With '99 budget done, eyes turn to 2000 process

In nine short weeks, President Clinton will put the finishing touches on the policy proposals he hopes might salvage his second term--and maybe even his presidency.

On the domestic front, Clinton has said he wants 1999 to be the year Washington rescues Social Security, before it becomes an imminent crisis. Come December, when the big decisions on Clinton's fiscal 2000 budget will be due and the early drafting of his State of the Union address will be under way, the president will seek to chart a course with a realistic chance of producing Social Security legislation by next year.

"The road to any new tax cuts or new investments goes through Social Security reform, and by making that clearer, we hope to build momentum for getting things done, sooner rather than later," said one White House official.

And more generally, Clinton will have to decide how he'll distribute the budget surpluses he hopes will be around long after he's out of office.

Does he want to promote surplus and Social Security policies that will appeal to the Democratic Party base, or to a GOP majority that may be stronger after Election Day? Is Clinton searching for a legislative achievement impressive enough to compete with his scandal legacy? Or for political tactics that might help him avert impeachment?

When the president announced in January that 1999 should be the year that Congress protects Social Security against insolvency, everyone agreed it would be a daunting task. And Congress's disarray and Clinton's political travails have not improved the odds.

"I don't think we'll do Social Security in the 106th Congress," said Carol Cox Wait, president of the Committee for a Responsible Federal Budget.

This year's budget debate offered few clues about how the president will proceed. Clinton said nine months ago that 1998 was the year for a national conversation on Social Security reforms. And he said the surplus was off-limits until those changes were in place.

But instead of completely "saving" the surplus from the budget signed this week, Clinton eagerly joined lawmakers from both parties to spend $21 billion, or about 30 percent, of this year's black ink on loosely interpreted one-time "emergencies." The reason? The budget rules that imposed annual spending restrictions and requirements for offsets began to chafe this year, particularly in relation to the unexpected surplus bonanza.

The result did not sit well with some budget specialists, who saw bad habits in the making. "The experience of the fiscal 1999 budget would suggest we should quickly put surpluses on the endangered species list," said Brookings Institution senior fellow Robert D. Reischauer, a former Congressional Budget Office director.

If it were not for the Social Security payroll tax receipts that currently exceed benefit payments, there would be no surplus, noted Wait. "I would be surprised if the sheer hypocrisy of the save-the-surplus [slogan] has dawned on the president," she said.

Republicans would like to use projected surpluses--$1.6 trillion over the next decade--to do a lot: shore up Social Security, whittle away at the $5.5 trillion federal debt, and pay for as much as $1 trillion in tax cuts.

"Surplus politics is so much more difficult than deficit politics," observed Stanley E. Collender, managing director of the federal budget consulting group at Fleishman-Hillard Inc. In the deficit era, the consensus was clear--erase them, Collender said. But with surpluses, the goals multiply by the day: cut spending, spend more, cut taxes, reduce the debt, or tackle Social Security first and see what's left.

And in reality, almost every penny of what is counted as surplus may be needed to make the transition to either of two much-discussed Social Security changes: creation of individual retirement accounts or investment of Social Security reserves in the stock market, according to Robert Greenstein, executive director of the Center on Budget and Policy Priorities.

"I think it's unlikely that we'll wind up with a Social Security plan that doesn't use the markets in some way," he said. "If you assume that it would have one or the other of those approaches, it has major implications for what, if anything, will remain of the surplus. And few members of Congress understand that."

The president has revealed little about his own ideas for reforms, except that total privatization of Social Security is out, as are higher payroll taxes. Clinton has developed a plan with bipartisan appeal, but is first thinking tactically, White House sources say.

Some in the White House are reluctant to let Clinton show his hand too early, for fear that his ideas would be dead on arrival. But others believe that if Clinton does not move quickly next year to forge some basic agreement with Republicans on Social Security, the window of opportunity will be lost for another three or four years.

Also in the mix is the issue of improving Medicare. In March, Clinton will receive recommendations from a bipartisan commission created by Congress last year.

But the president also hopes to cut a deal early in 1999 to avoid ouster, should the House vote for impeachment. If such a deal were struck, Clinton would owe much to the Democrats who stayed with him and to the senators who opposed conviction.

In that climate, reform advocates wonder whether the president would risk alienating congressional Democrats by moving closer to the GOP on Social Security and tax cuts in order to gain a legislative victory he sorely needs.

According to interviews with budget and policy experts, Clinton's best course might be to use his State of the Union address to lay out reform goals, without detailing a plan. These might include: congressional action in 1999; preservation of the retirement safety net; an openness to individual retirement accounts, or something similar, and perhaps means-testing; emphasis on benefits improvements for elderly women; and perhaps identification of proposed changes that are off the table, such as tax increases.

"The president has to lock up whatever portion of the surplus he wants to devote to Social Security in his budget," Reischauer added.

To pressure Republicans to think smaller on slashing taxes, Clinton could try to persuade the public that there isn't enough surplus to pay for huge tax cuts as well as individual retirement options.

"If the president structures it right, he could say [to Republicans], it's the only way they'll see their tax cut," Reischauer said.