Clinton Budget Reaffirms Stand Against Broad GOP Tax Cuts

By Andrew Taylor, CQ Staff Writer

President Clinton's new spending and tax plans received a frosty reception from congressional Republicans, and it is not likely to get much warmer when Clinton's fiscal 1999 budget arrives on Capitol Hill on Feb. 2.

Clinton's State of the Union address set the stage Jan. 27 for a budget debate in which his proposals for greater federal aid for child care and education will collide head- on with an unimpressed Republican majority.

Clinton also gave his clearest signal yet that he will play hardball against any major GOP tax cut by casting it as a threat to the Social Security system.

Clinton's initiatives depend on a shaky $66 billion in revenues from a national tobacco settlement reached between the tobacco industry and 40 states. Prospects for the settlement have soured in recent weeks, leaving a potentially huge hole in Clinton's plans.

But the picture appears no better for Republicans. Despite their talk about another round of tax cuts, a combination of budget rules and an abbreviated congressional calendar has created hurdles that should block any ambitious plans for tax cuts or new domestic programs.

Preliminary signals suggest the annual budget blueprint will not deviate much from the path set out in last year's landmark budget pact (PL 105-33; PL 105-34).

The debate will officially kick off when Clinton submits his budget. It will feature a president embroiled in scandal going up against an opposition party that has yet to pull its factions together.

Whatever the problems stemming from the sex allegations engulfing the White House, Clinton has assembled initiatives to increase spending and provide targeted tax cuts in areas such as child care and education that appear popular with the public. He also warned Republicans to hold off on any new broad-based tax cuts until Social Security's financial health can be fixed for the long term.

Two years after declaring that "the era of big government is over," Clinton presented a poll-tested activist agenda of $40 billion to $50 billion in new domestic spending programs over five years. Subsequent polls indicate that the plans resonate well with voters, but Republicans vow they will not let the president breach tight caps on spending enacted in the 1997 budget deal.

Administration officials say the new spending will not break the caps, that it will be fully paid for by spending cuts or new revenues. But to finance many of the initiatives, Clinton is assuming tobacco-related revenues that would produce $10 billion in 1999 and $66 billion over five years. That is not a safe assumption.

Republican reaction to the Clinton agenda was decidedly chilly. Besides pledging to honor the spending caps, they vowed to rewrite many of the initiatives to give them a GOP tilt.

"I thought we had convinced the president and the president had made up his mind that he was committed to a smaller federal government," said House Budget Committee Chairman John R. Kasich, R-Ohio.

But Republicans have yet to unite behind their own agenda. Top GOP leaders have promised another round of perhaps modest tax cuts to follow on last year's tax law (PL 105-34), but enthusiasm among some of the rank and file is decidedly muted.

"I don't care about tax cuts," said Rep. David L. Hobson, R-Ohio.

The hottest topic in this year's debate is the tantalizing possibility of the first budget surplus in 30 years. It already has lawmakers making plans about what to do with it. But plans to devote some of the future surplus to tax cuts or new spending will prove difficult, especially in the short term.

Spending the surplus may sound good, but the nuts and bolts of the budget process, and Congress' desire to settle on a budget plan early in this election year, may quash any such plans.

And it is not only Clinton and Democrats who favor new spending. Republicans must also figure out what to do about the upcoming reauthorization of highway programs, on which they are divided. House Transportation and Infrastructure Committee Chairman Bud Shuster, R-Pa., is leading an effort to spend much more on highways than is permitted under the current caps.

Another contingent wants to use all or most of the surplus to reduce the $5.5 trillion national debt. Many of these Republicans are reluctant to support spending increases or tax cuts.

All told, the GOP has much work to do to assemble its budget agenda. "In our caucus, both House and Senate, you've got people who believe debt reduction is the No. 1 priority," said Sen. Connie Mack, R-Fla. "For others, it's tax cuts. And others even have got their own spending priorities. We've got to draw some conclusions pretty soon."

Surplus Fever

The fire over this year's debate has been stoked by the prospect of the first budget surplus since 1969. The Congressional Budget Office (CBO) projects the deficit for the ongoing fiscal year at $5 billion and for fiscal 1999 at $2 billion.

But CBO estimates, as well as those from the president's Office of Management and Budget (OMB), have recently proved too pessimistic. So lawmakers are listening to private-sector economists who predict that a surplus of as much as $50 billion could appear in fiscal 1998. Many lawmakers are salivating.

Even if there is a fiscal 1998 or 1999 surplus, congressional budgeteers would still operate under budget rules that make it virtually impossible to use a surplus for tax cuts, at least without help from Democrats. The same budgetary fences that make it difficult for lawmakers to increase the deficit make it just as hard, procedurally, for them to spend any surplus.

Here's why: Under so-called pay-as-you-go (or PAYGO) rules extended last summer in the budget deal, any bill that would increase the deficit (or decrease any surplus) is subject to an objection, or point of order, on the Senate floor. It requires 60 votes to waive the PAYGO rule. "There are going to be a lot of disappointed people," said a top Senate Budget Committee staff aide. "They're going to lynch me when they find out about PAYGO points of order."

PAYGO means that if Republicans are going to pass a tax cut, they will have to find savings or offsetting revenue increases elsewhere in the budget. That might prove difficult.

At the same time, Senate GOP leaders such as Majority Leader Trent Lott of Mississippi and Budget Committee Chairman Pete V. Domenici of New Mexico promise to pass the annual budget resolution by the end of March -- much earlier than usual. If they are to meet that schedule, they have to make decisions soon. What they appear poised to devise is a budget blueprint that hews largely to last year's pact.

The tentative thinking, according to a senior House GOP aide, is to proceed with a "quickie, hold-the-line budget" resolution and not assume a tax cut in the short term. But later in the spring, if the budget picture brightens further and it appears that there will be a sizable 1999 surplus, Republicans would move ahead with a tax-cut bill. The assumption is that a considerable surplus would be too irresistible to leave alone. Enacting any bill would require trade-offs with Democrats.

House Republicans will hold a retreat Feb. 8-11 in Williamsburg, Va., to plot strategy; Senate Republicans met Jan. 30 in Washington.

Poll-Tested and Popular

Capitol Hill Democrats appear united behind most of Clinton's plans, many of which they helped devise. To build momentum, the White House leaked selected elements of Clinton's initiatives over the past few weeks.

Unfortunately for Democrats, Clinton's legal problems escalated at the wrong time. The scandal over his alleged relationship with a White House intern has sparked a media furor that threatens to drown out his budget message.

Nevertheless, several polls suggest that to the extent that people are aware of Clinton's agenda, they support it.

For example, a Pew Research Center poll taken Jan. 14-18 found that 33 percent of those surveyed would prefer that any surplus be dedicated to spending on domestic programs such as health, education and the environment. Another 32 percent preferred strengthening Social Security and Medicare; 22 percent favored retiring some of the national debt; and only 11 percent preferred tax cuts.

An NBC News poll taken Jan. 27 found that 77 percent of those who watched Clinton's speech supported the policies he outlined. Only 12 percent opposed them. "This agenda's more powerful than any one person's problems," said Sen. Richard J. Durbin, D-Ill.

Countered Sen. Craig Thomas, R-Wyo.: "Everybody's for child care. Everybody's for doing some of the things he mentioned. The question is: 'What's the role of the federal government? How do you best do it? Can it be better delivered by the states?' "

Perhaps the biggest surprise -- and the most potent political salvo -- of Clinton's speech was his admonishment to Congress to hold off on any major tax cut until the long-term solvency of the Social Security system is addressed.

"What should we do with this projected surplus? I have a simple four-word answer: 'Save Social Security first,' " Clinton said. "I propose that we reserve 100 percent of the surplus -- that's every penny of any surplus -- until we have taken all the necessary measures to strengthen the Social Security system for the 21st century."

Clinton added that the administration would conduct forums around the country and host a White House conference on Social Security in December as a precursor to a legislative effort early next year. Many Republicans, including Kasich, applauded his decision to push for a Social Security fix.

But Clinton's edict also is a powerful weapon that has the potential to cut off any Republican bid to use a surplus to cut taxes. It signals that Clinton and Democrats are poised to attack a big tax cut as a threat to the sacrosanct retirement system. "I think the president makes [Republicans] face a choice -- cutting taxes or protecting Social Security -- and on that issue, he wins," said Sen. Richard H. Bryan, D-Nev.

Added Grover G. Norquist, president of Americans for Tax Reform: "He's not saying 'I want to reform Social Security.' He's saying 'I'll do anything to keep from cutting taxes.' "

Even as Congress must adhere to the just-released CBO numbers as it proceeds with the annual budget process, private-sector economists say a significant surplus will emerge as early as the current fiscal year.

Fluctuations in the economy are among factors that can turn deficit projections on their head, and the current outlook points to a 1998 surplus. For the 12 months from December 1996 through November 1997, the government ran a surplus of $2.4 billion. Moreover, the deficit for the first quarter of fiscal 1998 (October through December 1997) was $39.6 billion -- $19.6 billion lower than the first quarter of fiscal 1997.

The key to determining whether a surplus will occur in fiscal 1998 -- or whether it will be large enough to tempt Congress to spend it -- is the big surge in April tax receipts. Last year, the April surplus was a whopping $94 billion.

That number will not be available until late May. At that point, building a consensus to waive budget rules and pass a bill to spend the surplus would take unusually quick action and enthusiastic participation from the president and congressional Democrats.

GOP Disunity

Republican leaders are unified in wanting tax cuts, but the rank and file has doubts. "I'm part of the group that says, 'What surplus?' " said Rep. Christopher Shays, R-Conn. "My first preference is to institutionalize the balanced budget. We need to do that before we talk about additional tax cuts or more government spending."

Both House Ways and Means Chairman Bill Archer, R-Texas, and Senate Finance Chairman William V. Roth Jr., R-Del., have proposed using a portion of the projected surplus to cut taxes. In separate interviews, neither acknowledged that any tax cut would have to be financed by offsetting spending cuts. Asked whether he would produce required offsets or try to waive the rules (which needs 60 votes), Roth said, "We haven't looked at that yet."

As Republicans prepare for the budget debate, they face a challenging landscape: factions, a narrow House majority, and an opposition party poised to play the Social Security card.

Clinton has the easier job. His proposed budget assumes easy passage of controversial legislation to reap billions of dollars from the proposed tobacco settlement. The money would come from a combination of industry payments and penalties that are projected to increase the price of cigarettes by $1.50 per pack over the next decade.

Like typical budgets, Clinton's 1999 document will contain unrealistic cuts in some programs, and will unrealistically assume enactment of hardy perennials such as new revenues from closing tax loopholes. Political reality is not a litmus test for inclusion in the budget. "The president's budget doesn't have to get enacted," said Stanley Collender, managing director of Burson-Marsteller's Federal Budget Consulting Group. "It just has to come together mathematically."

Saturday Jan. 31, 1998

• Clinton Budget Reaffirms Stand Against Broad GOP Tax Cuts
• House Panel Gets Back to Business, Hoping To Put Rancor Aside
• Congress Finds No Easy Answers To Internet Controversies
• Long List of Its Own Trespasses Tempers Congress' Judgment
• Cleland Warns Against Repeating Tonkin Gulf Mistake
• If the Furor Subsides, Will There Be a Case?
• Talks on Renaming Airport For Reagan Continue
• Both Parties Focus on Speech Not Scandal, To Chagrin Of Some
• Clinton Succeeds in Slowing Scandal's Momentum