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With Surplus, Tougher Choices

Washington debates whether first black ink since days of bell-bottoms should go for tax cuts or saving Social Security.

It's back - something that hasn't been seen in the power corridors of Washington for almost 30 years.

No, not long sideburns. Black ink.

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After decades in which big federal deficits seemed the natural order of things, as fixed as the stars and the moon, the federal government ran a surplus for the fiscal year that ended at midnight Sept. 30. To some budget experts, that's an event as important in its own way as the fall of the Berlin Wall.

But as the post-cold-war world has turned out to be dangerous and complex, so will post-deficit politics likely remain bitter and difficult. In fact, some predict that Washington's new war over black ink will be worse than its old deficit clash.

That's because the deficit precluded most fiscal choices. Virtually the only question budgeteers struggled with was how to make cuts.

The surplus, by contrast, opens up a new world of options. Save it? Spend it? Cut taxes? Pay off debt? Arguments over these issues split not only the two major parties, but also factions within each party. "The politics of deficits were easy. The politics of surpluses will be hard," says Stan Collander, head of federal budget consulting at Fleishman Hilliard, a public-relations firm.

Still, the advent of a surplus is cause for celebration, say many lawmakers. It is an example of the nation's broad political and economic systems overcoming a problem that at times seemed intractable.

The last time the United States government ran a surplus was 29 years ago. Only six years ago, the deficit was an astounding $290 billion. But for fiscal 1998, the US ran a $70 billion surplus in a federal budget of around $1.7 trillion, President Clinton announced Wednesday.

This change has already had a profound effect on the US economy, claimed the president. Interest rates are two or three points lower than they would be otherwise, because Uncle Sam is not having to borrow billions of dollars in private-capital markets to make ends meet.

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Projected surpluses "will be a gift-giving achievement for generations to come," said Mr. Clinton.

Responsibility for this achievement is an item of some dispute. Clinton hailed his 1993 tax-hike package as a major reason black ink has reappeared. Congressional Republicans, meanwhile, pointed to their role in last year's historic final budget-balancing package, and to President George Bush's acquiescence to a tax hike during his term in office.

Budget experts outside government judge all these events important. But they point to another factor, tax receipts from the roaring US economy, as the thing that finally buried the deficit.

Taxes are flowing into the Treasury so fast that bean-counters can hardly keep up. In May, the White House projected the surplus would be only $39 billion.

The tax flood could ebb quickly, however, if US economic growth slows. Thus current troubles in Asia, and unpredictable gyrations of the US stock market, could change current predictions of at least seven more black-ink years.

Furthermore, the "surplus" depends on the fact that Social Security is collecting far more in receipts than it pays out in benefits. Take Social Security out of the budget, and the result is a $41 billion deficit. And Social Security's good times won't last forever. Around 2007 it is predicted to begin paying out more than it receives in taxes, as baby boomers begin to retire.

"Any number of factors could turn these projected surpluses into deficits," says Robert Bixby, policy director of the Concord Coalition, a group which urges government fiscal responsibility.

All of this hasn't stopped Washington from arguing about what to do with the money that's dropped in politicians' laps.

Last January, Clinton said any surplus should be used to "save Social Security first." The GOP House leadership, for its part, has been pushing for an $80 billion tax cut stretched over five years.

There are intraparty surplus disputes, as well. Some Democrats want to use the cash to increase social spending. Some Republicans want to use it to pay down the nation's debt, while others want hikes in highway or military budgets.

In fact, a significant chunk of the surplus is close to being spent.

In recent weeks, the White House has proposed more than $17 billion in extra 1999 spending that it has labeled "emergency." GOP leaders have grumbled a bit, but they agree in principle with the proposal.

The largest portion of this money, $7 billion, would aid farmers who were hard hit by agricultural disasters. Some $2 billion would be added to military-readiness funds, $2 billion would pay for peacekeeping in Bosnia, and $3 billion would help prepare government computers for the year 2000.

Under congressional rules, emergency supplemental appropriations can break spending caps put in place by last year's balanced-budget deal. But however virtuous the cause, it's still spending the surplus, say experts. "Anytime you have extra money lying around with politicians, their impulse is to spend it," says Stephen Moore of the Cato Institute, a libertarian think tank here.

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