Prospect of Plus Signs on Budget Adds Signs of Division in Congress

WASHINGTON —  Congress has barely finished work on a plan to eliminate the federal deficit and already a debate is raging over what to do with a budget surplus that is estimated to be five years away.

After years of subsisting on a deficit-reduction diet, lawmakers are looking forward to a surplus in 2002--or perhaps earlier--with eyes as wide as a hungry waif’s before the dessert tray.

Tax cuts. More roads and bridges. Bigger social programs. A bailout for Social Security. Suddenly all that seems possible as politicians contemplate a world in which the government operates in the black for the first time in a generation.

“A feeding frenzy is going on,” said Susan Tanaka, vice president of the Committee for a Responsible Federal Budget, a nonpartisan budget group. “Everyone is trying to figure out how to get their hooks into the surplus in advance.”

The squabble over the surplus is especially raucous among Republicans because it taps into a broader debate over the direction of the party. Now that the GOP’s long-standing goal of balancing the budget is within sight, Republicans are at odds over whether their priority should be cutting taxes, spending more on Republican priorities such as public works or paying off a portion of the enormous national debt.

“This is about the soul of the Republican Party,” said House Budget Committee Chairman John R. Kasich (R-Ohio).

The dialogue may seem bizarrely academic because government budget analysts still are projecting deficits until 2002. But some economists think that the budget may be balanced sooner. In the meantime, Congress faces a related, more immediate, decision: what to do with an unexpectedly large flow of revenues over the next five years.

Budget analysts believe that the deficit will drop faster than was projected earlier this year, when Congress and the president agreed to a budget-balancing plan. That plan envisioned a surplus of $1 billion in 2002, but the Congressional Budget Office now projects a surplus of $32 billion. The CBO now estimates that over the next five years, $134 billion more in revenues will be raised than was assumed in the budget deal.

The CBO attributed the revisions to the “remarkable” performance of the nation’s economy, noting that it had raised its estimate of future economic growth and lowered its projected rates of unemployment and inflation. But the agency warned that its new assumptions could prove too optimistic: An unexpected recession could reduce federal tax collections and increase social-assistance spending, causing the deficit to swell again.

For the time being, however, the revised figures mean that lawmakers have more room to spend money or cut taxes and still stay within the deficit targets set by the budget agreement.

The clamor over what to do with that windfall and the projected surplus marks a watershed in Washington’s fiscal debate. The last time the budget was balanced was 1969. As the deficit ballooned in the 1980s, it put a damper on efforts to boost spending or cut taxes. Now pent-up demand to create programs or cut taxes has found a new outlet, and competing factions are scrambling to stake an early claim to the revenues.

“This is the beginning of an historic, very important debate,” said House Speaker Newt Gingrich (R-Ga.).

A preview of the battle came when House Transportation and Infrastructure Committee Chairman Bud Shuster (R-Pa.) went head-to-head with GOP leaders over the extra revenues. He made a big push to increase public works spending in a three-year, $103-billion highway bill, which exceeded the budget agreement’s spending limits by $34 billion. GOP leaders, including Kasich, opposed the bill as a deal-buster. The standoff ended recently with an agreement to fight it out next year.

There is also a powerful constituency within the GOP to give priority to cutting taxes.

Rep. John A. Boehner (R-Ohio), a member of the GOP leadership, has called for putting any windfall or surplus into a special fund for tax cuts. “In the past, Congress routinely snatched windfall revenues and went on a shopping spree,” said Boehner. “This Congress is different. We recognize that this money was earned by taxpayers and should be returned to taxpayers.”

But Republicans are already deeply divided over what kinds of tax cuts should be provided. The big crowd of conservatives elected to the House in 1994 is pushing to eliminate the Tax Code’s marriage penalty. Sen. John Ashcroft (R-Mo.) wants a new deduction for payroll taxes. House Majority Leader Dick Armey (R-Texas) is pushing to scrap the current Tax Code and establish a “flat tax,” while House Ways and Means Chairman Bill Archer (R-Texas) wants a national consumption tax.

Some Republicans are wary of using all the surplus on tax cuts or spending, saying at least a portion should be used to reduce the national debt. Even if the deficit is eliminated in 2002, the government still will have to pay off more than $5 trillion in debt accumulated over years of deficit financing.

“Washington has borrowed from our children for too long, and it is time they are paid back,” said Rep. Mark W. Neumann (R-Wis.), author of a bill requiring two-thirds of any budget surplus to go to retiring the federal debt.

Gingrich has said he would like to use any initial surplus to first establish a “rainy-day fund” that would allow the budget to stay in balance even if a recession or other unforeseen developments increase spending or reduce revenues.

Kasich wants to use the surplus to shore up the Social Security Trust Fund or Medicare for the baby boom generation.

Democrats, for their part, have been quieter about their ambitions for any surplus, but strategists concede that their party’s debate will probably center on how, not whether, to spend it.

However, Rep. David Minge (D-Minn.) last week proposed dedicating any budget surplus, or higher-than-expected revenues, to the Social Security Trust Fund.

The Clinton administration has chosen to stay publicly mum on the subject. “We have consistently taken the view we’re not going to start spending money we don’t have,” said Lawrence Haas, spokesman for the Office of Management and Budget.

As Republicans survey their options, Kasich said, the prospect of a revenue windfall will pose the stiffest test yet of the party’s resolve to keep the size of government in check.