, the big question in Washington may be whether the opportunity to carve up these potentially massive surpluses--which now look big enough to give both parties much of what they want--provides enough incentive for the next president and Congress to surmount these ideological disagreements. “In the next cycle after this election, it’s hard for me to envision a scenario where a lot doesn’t get done, because you are going to have this money,” says one senior House Democratic aide.