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Monday, February 1, 1999 Published at 15:41 GMT

Business: The Economy

US budget surplus beckons

The White House thinks it is on to winner with the economy

In a bid to enhance his political popularity, President Bill Clinton has presented Congress with a Federal budget that promises more spending on health, education and defense while keeping the growing budget surplus intact.

For the first time in a generation, the US government is faced with the dilemma not of which budget items to cut, but how to make best use of extra funds. The fiscal health of the government - boosted by strong economic growth - has not put an end to controversy about how best to use the money, but it appears to have wrong-footed the Republicans for the moment.

"The reality of divided Government is that Clinton is able through a combination of hard negotiating and fiscal discipline to achieve targeted increases in these areas while proposing a fiscally disciplined budget," said Gene Sperling, the President's chief economic advisor.

But Republican Senator Pete Dominici, chairman of the Senate Budget Committee, dismissed the plans.

"There is no question that this document is the rebirth of big government. The President can't resist a program for every problem," he said.

[ image: President Clinton is fighting to maintain his popularity]
President Clinton is fighting to maintain his popularity
In a blend of scandal and substance that has come to seem normal in Washington, the President was presenting the budget at the White House on Monday morning as Monica Lewinsky was sitting down to give a deposition to lawyers on both sides of the Senate trial weighing his removal from office.

Growing surplus

The $1.77 trillon (£1.06 trillion) budget, which covers the fiscal year 2000 which begins on 1 October, 1999, will set the stage for a battle with the Republicans over what to do with the surpluses that are expected to total $117.3bn in 2000 and to add up to $2.41 trillion over the next decade.

If the budget for the fiscal year 2000 meets its targets, it would mark the third year in a row that the federal government has achieved a surplus after 28 years of deficits. The government returned to the black in 1998 with a surplus of $69.2bn and in 1999 it expects one of $79.3bn.

"For too many years, the deficit loomed over us, a powerful reminder of the government's inability to do the people's business," the President said in a statement accompanying the budget. "This year's budget surplus is one in many decades of surpluses to come -- if we maintain our resolve."

The long stream of anticipated surpluses is the result of deficit-cutting packages passed in 1990, 1993 and 1999 after bitter political battles. There is little sign of any more bipartisanship in a Congress that has been polarised by the impeachment process.

Saving social security

In his State of the Union speech on 19 January, the president laid out a detailed programme for how to use the $4.47 trillion in surpluses the government expects over the next 15 years.

The bulk, 62%, would shore up Social Security, the popular US programme of income support for retired people, which is facing a cash crisis when the so-called "baby-boomer" generation begins retiring. Another 15% would bolster the Medicare health care programme, 12% would fund "universal savings accounts" and 11% would fund priorities like education, research and defence.

While influential Republicans have embraced the idea of using the majority of the surpluses for Social Security, they are also arguing for a sweeping 10% tax cut.

Clinton has preferred a much more targeted programme of tax cuts, offering a $1,000 tax credit for people caring for elderly or sick relatives, $500 for stay-at-home parents and incentives to spur corporate investment in poor rural and urban areas. It would pay for these chiefly by cracking down on corporate tax loopholes and increasing cigarette taxes.

Conservative forecasts

The president's spending plan is conservative in its economic forecasts, predicting gross domestic product (GDP) growth of 2.0% in 1999 and 2000. On Friday, the Commerce Department said 1998 GDP grew by 3.9%, with booming growth of 5.6% in the fourth quarter alone.

But if the US economy enters a period of prolonged recession, then the looming budget surplus could begin to evaporate.

Despite some $39bn in increased spending programmes, Federal government spending is set to fall to its lowest level as a proportion of GDP since 1973, at 19.4%.

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