The surging economy and the 1997 balanced-budget deal have ushered in an age of federal-budget surplus, a remarkable turnaround for a government that for decades operated in the red.
This week brings news that the surplus will be even greater than originally forecast. The administration projects an additional $1 trillion in black ink over the next 15 years, for a total of $6 trillion. The Congressional Budget Office is likely to confirm an improved picture.
The news has rumbled through the capital like an earth tremor, overturning assumptions and creating an opening for the president and Hill Republicans to end their budget face-off. They might even make progress on reforming Social Security and Medicare, while leaving room for some of the increased spending Mr. Clinton wants and the tax cuts Republicans crave.
Before the spending and tax-cutting spree begins, however, a caveat: Budget projections are based on economic-growth assumptions that are often wrong, even over a few months. Fifteen-year projections are, at best, an educated guess. Entitlement programs are locked in; surpluses are not. Current projections assume Congress and the president will maintain fiscal discipline; based on their behavior so far, that's not guaranteed.
Clinton's latest proposals edge towards the GOP positions, but basic differences remain. He still wants to target a tax cut through Universal Savings Accounts for individuals with money from the general fund. Republicans would prefer to reduce the "marriage penalty" (which makes many married couples pay more than they would as singles), cut capital-gains and inheritance taxes, and expand the lowest income-tax bracket.
Some kind of personal accounts for retirement income are a great idea. But the money should come from workers' own Social Security payroll taxes, not from the general fund, which threatens to become a new entitlement program. Broader tax cuts - the amount should be negotiable - are needed to free up more money for investing and keep the economy on a roll. Depending on which options Congress chooses, they would aid some married couples, farmers, and small-business owners.
To stay close to the (admittedly tight) budget caps agreed to in 1997, Congress should pay for at least part of any tax cuts and new spending with trims in government programs, not solely out of projected surpluses. That's the only guarantee that money to reform Medicare and Social Security will be available in the future.
Tomorrow we'll look at the president's proposals for those two entitlement programs and the federal debt.