Clinton sees $1 trillion increase in budget surplus

WASHINGTON - President Clinton is preparing to announce a mammoth $1 trillion increase in the administration's 10-year budget surplus projection, and will propose using it for faster debt reduction, beefed up Medicare benefits and deeper tax cuts, Democrats say.

The new forecast is expected to bring projected surpluses for the decade ending in 2010 to $1.9 trillion, without counting Social Security. That would more than double the $746 billion the White House predicted in February, a deluge of cash fueled by the formidable economy.

A deep, long-lasting recession could make the projected surpluses shrink or vanish. Nonetheless, with Treasury Department figures showing that it has been collecting unexpected mountains of revenue in recent months, the projected deluge of cash has been expected.

As a result, it has already influenced election-year politics.

George W. Bush, the Republican presidential nominee-in-waiting, is using the bigger numbers to fend off Democratic arguments that his plans for tax cuts and Social Security are irresponsible. And Vice President Al Gore, the likely Democratic candidate, has trotted out a parade of spending and tax-cut proposals that would be financed from federal surpluses.

White House officials were refusing Wednesday to discuss the announcement, which Clinton could make as early as Monday. But on condition of anonymity, some congressional Democrats, lobbyists and others discussed its general framework.

Clinton said Tuesday he would use some of the surplus - $40 billion over 10 years - to boost Medicare reimbursements to hospitals and other health care providers. Lawmakers say the payments are aimed at restoring cuts made as part of the 1997 budget-balancing deal that went deeper than expected.

But when he announces his new surplus figures, he will also propose making his prescription drug plan for Medicare recipients more generous.

Democrats said they expect him to propose beginning a portion of that plan aimed at helping people with catastrophic illnesses earlier than expected. They said he might propose starting it in 2003, when his overall prescription plan would begin, instead of 2006, which he proposed in his fiscal 2001 budget in February.

Clinton's prescription drug plan would cost $149 billion over 10 years, the Congressional Budget Office has estimated. Clinton said the catastrophic portion of it would cost $35 billion from 2006 through 2010, but he provided no details of how it would work.

Clinton will also endorse fencing off Medicare's projected surpluses from use for spending or tax cuts. That idea is also supported by Gore, and the House voted 420-2 Tuesday to do the same thing.

Lawmakers have routinely spent Medicare surpluses for other purposes for decades. But now, surpluses have grown so large that politicians have found there is enough money for spending and tax cuts without using the Medicare funds.

Clinton will also propose using a large portion of the new surplus figure to move up the date by which he plans to eliminate the $3.5 trillion publicly held portion of the national debt.

His budget envisioned eliminating that debt by 2013. The new numbers will move up that date, perhaps to sometime within the next decade, Democrats said.

The overall national debt is $5.7 trillion. The remaining $2.2 trillion is money the government owes its own trust funds, like Social Security.

Clinton will also propose some extra spending for education and other domestic programs, Democrats said, but not for fiscal 2001, the year for which Congress is now writing spending bills.

On the tax side, Democrats said Clinton will make his tax-cut proposals bigger.

As part of that, he is expected to eliminate some of the tax increases he proposed in February to help pay for his budget initiatives. Most of those proposed tax increases had virtually no chance of being approved by Congress anyway, and dropping them will let him boast a bigger net tax-cut figure.

In February, Clinton proposed $351 billion in tax cuts over 10 years, as calculated by the Congressional Budget Office. It was partly paid for with $205 billion in tax increases.

Clinton might also propose eliminating the 3 percent federal excise tax on telephone tax. A measure phasing out the levy by 2002 passed the House last month by 420-2, at a five-year cost of $20 billion, underlining the idea's widespread popularity.

Bush has proposed a $1.3 trillion, 10-year tax cut and letting Social Security recipients invest part of their payroll taxes that support the program in the stock market.

Bush spokesman Ari Fleischer said the Texas governor would not use any of the additional money to beef up his tax cut or spending proposals. Instead, he said Bush would use extra surpluses for debt reduction and strengthening Social Security.

''We'll stand by our plan,'' Fleischer said. ''Our plan is based on cautious, conservative assumptions.''

Gore's recent spending and tax proposals have included a 10-year, $500 billion tax-cut package for child care, education and other purposes; voluntary, tax-free retirement accounts financed partly by federal payments; and new spending for the environment, health and schools.

''The way the candidates choose to use it says a lot about what kind of leader they would be,'' said Gore spokesman Douglas Hattaway. He said Bush's tax cut ''primarily benefits the rich.''