JIM LEHRER: Budget politics, part one: The big surplus and how to use it. President Clinton spoke about that this morning at the White House.

PRESIDENT CLINTON: By investing to save Social Security and strengthen Medicare, my plan now will entirely pay off our national debt. In the 12 years before I took office, reckless fiscal policies quadrupled our debt, bringing us higher interest rates, higher unemployment, higher inflation. By balancing the budget, we have begun to reduce the debt, but today our national debt still totals $13,400 for every man, woman, and child. If we maintain our fiscal discipline, using the surplus to pay down the debt and using the savings to strengthen Social Security, America will entirely pay off the national debt by 2015. If you look at this chart, you will see that we have now cut up Washington's credit card. Now we can pay off the debt. By 2015, this country can be entirely out of debt. This is a remarkable milestone, but it is clearly within reach if we do not squander the surplus by choosing short-term gain over long-term national goals. The surplus is the hard-earned product of our fiscal discipline. We should use it to prepare for the great challenges facing our country: Caring for our parents, caring for our children, freeing our nation from the shackles of debt so that we can have long- term, sustained economic prosperity. .

JIM LEHRER: With us now from the Old Executive Office Building is the President's budget director, Jack Lew, and from the Capitol, Congressman Bill Archer, Republican of Texas, chairman of the House Ways & Means Committee.

JIM LEHRER: Congressman Archer, what do you think of the President's basic approach on the surplus, Medicare, Social Security first, then tax cuts?

REP. BILL ARCHER: Well, Jim, I strongly believe that we should save Social Security, and I have a plan out there to do it that would do it for just slightly over a trillion dollars in the next ten years. That leaves an enormous amount of surplus in order to be also helpful to Medicare and give tax relief to the American people. We're taxing the American people today at the highest level in peacetime in the history of this country. They're sending more money to Washington than we need to pay the bills, and they need to get a lot of that back.

JIM LEHRER: And so there's no question in your mind, Congressman Archer, that you can do both, right?

REP. BILL ARCHER: Well, you can do all three.

JIM LEHRER: All three.

REP. BILL ARCHER: And we expect to do that.

JIM LEHRER: Well, Mr. Lew, what's the problem? Why not do all three?

JACK LEW: Well, I think the President put forward a proposal today that really suggests that we can -- with the very good news we have today in terms of a surplus -- accomplish very much Social Security and Medicare reform and accomplish a tax cut and other important investments. I think it's important to note a few things about the plan that the President laid forward today. First of all, balancing the budget in each year, and it invests without spending a penny of the Social Security surplus in any of the years. That's very important. Secondly, it extends Social Security solvency until 2053. Third, it extends Medicare solvency by more than 25 years, and also it provides funding for a new prescription drug benefit to deal with the very important problem that senior citizens face today, many have to choose between buying prescription drugs and paying for their other necessities like food. You know, if you look behind the details of these budgets, there are many things that we agree on in terms of what we need to spend money on, but we sometimes have trouble agreeing on how to put the resources there. I think we agree that we need more money to put into defense and we need more resources for children, education and many other priorities. The President's plan sets aside resources so that we can accomplish the goals of funding those important priorities as we move forward.

JIM LEHRER: But, excuse me, but it's correct say, is it not, we just had on our news summary -- Secretary Rubin said the President's approach is do all the first things first he said. Do all these things you're talking about and then talk about a tax cuts.

JACK LEW: Well, I think first things first is the essence of what our policy has been about. It's why since 1993 we've managed to take a sea of red ink and turn it around and have the surpluses in the first place. The President does call for a tax cut in his plan. He has the universal savings account which are very progressive, very targeted tax cut to encourage savings. He also has incentives for education and for environmental and other important purposes. I think that there are disagreements not just as to the size of the tax cut but the content. I would hope with the good news of the surplus, we can move beyond some of the debates about whether there's room for it and work on the details of what it should be.

JIM LEHRER: Now Congressman Archer, when you say tax cuts, you mean something entirely different than what the President means, right?

REP. BILL ARCHER: We mean giving money back to the people who are sending the money up here in bigger quantities than we need. Jim, if we don't do this, politicians will find a way to spend the money. The President has already spent $4 billion out of the Social Security Trust Fund on Kosovo. And there will be many, many other areas of very appealing spending that will come along that will reduce what we think will be a surplus. We need to get this money back to the people who are sending us more than we need and be sure that they have it in their pockets to spend the way they want to and in addition by doing so, we can help to further this very good economy in the future.

JIM LEHRER: So what you mean, though, Congressman Archer, what you're talking about are things like reducing the income tax rate, that sort of thing?

REP. BILL ARCHER: Exactly.

JIM LEHRER: Right. I mean, real tax cuts across the board.

REP. BILL ARCHER: This money is coming in by income taxpayers who are paying more than we need, and we need to figure out a way to get it back to the people who are sending us more money than we need. In addition, if you assume all of these surpluses, you assume very, very stringent limits on defense spending and also domestic spending. I don't think the President will keep those limits. In addition, you are also assuming the biggest tax take out of the economy in all history and assuming that's going to continue for 15 or 20 years. I think Americans are not taxed too little, they're taxed too much. Washington should not have the right to spend more and more money while it's being taken out of the production of workers in this country.

JIM LEHRER: Mr. Lew?

JACK LEW: Well, I think that there's a lot of very important work that's been done since 1993 to put our fiscal house in order. We're reaping the benefits of an economy that's really thriving because we've reduced spending and we've also balanced the budgets and we're running a surplus. As we look to the future, we really have to continue the fiscal policy that's produced the results that I think we're all very proud of. The plan that the President put forward I don't think it spends the money. I don't think that's a fair characterization. When we put funds aside to secure Medicare and Social Security solvency, what we're doing is reducing the public debt, and what we're doing is putting the money aside to pay for commitments that we already have. The President's plan would eliminate the debt held by the public by 2015. And I would like to, if I could, just as sort of an additional point, commend Chairman Archer, as the President did this morning. He's been working on a bipartisan basis with the members of his committee, trying to pursue whether or not there can be some kind of a consensus on these very difficult issues. We hope that we've made that a little bit easier by putting forward a plan that has balance in it, the first balanced plan using the only the non-Social Security surplus.

JIM LEHRER: But let me be very specific, Mr. Lew, I mean, the President is not in favor of doing what Congressman Archer wants on taxes, which is to reduce income tax rates across the board.

JACK LEW: No. I think it's fair to say we have very significant differences on what the right tax relief is. We believe that the universal savings accounts, the incentives for education and for targeted purposes are a preferable alternative, but it's important to distinguish the difference between the content and amount. We have a very substantial package of relief and I think that if we could agree on the size, then you work to see whether you can agree on the content. The problem on the size is we've seen plans in the past, in fact, in the congressional budget we see a plan that funds tax cuts at the expense of virtually everything else. We're saying a plan has to have balance. It has to take care of the needs that Chairman Archer referred to, in terms of defense and other priorities. And, in fact, the President's plan doesn't leave those commitments to the future to be funded. It says right now while we have a surplus, we need to divide it so we take care of that set of problems along with Social Security and Medicare. But Social Security and Medicare should come first.

JIM LEHRER: Congressman Archer, this is a fundamental difference, is it not?

REP. BILL ARCHER: I think it is, Jim. And unfortunately the administration has already spent money out of the Social Security surplus. We have walled it off in our lockbox, and that surplus will be bigger.

JIM LEHRER: That's in your proposal, right?

REP. BILL ARCHER: What?

JIM LEHRER: The lockbox.

REP. BILL ARCHER: No. That's -- we've already done that in the House.

JIM LEHRER: Right.

REP. BILL ARCHER: And we've walled off the Social Security surplus, which is more than enough money under my plan to save Social Security for all time and also to save Medicare. Now, the rest of the dollars that are coming in are coming off of income tax excesses. And we need to be able to let the people have this in their own pockets. They're paying too much.

JIM LEHRER: Congressman Archer, what about the other issue here that the President emphasized today and Mr. Lew just did, as well, which is the reduction of the national debt. And the President says it can be eliminated by the year 2015. Is that a good thing?

REP. BILL ARCHER: Well, of course if we can reduce the debt, it is a good thing. The difficulty there is anybody who believes that once politicians have the money to spend, that they will let it go against the debt doesn't follow history. We've seen this over and over again already -- money to Bosnia, money to Kosovo all coming out of the Social Security surplus -- all kinds of appetizing and appealing ways for Washington to spend more money. I doubt that those surpluses will ever materialize in reality. They're projections on paper. But the -

JIM LEHRER: You mean, you don't think the surpluses even exist really?

REP. BILL ARCHER: Well, they will only exist at the end of each year if we haven't spent the money. Right now they're just projections on paper. And if you leave that extra money in Washington, politicians are going to find a way to spend it.

JIM LEHRER: But if they can't figure that one out, but just as matter of principle, do you support, Congressman Archer, the idea of eliminating the national debt as soon as -

REP. BILL ARCHER: I think we should pay the debt down as much as we can. That's the future of our children. That's something that they're ultimately going to have to pay debt service charges on. And certainly I want to do that. But I'm realist, and I've been in Washington long enough to find out what politicians do when they have extra money. Now, in the states, for example, you find almost every state now that has found a way to give major tax reductions where they're having surpluses. And we should follow that pattern in Washington.

JIM LEHRER: Mr. Lew, what about Congressman Archer's point -- he's made it several times now -- that there's just no way politicians can keep their hands out of money, off of money once they get it?

JACK LEW: Well, we've tried to start off on a good foot by doing it last year and doing it again this year. Part of the announcement in our economic news today was that this year for the fiscal year we're in there will be a $99 billion surplus. That's a real surplus. It's money that will be used to pay down the debt. We're doing it right now. I think what the President did in his State of the Union two years ago and then again this year was really very important as a matter of fiscal policy. By saying that we have to put first things first, he actually changed what was the political culture that if there was a surplus, you had to spend it. The truth is without a surplus, there was way too much spending, and we had to turn tide. Having turned the tide, we think it would be a mistake to -

JIM LEHRER: Excuse me. That's why there's a debt, because even without a surplus, the government continued to spend, and so they borrowed to spend. And that's why we have national debt.

JACK LEW: But in fairness, we're turning the corner on that. And when the President pointed to that chart this morning, it showed the elimination of the debt held by the public by 2015 - it was based on, I think, some very realistic assumptions. First of all, by saying we're agreeing on taking the Social Security funds out of the picture, off the table, locking them away, we've agreed to a tremendous amount of debt reduction. We believe that that should be used to for debt reduction and to shore up the trust fund. The interest savings that we have by writing down the public debt give us the enormous ability to make progress in this country. Just by way of example, when we started doing budgets at the beginning of the Clinton administration, we were projecting that by 2015, that 27 cents out of every dollar would be going to pay net interest. The plan the President announced today, it's less than a penny, two tenths of a cents of every dollar. There's a tremendous difference.

JIM LEHRER: Congressman Archer, is that impressive to you?

REP. BILL ARCHER: Well, those are numbers, and they're numbers based on projections that assume a continuation of the highest tax take in history in peacetime and assume that spending will continue to go down. And realistically, the President unfortunately has not shown this in his actions. And again, I mentioned Kosovo. I mentioned Bosnia. And I mentioned all of these other things that spring up that oh, we've just got to spend money on. And there are innumerable new spending programs in the President's budget this year. He also assumes these we're going to raise taxes by $170 billion in his budget in order to accommodate some of these extra spending programs. We just don't think that that's appropriate.

JIM LEHRER: Well, Congressman Archer, how should we interpret what the two of you have said tonight, Mr. Lew, speaking on the part of the President, you speaking on the part of the leadership of the House -- how big this gap is -- is it a talk gap or is it a real gap?

REP. BILL ARCHER: Can I say first we're in agreement that we need to save Social Security. And I have a plan that's out there that's been certified by the Social Security administration to save it for all time. And we can do that for much, much less than the Social Security surplus in the ten years. We also should come to grips and we agree that we've got to come to grips and doing do something about Medicare. But beyond that, to have an open door to just increase all kinds of federal spending and aggrandize Washington and the lives of people we don't believe is the right thing to do.

JIM LEHRER: All right. Congressman, Mr. Lew, thank you both very much.