Goodbye, big tax cut. Hello, smaller debt.

Coming off a failed effort last year to win a huge tax cut for Americans, congressional Republicans are back in town with a new fiscal message for this year: Let's reduce the national debt.

That, of course, is the same as saying, "Let's not do much," because any unused portions of the federal budget surplus automatically default to paying down the $3.7 trillion publicly held debt.

Still, Republicans on the Hill call their debt-reduction plan "significant," and say it won't preclude cutting taxes.

But, in a clear shift in strategy, the bite-size, targeted cuts they are proposing for this year are minuscule compared with last year's tax-cut banquet - and are even far smaller than cuts being proposed by GOP presidential front-runner George W. Bush.

What all this portends, say many Congress-watchers, is a year of modest legislative accomplishment, as lawmakers delay some of the hard issues until a new president is elected.

"Debt retirement is the default position," says Stephen Moore, fiscal-policy director for the Cato Institute here. "It's an indication that they don't have a very bold or exciting agenda for this year."

So far, neither the Republican leaders of Congress nor the White House and Democrats have launched the new year with bold policy initiatives.

"If this is what you are leading with, you know there will be no big proposals up ahead," says Stanley Collender of the federal budget consulting group at Fleishman-Hillard Inc., a Washington public-relations firm.

Nibbling around the edges

Prospects for major legislative compromises in a short congressional session (starting Jan. 24 and ending in early October) are also dim as each party focuses on the coming election. The GOP is only five seats from losing control of the House of Representatives.

"Republicans want to get out of town as early as possible to campaign," says Mr. Moore.

As a result, analysts predict continued stasis on Capitol Hill, with Republicans tinkering with small tax cuts while mounting a rear-guard battle against White House spending proposals.

The White House agenda includes a new proposal for $1.3 billion in loans and grants to renovate schools. The rest of the Democrats' wish list is largely unfinished business from last year, including health-care insurance reforms, gun control, and raising the minimum wage. President Clinton will formally unveil his fiscal 2001 budget next month.

Republicans will focus on improving trade ties with China and WTO membership, high-tech issues such as digital signatures, and - most notably - greatly scaled-back tax cuts.

Backing away from a big tax cut may be a pragmatic move for the GOP. Last year's $792 billion, 10-year package, which Mr. Clinton vetoed, failed to gain widespread public enthusiasm.

"It was too big, and it wasn't very believable," says Richard May, the former Republican staff director of the House Budget Committee and now a principal at the Washington lobbying firm of Davidson & Co. Given the likelihood of another presidential veto, the possibility of another big tax cut becoming law "is probably zero," says Mr. May.

Instead, the GOP will push several smaller tax bills, some of which Mr. Clinton has supported, that will give individual relief.

House Speaker Dennis Hastert (R) of Illinois has pledged these targeted cuts will come up for early votes. They include reducing the "marriage penalty" - or extra taxes paid by millions of two-income couples beyond what they would owe if each filed as a single. Another measure would expand tax-deferred savings accounts to pay for education, and a third would offer tax breaks to companies that create jobs and provide other benefits in poor communities.

The case for big tax cuts

While small tax cuts may be politically pragmatic, some analysts argue that larger tax cuts would be a far better way than debt reduction to sustain a prosperous, competitive economy. "By reducing taxes we lock in much more rapid economic growth," says Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson, a Chicago investment-banking firm. "It's essential ... to provide fuel for our new-era economy" in the long run, he says, as well as to ensure the solvency of Social Security and Medicare as baby boomers retire.

Nevertheless, in the next week or two, GOP leaders say they'll announce a plan to eliminate the publicly held debt - now at $3.7 trillion - over 10 or 15 years. The Clinton administration has also floated a proposal to wipe out the public debt by 2015, and during last year's budget debate the White House highlighted it while attempting to paint the big GOP tax cut as fiscally irresponsible.

Debt is already shrinking

Federal surpluses, if not spent or given back as tax cuts, automatically go to paying down the debt. Thanks to recent surpluses, debt retirement is already under way at its highest rate in more than 50 years, says Moore. He says about $100 billion worth of debt was retired in 1999, and another $150 billion will be retired this year.

Still, experts question whether Congress can refrain from new spending that would undermine efforts to shrink the debt even more. "By focusing on reducing debt, in reality you are saying you will fight new spending. It's a defensive position ... a recipe for losing," says Mr. Wesbury.

(c) Copyright 2000. The Christian Science Publishing Society