Avoid a Funny-Money Spree

The prospect of huge federal budget surpluses has gone to the heads of both President Clinton and Republican congressional leaders. Each side is proposing to commit billions of dollars in spending next year and in years to come--dollars that may never actually show up in the Treasury. Washington should sober up as Congress begins considering the $1.77-trillion budget that Clinton submitted Monday. Though the economy continues to be strong, experts agree that a recession can hit at any time. The rosy forecasts of soaring surpluses should be balanced by a strong dose of caution.

The good news is that both sides agree that roughly two-thirds of any surplus should be set aside to shore up Social Security. Clinton’s budget for the fiscal year starting Oct. 1 projects a $117-billion surplus for that period and cumulative surpluses of $2.4 trillion over the next decade. Clinton proposes to use 62% of those surpluses to support Social Security by paying down the federal debt. This would substantially reduce the projected deficit in the trust fund as growing numbers of baby boomers start drawing their benefits.

The president also wants to create a universal savings plan for Americans costing $500 billion and to pump $700 billion into Medicare. He further proposes to raise the cigarette tax 55 cents a pack and close corporate tax loopholes to pay for additional programs, including some targeted tax cuts, increased defense spending, school construction and transportation projects.

Republicans are insisting on giving Americans a 10% across-the-board income tax cut that would cost perhaps $650 billion over the next decade. But all this may be playing with funny money. First, there is no true budget surplus yet, unless you count the temporary surplus in the Social Security trust fund. Washington is not expected to realize a real budget surplus--one in which current-year revenues exceed expenditures--until 2001.

The Republican majority in Congress has already rejected a huge increase in tobacco taxes and is not likely to approve one this year. As for the GOP tax cut plan, there is no justification for a major reduction now, especially one in which an estimated 60% of the benefits would go to the wealthiest 10% of Americans.

Given the nasty political mood in Washington, it’s not likely that the warring parties will be able to agree on any major new program this year beyond bolstering Social Security and a few other Clinton proposals that already have bipartisan support. Limited agreements of this sort make sense. Other new programs should wait until real money is in hand.