Bush Deflects Blame Over Budget

President Bush moved Tuesday to preemptively shape the looming debate over the dwindling federal budget surplus, arguing that it is excessive spending, not his tax cut, that has created the greatest risk of future deficits.

Sharpening the argument that is likely to dominate Washington this fall, Bush defended his tax cut as a tonic for the flagging economy and charged that new government spending poses the greatest threat to both economic recovery and the federal budget.

“We took exactly the right action, at the right time, by pushing the largest tax cut in a generation,” Bush told a supportive audience in a steamy high school gym in the hometown of former President Truman. “The biggest threat to our recovery is for the Congress to overspend.”

This morning, the White House Office of Management and Budget is expected to release figures showing that the 2001 federal budget surplus has shrunk to the point where the government might need to tap into Social Security funds to pay for other programs.

The new numbers have triggered a confrontation between Bush and congressional Democrats that amounts to a debate over who lost the surplus. Even as Bush spoke Tuesday, Democrats charged that the figures mean that Bush has squandered the strong fiscal hand he inherited from President Clinton.

“When this president came to office we gave him a gift that no president in recent times has enjoyed: a budget that was in healthy surplus and surpluses that were projected for 10 years, at least, to come,” said Rep. John M. Spratt Jr. of South Carolina, the ranking Democrat on the House Budget Committee. “Now, within less than eight months, we are dealing with the consequences of budget actions that were not well considered.”

Reinforcing that message, the Democratic National Committee on Tuesday unveiled a new television ad accusing Bush of undermining the surplus with his tax cut. Though officials said the committee was initially purchasing only a “modest” air buy for the ad, party chairman Terry McAuliffe said in an interview that he expects to air the ad more widely this fall.

“This is a defining moment for our party,” he said. “I think we are going to continue to do this through the fall and make this a major issue for when George Bush comes back.”

Most Americans do not make a connection between Bush’s policies and the state of the economy--yet. In a Bloomberg poll taken earlier this month, 56% of Americans said Bush’s policies had had no effect on the economy over the last six months. Asked about Bush’s effect on the economy over the next year, 42% said they thought his policies would make it better; 21% said worse; and 29% said he would have no effect on the economy.

For his part, Bush suggested Tuesday that much of the blame for the shrinking surplus numbers lies with the economic slowdown he pointedly traced to the Clinton administration. “Our budget is in strong financial shape despite an economic slowdown that began last year,” he said. “Inevitably the slowing economy has resulted in slowing tax revenues.”

Apart from criticizing each other, both sides seem a bit uncertain of their next move in this escalating fiscal and political conflict.

Bush signaled Tuesday that he would try to hold a firm rein on spending this fall by vetoing appropriation bills that he believed would bust the budget agreement he signed last spring. “I expect the Congress to live within the limits of the budget that we all agreed to,” he said.

But as Spratt said, Bush has also made spending commitments on education and defense. The president has portrayed his hike in defense spending as the largest since Ronald Reagan’s presidency, raising the question of who is spending excessively, Spratt said.

Democrats seem even more uncertain whether to translate their complaints about Bush’s $1.35-trillion, 10-year tax cut into legislative efforts to shrink it. On Sunday, House Minority Leader Richard A. Gephardt (D-Mo.) said Congress might later want to delay installments of the tax cut if it appears they would reopen a budget deficit. On Tuesday, Sen. Robert C. Byrd (D-W.Va.), chairman of the Senate Appropriations Committee, said flatly that Congress “ought to consider revising the tax cut.”

But Senate Majority Leader Tom Daschle (D-S.D.) has been cool to that idea. And Spratt said Tuesday that the votes do not now exist to suspend or defer the tax cut.

Underscoring the political stakes in this dispute, Bush’s speech reprised many of the core themes of his presidential campaign. Indeed, both sides echoed the central arguments between Bush and Al Gore last year.

Like Gore, Democrats charged that Bush’s tax cut is leading Washington back into an era of deficit spending that requires it to divert funds meant for Social Security. Bush repeated his campaign-trail argument Tuesday that the real choice in the fiscal debate is over who will spend the surplus: Washington or American families.

“The fundamental question is: Who do you trust?” said Bush, reviving one of his biggest campaign applause lines. “I trust the people with their own money. I’d rather you spend your own money than the federal government spend your money.”

Bush said the figures due out today will show that the government’s budget surplus in 2001 will be the second-largest ever. OMB Director Mitchell E. Daniels Jr. has previously indicated that the total surplus could reach $160 billion.

But administration and congressional officials have indicated that almost all of that surplus, probably $155 billion or more, will come from excess funds accumulating in Social Security before the baby boomers retire. As Bush said again in his speech, both parties have pledged not to use that money to fund the other operations of government.

The big change is on the other side of the budget, the government operating accounts apart from Social Security. In 1999, for the first time since 1960, the federal government ran a small surplus in that “on-budget” account. Last year the on-budget surplus grew to $87 billion. Earlier this year, the Congressional Budget Office estimated that this surplus would soar to $120 billion in 2001.

But the slowing economy, the cost of Bush’s tax cut (projected at $74 billion this year), and spending pressures have virtually wiped out that projected windfall. Today’s figures are expected to show only a minimal surplus apart from Social Security.

And even that figure, Democrats charge, relies on an administration accounting change that allowed OMB to credit $4.3 billion in Social Security funds to the general operating budget. Spratt said he expects that estimates due next week from the CBO will show the budget actually tapping into Social Security, the line that both parties have pledged not to cross.

Conflict is also sharpening between Bush and congressional Democrats over Medicare funding. The portion of the Medicare program that pays for hospital stays and is funded with payroll taxes has been running a surplus; Democrats insist that the Medicare “trust fund” should be treated like the Social Security surplus and used for debt reduction rather than any other spending.

But the administration argues that it is appropriate to use those surplus Medicare funds to offset costs in another portion of the program that pays for doctor visits and home health care, as well as for a future prescription drug program.