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The trillion dollar surplus

The government's coffers have been boosted by the strong economy, which has registered nine straight years of economic growth - the longest peacetime boom in history.

The Clinton administration says it wants to use the budget surplus to pay off the entire $3,700bn national debt by 2015.

And it plans to boost spending on Medicare and Social Security, the programmes that provide income for the elderly.

President Clinton said: "We must 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."

Under the new proposals, $794bn would be set aside to strengthen Medicare, which provides health care for the elderly, an increase of $108bn on the previous budget proposal announced in January.

Some of the money would go to pay for prescription drugs, which are now exempted from the government health insurance system.

Social security

Additional funds would also go to boost the Social Security Trust Fund, which otherwise will run out of funds to pay retirement pensions in 2034. The allocation of an additional $543bn would keep the system solvent until 2053.

The proposals would incorporate a "lock-box", under which surpluses in the social security fund would be ring-fenced from other spending and could only be used to pay off debt or boost social security.

The new proposals are a slight broadening of Mr Clinton's earlier stance - "to save social security first".

At that time, he proposed spending up to 38% of the trust fund balance while it was still in surplus in earlier years.

Republicans want tax cuts

The growing budget surplus has complicated the political arithmetic in Congress.

The surplus - which is only just beginning to come on stream for non-social security spending - is likely to be targeted by tax-cutting Republicans and by urban Democrats, both unhappy with the strict spending caps that have limited most domestic spending programmes.

With Republican efforts to pass spending bills in danger because of the tight spending caps - and with Mr Clinton likely to veto the $775bn,10-year tax cut they have in mind - Republican leaders have increasingly been banking on a budget windfall to help avoid gridlock.

Republican House of Representatives Speaker J Dennis Hastert said last week that he expected to promptly use any non-Social Security surpluses that become available.

But Gene Sperling, head of the White House's National Economic Council, said he hoped the new plans would appeal to both Republicans and Democrats.

"We are very hopeful that the new Presidential proposal, that new Social Security lock box, will be a way of bringing together both Democrats an Republicans," he said.

Relevant Stories

US budget surplus beckons (01 Feb 99 | The Economy)

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