KWAME HOLMAN: It wasn't the arrival of an important dignitary on Capitol Hill this morning that warranted a police escort. It was the delivery of President Clinton's annual budget request, the eighth and final budget of his administration. Packed inside cardboard boxes were large four-volume sets that contained numbers, charts, and graphics explaining how the President planned to spend $1.8 trillion during the 2001 fiscal year, beginning October 1. Anxious Congressional staffers snatched up copies of the budget as soon as they became available, and whisked them up to the offices of the elected representatives. However, many of the budget details previously had been released during various White House events, and in particular, during the president's 90- minute-long State of the Union address. But this morning, the President joked he hadn't released all of the details.
PRESIDENT CLINTON: If you look at how thick that is, you'll have some idea of how many people, believe or not, are still mad that I didn't mention their program... (Laughter) ...in the speech.
KWAME HOLMAN: Overall, the President's budget calls for a 2.5% increase over current spending, including more than $277 billion next year for defense, much of it for new weapon systems and better military pay; $91 billion over ten years to provide health insurance to five million of the 44 million Americans currently without coverage; and $168 billion over ten years to create a new prescription drug program for Medicare recipients.
PRESIDENT CLINTON: Our budget dedicates about half the non-Social Security surplus to guarantee the soundness of Medicare, and to add a long-overdue voluntary prescription drug benefit. When I became President, Medicare was projected to go broke last year, 1999. Today, it's secure until 2015, thanks to the changes that have already been made.
KWAME HOLMAN: The President's budget also calls for a ten-year, $350 billion tax cut for low- and middle-income Americans.
PRESIDENT CLINTON: To help pay for college or save for retirement; to help care for aging or disabled loved ones; to reduce the marriage penalty; to reward work and family with an expanded earned income tax credit, and with an expanded and refundable child care tax credit.
KWAME HOLMAN: The President said his budget affords all of that and more, and still zeroes out the federal debt by the year 2013. (Applause) And according to the President, reducing the debt will be a major step toward saving the Social Security system.
PRESIDENT CLINTON: It makes a critical down payment on Social Security reform by crediting the interest savings from debt reduction attributable to the Social Security taxes to the Social Security trust fund. That will keep it strong, solvent, and sound for the next 50 years, which will keep it alive beyond the life expectancy of virtually all the baby boom generation.
KWAME HOLMAN: The President's plan to spend money, provide a tax cut, and still pay down the debt is financed by a budget surplus the White House projects will total $746 billion over ten years. By comparison, the nonpartisan Congressional Budget Office projects surpluses ranging from $838 billion to $1.9 trillion. Aside from the debate over the size of surplus, the fact there even is one has the presidential candidates exploring a new and previously unimagined issue. Texas Republican governor George W. Bush has advocated using the surplus largely to finance a five-year, $500 billion tax cut.
GOV. GEORGE W. BUSH: And it's important to cut the taxes to make sure Washington, D.C. Does not spend the surplus. I have laid out a plan that not only encourages economic growth, I've laid out a plan that is more fair than the current code, because it knocks down the tollbooth to the middle class.
KWAME HOLMAN: Arizona Republican Senator john McCain would use the bulk of the surplus to shore up Social Security and Medicare, but still find room for a five- year, $237 billion tax cut.
SEN. JOHN McCAIN: There is a fundamental difference here. I believe we must save Social Security. We must pay down the debt. We have to make an investment in Medicare. For us to put all of the tax cuts... all of the surplus into tax cuts, I think, is not a conservative effort. I think it's a mistake.
KWAME HOLMAN: In Democratic debates, former Senator bill Bradley has proposed using $650 billion over ten years to provide health care coverage to all 44 million Americans who currently are uninsured.
BILL BRADLEY: Now we are in a period of unprecedented surplus, and yet you've not proposed anything that comes close to universal coverage, not even universal access.
KWAME HOLMAN: Vice President Al Gore is taking an approach similar to President Clinton's, which Gore calls more cautious on both tax cuts and spending.
VICE PRESIDENT AL GORE: I now think one of the biggest issues in this campaign is whether or not we'll have a President with the experience to keep our prosperity going and avoid a kind of economic blueprint that either blows the whole surplus on a risky tax scheme, or blows the whole surplus on an unwise plan and doesn't leave room for investing in the future and the kind of investments that have contributed to this economy.
KWAME HOLMAN: The surplus also was on the minds of the chairmen of the House and Senate Budget Committees this afternoon. John Kasich's House Committee will go first in outlining a Congressional blueprint for dealing with the surplus.
REP. JOHN KASICH: We are going to provide a very significant tax cut, and I believe that if the tax cut doesn't get signed into law, we will write this budget in such a way that it will go to pay down debt. We will not only pay down over the next ten years-- unless we fix Social Security, which I wish we would-- we're going to pay down $2 trillion in debt, and then if we have a significant tax cut that the President vetoes, that money will also be used to pay down additional debt.
KWAME HOLMAN: With the President's budget now in the hands of Congress, Republican leaders say they'll try to move quickly to reconcile the varying ideas of what to do with the surplus during this shortened election-year session.
JIM LEHRER: Margaret Warner takes it from there.
MARGARET WARNER: Now, three views of the new budget politics. They come from Matt Miller, a syndicated columnist and senior fellow at the university of Pennsylvania's Annenberg public policy center. He served in the white house office of management and budget in president Clinton's first term. Steve Moore, director of fiscal policy studies at the Cato Institute. And Stan Collender, managing director of the federal budget consulting group at Fleischman-Hillard, a Washington consulting firm. He's also author of "The Guide to the Federal Budget," a book describing how the federal budget process works. Well, everyone seems to have an idea, Steve Moore, on what to do with this surplus, but how big is it? How real is it?
STEPHEN MOORE, Cato Institute: This is a real surplus, Margaret. We grew our way out of the budget deficits this 18-year expansion has led to just tidal waves of tax revenues that no one expected. And the most important thing to keep these surpluses going is to keep the economy strong. We've been growing at 3.5% to 4% per year. And as long as we continue to see the economy grow, Margaret, we will see very large surpluses. You know, the public still doesn't really believe these surpluses are real, and the truth is that the surpluses are real, and they will get bigger unless we make the mistake of launching a big new spending spree, as President Clinton suggested today.
MARGARET WARNER: Do you agree, Matt Miller, these surpluses are for real and in fact may get bigger?
MATTHEW MILLER, Syndicated Columnist: Well, they're partly real and they're partly surreal. There's no doubt that the situation has changed dramatically since 1992, 1939 when we were looking at $300 billion deficits as far as the eye can see. That's changed. I disagree with Steve on what caused it. I think it was George Bush's plan in 1990, Bill Clinton's in 1993 and combined efforts by both parties since plus good luck and a steady hand from Alan Greenspan. But they're surreal in the sense that small changes in the forecasts over these next ten years could move the numbers a lot. And so you want to be prudent and not plan on having this huge golden nest egg there.
MARGARET WARNER: Not to mention a recession or some other kind of economic shock.
MATTHEW MILLER: That's right.
MARGARET WARNER: So Stan Collender, if these surpluses are for real or surreal, but if they are, why do we have such huge differences in the estimates from the President saying it's going to be, what, three quarters of a trillion over ten years, to the Congressional Budget Office high end is nearly two trillion.
STAN COLLENDER, Author, "Guide to the Federal Budget:" This is the real danger in making long-term forecasts. I'm telling our clients very simply, these differences are based on very small differences in the short term that get magnified out the longer you go. It's like a big wedge. The longer you go, the bigger the difference becomes. What we're talking about is maybe $100 trillion or more of economic activity, and taken as a percentage of that, it's actually really very, very small. The real problem here, though, is that these long-term budget forecasts are based on assumptions we can't be sure about. We can't do a good job in doing budget forecasts six months from now.
MARGARET WARNER: Well, is it fair to say that, for instance, the high-end one, the $2 trillion, that depends on everyone sticking within these old budget caps that have already been busted once and the President plans to bust again?
STAN COLLENDER: Remember the rosy scenarios in the 80's, those were based on optimistic assumptions in the economy. The rosy scenario you mention is based on a rosy forecast of what's going to happen politically. That is everyone's going to be very disciplined for the next ten years and there's going to be no economic emergency or no military emergency, no earthquakes, no hurricanes, and the economy will perform just beautifully. It's just not going to happen that way.
MARGARET WARNER: So Matt Miller, how do you see the President using this budget that he released today to try to at least frame the debate of how to use the surpluses, frame the debate for this new era of surplus?
MATTHEW MILLER: In a strange way, Margaret, this budget completes the transformation of bill Clinton into Dwight Eisenhower. 85% of the surpluses that we're looking at in the forecast are going to be devoted to debt reduction, spending as a share of the economy, which is the best overall measure of how big government, is is going to shrink to the lowest level in about 50 years. The military budget is going to remain at Cold War levels, both parties are calling for increases, even though the Cold War is long over. So the initiative that Clinton is proposing on health and education sounds bigger rhetorically, but they're really very modest. So it's a very Eisenhower-style budget, and for political reasons, Clinton has decided that's the best way to shape debate going into the election.
MARGARET WARNER: Steve Moore, do you see it that way, that President Clinton as President Eisenhower?
STEPHEN MOORE: I think Dwight Eisenhower is rolling over in his grave right now, Margaret. No I don't see that. Look, if you look at this budget, I disagree with Matt. This is a big-spending budget. It's hard to believe three years ago bill Clinton said the era of big government is over. I think this is really a clarion call by the Democrats to their liberal base to say we're ready to spend a lot more money. If you look at this budget, Margaret, we count about 150 new spending programs in this budget. And the American people saw that rolled out when President Clinton gave his State of the Union speech when he was spending about $3 billion a minute. We called the Treasury Department and found out they can only print $1 billion a minute. So president Clinton was spending the money faster than the Treasury can print the money. I believe that it's very vital for the Republican Party not to say no to this budget, but to say hell no, we will fight this budget, we that the budget is fiscally reckless, and that it's important that the money be used for both debt retirement and for substantial tax cuts.
MARGARET WARNER: How do you see this presidential budget shaping the debate?
STAN COLLENDER: Well, I mean, the most amazing thing on the clip you showed, the President was standing in front of a chart not showing higher education spending, it showed the debt being reduced and the president trying to take great credit for it. There's a fundamental underlying change in the economy and budget politics as a result of that. That is that 50% or more of the American people say reducing the debt is what they really want, and they want that more than a big spending increase and more than a big tax cut. That's a fundamental shirt. And you see what's happening. Everybody's talking about debt reduction.
MARGARET WARNER: Go ahead.
STEPHN MOORE: If I could make one point. I actually find myself in agreement with George W. Bush on this point. Not only are tax cuts, I think, important in terms of stimulating investment and savings in this country, but also George W. Bush is right, I think the American people understand this. If you put a trillion dollar pot of money in front of politicians, and I don't care, Margaret, if they're Republicans or democrats, it is in their nature to spend it. And so this is why I think it's very important to pass it back to the American people so we can pay down some of our own debts.
MATTHEW MILLER: But Margaret, the point is that the world has changed, yet Republican rhetoric in a partisan way hasn't changed at all. This budget Clinton has put out is going to devote $8 out of $10 to debt reduction. Who would have thought a Democrat would be proposing that six or seven years ago. It's raising military spending to Cold War heights. It's doing very little in terms of initiatives compared to what Clinton talked about earlier in his administration, and yet the irony is Clinton ran for office running on a big agenda of public investment, for health, research, infrastructure, and now that there's all these surpluses available to pay for it, the center of gravity politically has shifted so much that Democrats can't propose any of that. It's striking.
STEPHEN MOORE: Of course, Matt...
MARGARET WARNER: Let me get Stan Collender back in here for a minute. But what is actually doable here? I mean, on the one hand, the President and Congress have to have a budget. On the other hand, they're both lame ducks and it's an election year.
STAN COLLENDER: And you have a post-impeachment, pre-election environment. What's going to happen is a replay, I think, of last year. What I'm telling our clients very simply is don't expect much action on anything but appropriations. You're going to see a little tinkering at the edges, but some big proposals on taxes, some of the big proposals on entitlements are likely to go no place. There's not enough time, not a big majority, no consensus. More than likely, you'll see a little increase here and a little increase there. Overall, we're going to get a big pay down in the debt. And that's what the chairman of the Federal Reserve wants. That's what the average taxpayer seems the want, too.
MARGARET WARNER: So, in other words, stalemate equals paying down the debt.
STAN COLLENDER: Wall Street's got to love this, because at the moment you have got the Fed Chairman saying let's pay down the debt. And for the average homeowner, that's what they love.
MARGARET WARNER: Matt Miller, do you think that's what we're headed for this year?
MATTHEW MILLER: I think that's the likeliest outcome for most of the surplus. I think when we get close to the election depending on what the climate is over the summer when they hit crunch time on all this legislation that both parties may find it's in their interest to do a little bit on education and tax cutting or so they have bragging rights on the stump.
MARGARET WARNER: Steve Moore, do you agree with that prediction that we'll basically see stalemate around the edges?
STEPHEN MOORE: Well, I agree with Stan Collender that a little gridlock wouldn't be such a bad thing now. But I would like to see... I'm very worried, by the way, Margaret, that we're going to see the opposite, that Republicans will cave into a lot of these populist programs that bill Clinton has put on the table. And I think the only way to blockade those is to propose some populist tax cuts. Let's keep cutting the capital gains tax. We've had a doubling of capital gains revenue since we've cut the tax rate. On the estate tax, debt tax, no taxation without respiration. I mean, there are popular tax cuts Republicans could propose that would be much more popular than the spending programs that the President has put on the table.
MARGARET WARNER: All right. Let me ask the three of you, very quickly, Matt Miller, starting with you, should we be looking to the coming election as the place to settle this debate, what to do with surpluses?
MATTHEW MILLER: I think it will in part, because depending on which way the election goes, the priorities may be set. The Democrats are going to be talking about health and education and more affirmative ways to use government now that the resources are available to solve some problems like 44 million Americans without health care, an urban school system that's declining. So if the Democrats won, that would get a push. If Republicans won, especially George Bush with the size tax cut he's proposed, obviously it would be the other way.
MARGARET WARNER: Steve Moore?
STEPHEN MOORE: It kind of depends now on whether it's George W. Bush or John McCain because John McCain sounds a lot to me like Al Gore and Bill Clinton. So if it's George W. Bush who is the Republican nominee, then you're probably right. This will define probably next five or ten years with what we do with these surpluses where we Republicans want to cut taxes and bill Clinton and Al Gore say more spending.
STAN COLLENDER: This election is not going to solve anything as far as the budget's concerned. The situation that created the stalemate is likely to continue next year, narrow majority, no consensus about what to do, and a lot of emphasis on just pay down the debt and put downward pressure on interest rates. My guess is unless there's a economic emergency or some sort of military problem, next year will be the same regardless of who gets elected.
MARGARET WARNER: All right. Well, Stan Collender, Steve Moore and Matthew Miller, thank you all three very much.