Washington-
For nearly two years, every budget or tax battle here turned on the implications for the federal budget deficit. Each battle was confused by conflicting numbers, contradictory projections and incompatible accounting schemes.
Now that the deficit is gone and the non-partisan Congressional Budget Office is projecting budget surpluses for each year for the next decade, the dispute focuses on what portion of the surplus, if any, should be used to finance tax cuts.
But the new debate is no less confusing. Here's how to make sense of it:
Q: How big is the federal surplus? What does it have to do with the Social Security Trust Fund?
A: The latest forecast by the CBO shows a surplus of $63 billion for the current fiscal year, which ends Sept. 30, and larger surpluses for each of the next 10 years. The budget, however, wouldn't be in the black but for the Social Security Trust Fund, which is receiving more in payroll taxes and interest on its investments than it is paying out in benefits. This year, the Trust Fund will show a $104 billion surplus; the rest of the federal budget will be $41 billion in the red. Excluding Social Security, the budget wouldn't be in surplus until fiscal 2005.
Q: Is the measure that includes Social Security the more important one? Or the measure that excludes it?
A: In terms of the economy, interest rates and financial markets, the most important measure is the one that includes Social Security and everything else. "To analyze its direct, immediate impact on the economy, the unified budget balance is the appropriate number," Federal Reserve Chairman Alan Greenspan told Congress recently. But to tell whether the government is adequately preparing to make good on the financial promises it has made, he added, "We have to look at something which excludes ... the Social Security budget to get a sense of what the longer term outlook is."
Politically, the Social Security Trust Fund is often viewed as separate from the rest of the government. Charges that one party or another is "raiding the Social Security Trust Fund" can pack a potent wallop.
Q: How do House Republicans propose to finance tax cuts?
A: House Speaker Newt Gingrich (R., Ga.) and House Budget Chairman John Kasich (R. Ohio) want to use about $700 billion of the $1.55 trillion in surpluses projected over the next 10 years to pay for a tax cut.
Republicans wouldn't reduce Social Security benefts now or in the future. But to shield themselves from charges that they are raiding Social Security, they devide the surpluses into two pieces. One (piece) is the difference between payroll taxes received and benefits paid; the GOP promises to use this money to "save" Social Security. The other (piece) is the interest that the Treasury pays to the Social Security Trust Fund on Treasury bonds it holds; for accounting purposes, the GOP would use this money for a tax cut. Mr. Kasich says this passes "the barbershop test", meaning he can explain it to voters.
Robert Reischauer, the former CBO director now at the Brookings Institution, scoffs. "That's a little like your bank saying, "Sorry, we're not paying your interest on your deposits. All we owe you is the money you put in."
But another former CBO director, Rudolph Penner of the Urban Institute, though opposed to GOP tax-cut plans, says that the Tust Fund concept is so muddled that "how you manipulate the accounting...is an arbitrary matter."
Q: What did President Clinton mean when he said, "Save Social Security First"?
A: He meant that Congress shouln't use the surplus to cut taxes or increase spending right now, but should use the surplus to reduce the government's debt, the loans it took out during all of those years of deficit spending. The White House sees the slogan as more politically appealing than "Use the surplus to pay down the debt". Mr. Clinton hasn't yet proposed a plan to fix Social Security.
Q: Is this a good time to cut taxes?
A: With budget surpluses projected as far as the eye can see, Republicans say there couldn't be a better time."It's not Washington's money, it's not Bill Clinton's money, it's the American pepole's money and it ought to be returned to them if the government doesn't need it," Mr. Gingrich says. Republicans say Washington will use the surplus to increase spending unless the money is returned to the taxpayers. Mr. Clinton says he is willing to consider tax cuts - but only after he and the Congress figure out how much it will cost to shore up Social Security. Congressional Democrats side with him.
Q: Are the projected surpluses really going to materialize?
A: No one knows. The surpluses reflect a strong economy and a surge in tax revenues that, at least in part, appears tied to the strong stock market. CBO projections assume that this revenue surge persists.
Q: Is there going to be a big tax cut this year ?
A: Probably not. Despite House Republicans' enthusiasm, their Senate counterparts are wary. Even if the Republican-controlled Congress somehow manages to pass a big tax cut, Mr. Clinton would probably veto it.