As Surplus Contracts, Budget Dissent Expands

Fresh reports of a dwindling federal surplus are dismissed by some budget writers as a mere blip on the accounting screen. But they mark a pivot point in the debate over government priorities, signaling a shift from the politics of plenty back to the rigors of belt-tightening.

The increasingly austere budget outlook makes it far more difficult for Congress to afford the full range of initiatives that many people have come to expect from the windfall of projected surpluses. Possible casualties include President Bush’s signature promises to increase defense and education spending, aid for struggling farmers and popular tax breaks backed by members of both parties.

What’s more, the changing outlook may begin to erode a broad political consensus that has shaped the budget debate: Ever since the federal government started running surpluses in 1998, members of both parties have agreed that Social Security surpluses should be used only to pay down the national debt, not to finance the government’s day-to-day operations.

After hewing to that view for four years, Republicans took a different tack when faced with a report issued Tuesday by the Congressional Budget Office that shows the government will have to spend $9 billion of Social Security revenue in 2001: They suggested that using Social Security only for debt reduction was a goal, not gospel.

“You know it’s not a Holy Grail to be right at zero,” House Budget Committee Chairman Jim Nussle (R-Iowa) said Tuesday.

Even before the CBO released its report--with a bleaker outlook than the administration’s budget office had projected a week earlier--Bush suggested he would be willing to spend Social Security surpluses if the economic downturn becomes a recession.

Democrats, meanwhile, made clear that their first target in the newly tightened budget environment would be Bush’s request for $18.4 billion in additional money for the military.

“It is going to be a very difficult fall period for the Congress and the administration,” said Senate Budget Committee Chairman Kent Conrad (D-N.D.).

The byplay over seemingly arcane budget estimates presages a big debate of more immediate consequence to people around the country when Congress returns next week from its summer recess. Lawmakers must finish writing the details of this year’s budget and will have to mediate the claims of competing priorities, including the conflict between Bush’s request for more military spending and Democrats’ clamor for a bigger education boost than Bush wants.

Tax Cut, Downturn Change Circumstances

Whoever comes out on top, it is a battle that will be fought on far different political terrain than was expected at the beginning of the year, when the government was awash in surplus revenues and compromises might have been forged by throwing money at both sides of the debate.

All that changed after Congress passed a Bush-backed tax-cut package totaling $1.35 trillion over 10 years and the economy took a dive that further reduced government revenues.

The combination of factors means that the 2001 surplus, projected back in May to be $275 billion, is looking more like $153 billion today, according to the CBO’s analysis. If Social Security funds are taken off the table, the surplus turns into a $9-billion deficit.

Next year’s outlook is only slightly better: Excluding Social Security, the CBO projects a slim $2-billion surplus in 2002. Over the next 10 years, the annual surpluses will add up to $3.4 trillion, down from a May estimate of $5.6 trillion. If Social Security is excluded, the 10-year surplus dwindles to $847 billion.

With those conclusions widely anticipated, Republicans armed themselves with a competing administration budget analysis showing that it would run a razor-thin $1-billion surplus in 2001 without tapping Social Security.

And they tried to make the case that the difference between the two estimates, while politically significant, matters little in the context of a $2-trillion government budget and is subject to further revisions. Nussle compared budget projections to weather reports: “You can count on the fact that they’re going to be wrong.”

Some Republicans have argued that they welcome the shrinking surplus because it enforces spending discipline that might have been lost if surpluses were abundant. They hope Congress will be forced to eliminate outdated programs and shift money to new priorities.

“That’s the great common adventure on which we ought to be embarked soon,” said Mitchell E. Daniels Jr., director of Bush’s Office of Management and Budget. “How do we, like any healthy enterprise, begin to move funds from old uses to new and more productive ones?”

That enterprise will begin with the fall debate on 13 appropriation bills needed to finance the government after the new fiscal year begins Oct. 1. Congress has a small amount of wiggle room: So far, it is on track to spend $661 billion on those 13 bills. Because the CBO’s analysis assumed that $670 billion would be spent without dipping into the Social Security surplus, analysts say $9 billion can be added to the bills now moving through both houses.

But that may not be enough of a cushion to absorb all the demands facing the 2002 budget. Among them:

* Defense. Bush has asked Congress to provide an additional $18.4 billion for the Pentagon, including a $3-billion boost for his cornerstone missile defense program. Conrad, who as Budget Committee chairman has the power to block the waiver needed to add that money to the budget, says he will insist that Bush propose off-setting spending cuts to avoid dipping into Social Security funds.

* Education. Both parties have staked huge political capital on education. It is part of Bush’s priority initiative to reform and improve the nation’s schools, and Congress has upped the ante. The House voted to increase the $18 billion spent on elementary and secondary education by $4.6 billion; the Senate piled on $14 billion. A key Republican aide said a big increase is nearly inevitable. “You have a bill moving through the pipeline that has significantly higher spending and the president says it is his highest priority,” the aide said.

* Tax breaks. Even after enacting Bush’s $1.35-trillion tax cut, many members of Congress are pushing a variety of other tax proposals that could drain the 2002 surplus. About $1 billion worth of popular tax breaks are scheduled to expire, including credits for businesses that hire welfare recipients, and lawmakers have been assuming they would find some way to extend them. In addition, the energy bill passed by the House last week included $1.7 billion in new tax breaks. What’s more, members of both parties have been pushing for measures to reduce the effect of the alternative minimum tax on middle-class families.

* Farm programs. Legislation is pending in Congress to renew and reauthorize farm programs at an estimated cost of $7 billion in 2002, but that funding was not included in the congressional budget. Even Nussle, whose constituents depend heavily on agriculture, said farm programs will be under scrutiny.

Attacking Waste Is Seen as Key

“As far as I’m concerned, everything’s on the table,” said Nussle. “There is one thing you can count on. This budget is tight, and that is exactly where we want it to be and where we need it to be.”

Still, Nussle voiced confidence that much of the budget squeeze this fall can be accommodated by attacking wasteful spending.

“We all know that you can swing a dead cat in Washington and hit wasteful government spending,” Nussle said. “So let’s start swinging those cats.”

The confrontation will likely come to a fine point in the House in September, when it will consider appropriation bills for defense and education. “You’re going to have a face-off between our priorities and their priorities,” said David Sirota, spokesman for Democrats on the House Appropriations Committee.