[Budget of the United States Government]
[II. Charting A Course for the New Era of Surplus]
[From the U.S. Government Publishing Office, www.gpo.gov]


 
            II. CHARTING A COURSE FOR THE NEW ERA OF SURPLUS


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[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                                                       Table II-1.  RECEIPTS, OUTLAYS, AND SURPLUS
                                                              (Dollar amounts in billions)
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                                                                                                   Estimates
                                                1998  --------------------------------------------------------------------------------------------------
                                               Actual    1999     2000     2001     2002     2003     2004     2005     2006     2007     2008     2009
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Receipts....................................  1,721.8  1,806.3  1,883.0  1,933.3  2,007.1  2,075.0  2,165.5  2,265.3  2,364.3  2,474.0  2,588.3  2,707.7
Outlays.....................................  1,652.6  1,727.1  1,765.7  1,799.2  1,820.3  1,893.0  1,957.9  2,034.0  2,081.5  2,153.5  2,234.3  2,314.7
Reserve Pending Social Security Reform......     69.2     79.3    117.3    134.1    186.7    182.0    207.6    231.3    282.8    320.5    354.0    393.1
Surplus.....................................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
On-Budget Deficit(-)........................    -29.9    -41.7    -12.2      0.2     44.4     31.4     49.8     58.2    103.3    130.7    155.9    188.3
Off-Budget Surplus..........................     99.2    121.0    129.5    133.9    142.3    150.7    157.8    173.1    179.5    189.8    198.1    204.7
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                                                                                         As Percentages of GDP
 
Receipts....................................     20.5     20.6     20.7     20.4     20.3     20.1     20.0     20.0     20.0     20.0     20.1     20.1
Outlays.....................................     19.7     19.7     19.4     19.0     18.4     18.3     18.1     18.0     17.6     17.4     17.3     17.2
Reserve Pending Social Security Reform......      0.8      0.9      1.3      1.4      1.9      1.8      1.9      2.0      2.4      2.6      2.7      2.9
Surplus.....................................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
On-Budget Deficit(-)........................     -0.4     -0.5     -0.1      0.0      0.4      0.3      0.5      0.5      0.9      1.1      1.2      1.4
Off-Budget Surplus..........................      1.2      1.4      1.4      1.4      1.4      1.5      1.5      1.5      1.5      1.5      1.5      1.5
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            II.  CHARTING A COURSE FOR THE NEW ERA OF SURPLUS

  ----------------------------------------------------------------------

 
 
 
  ``Remember where we were six years ago. There were some people who were saying America was in decline. Today,
we have a new surplus. We have wages rising to the highest levels in over 20 years. We have the confidence in
the country soaring. We have an unprecedented opportunity to build for the future.''
 
                                      President Clinton
                                      October 1998
 

  ----------------------------------------------------------------------
   At the close of the 20th Century, our economic success is 
unparalleled. The Nation is now enjoying the longest peacetime expansion 
in its history. This sustained economic strength, coupled with the 
renewed and rising confidence of the American people, has, as the 
President said recently, given us ``an unprecedented opportunity to 
build for the future.''
   Reflect, for a moment, on how far we have come. When President 
Clinton took office seven years ago, the Federal budget deficit had 
exploded to the point that it dominated the Government's ability to make 
policy and imposed an insidious burden on our economy. By the close of 
1992, the $290 billion deficit--the largest in American history--was 
projected to continue spiraling upward without restraint. The economy 
suffered--interest rates were high and job creation stalled. Capital 
that should been used for productive investments to create new jobs, 
instead was used to finance the Government's massive deficit-driven 
borrowing.
   Now, in what seems an entirely new world, we can look back with pride 
at our progress of the past six years, and ahead with confidence as we 
consider the path of our success. Today, we have lower interest rates, a 
higher level of investment, and unprecedented prosperity. Our economy 
has added more than 17 million new jobs. The unemployment rate is the 
lowest in 28 years, the percentage of Americans on welfare is the lowest 
in 29 years, and the inflation rate is the lowest in 33 years. And 
today, more Americans own their own homes than at any time in our 
history.
   By almost any economic measure, 1998 was a remarkable year for the 
United States. But there is nothing more remarkable than the success of 
the President's deficit reduction policy, which surpassed even the most 
optimistic of early predictions. The President's policy allowed the U.S. 
Government to balance its books for the first time in a generation, 
producing a budget surplus of nearly $70 billion. Ending an era of red 
ink, and moving squarely into the black, the Nation can now go forward 
with confidence, secure in the knowledge that we are well prepared to 
meet the challenges of the next century. And if we keep our resolve in 
the 21st Century, we can continue to produce budget surpluses as far as 
the eye can see.

The President's Agenda: The Path to Surplus

   Determined to set America on the right path, the President began his 
first term spearheading a controversial and courageous program to revive 
the Nation's economy. His economic strategy was built upon three 
elements: fiscal discipline; investing in policies that strengthen the 
American people; and engaging in the international economy.
   The President's 1993 economic plan, which he worked with the Congress 
to enact, was the centerpiece of this strategy. It cut spending, slowed 
the growth of entitlements, and raised taxes on only the very wealthiest 
Americans. At the same time, this plan

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cut taxes for 15 million working families and made 90 percent of small 
businesses eligible for tax relief. And it began an ongoing effort to 
invest in education and training and in research to boost productivity 
and, thus, promote higher living standards.
   His three-pronged plan of deficit reduction, trade expansion, and 
targeted investments provided resources for people and the economy, 
ensuring that key investments for the American people strengthened their 
prospects for the future, while taking broader fiscal measures to put 
the Nation's economic house on the right track.
   Despite critics' predictions that this strategy would fail, causing 
recession and even larger deficits, the President's plan built the 
foundation for the great prosperity that is America's today. In the 
summer of 1997, the President and the Congress joined together in an 
historic agreement to finish the job of balancing the budget. The 
results of this bipartisan action, the Balanced Budget Act (BBA), 
provided the final push, bringing the budget to balance a full four 
years earlier than projected. Like the President's 1993 plan, the BBA 
also provided for strategic investments in the American people.

Fiscal Discipline and Investments in a Time of Surplus

   Last year's budget maintained fiscal discipline by reserving the 
surplus until we save Social Security first--and at the same time 
provided a strategy of targeted investments to help sustain economic 
growth. For example, last year's budget provided resources for:
   the first year's investment to reduce class size by hiring 
          100,000 new teachers. Smaller classes ensure that students 
          receive more individual attention, a solid foundation in the 
          basics, and greater discipline in the classroom. In this 
          year's budget, the President proposes investments in this 
          area, ultimately to reduce class size in the early grades to a 
          national average of 18 students.
   investments to protect our economic interests at home by 
          responding to international economies in turmoil. The 
          disruption in financial markets last year lead to economic 
          dislocation in Asia, Latin America, and the Soviet Union. 
          This, in turn, hurt American exporters, farmers and ranchers, 
          who found that markets overseas were beginning to dry up. With 
          President Clinton's leadership, Congress approved nearly $18 
          billion for the International Monetary Fund, a stabilizing 
          force in the world economy.
   a guaranteed, record-level investment for the next five years 
          in the Transportation Equity Act for the 21st Century to 
          continue rebuilding America's highways and transit systems, 
          which are essential to continue the growth of modern commerce. 
          This legislation also funds programs for highway safety, 
          transit and other surface transportation, while safeguarding 
          air quality, and helping former welfare recipients get to 
          their jobs.
   Perhaps the most important accomplishment is what last year's budget 
did not do--it did not spend the surplus. At the start of last year, the 
President called on the Nation to ``reserve every penny of any surplus 
until we have taken all the necessary measures to strengthen the Social 
Security system for the 21st Century.'' As part of this plan, the 
President also launched a national non-partisan dialogue last year to 
spark honest debate and build consensus about this vital issue, leading 
up to the next step: resolving the difficult issues of Social Security 
in a bipartisan fashion.
   The prospects for reform are strengthened by the culmination of last 
year's efforts to create an environment for constructive discussion, by 
our economy's new record-setting prosperity and by the fact that the 
surplus has been reserved for this purpose.

Reaping the Benefits

   Throughout his Administration, the President also worked with the 
Congress to establish and build upon significant investments in 
education and training, the environment, law enforcement and other 
priorities to help raise the standard of living and quality of life for 
average Americans both now and in the future. For example, the 
President's

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commitment to funding key domestic investments has:
   Advanced cutting-edge research with an increase last year for 
          the National Institutes of Health of $1.9 billion, for 
          research including intensified work on diabetes, cancer, 
          genetic medicine, and the development of an AIDS vaccine.
   Established the children's health care initiative, the 
          largest investment in health care for children since Medicaid 
          was created. Last year, 47 States began programs designed to 
          provide meaningful benefits to as many as 2.5 million 
          uninsured children.
   Increased Head Start's ability to provide greater 
          opportunities for disadvantaged children to participate in a 
          program which prepares them for grade school. Last year, a 
          boost in Head Start funding put 835,000 children into the 
          program, making further progress toward the President's goal 
          of putting a million children in Head Start by 2002.
   Invested in public schools to help States and communities 
          raise academic standards, strengthen accountability, connect 
          classrooms and schools to the information superhighway, and 
          promote public school choice by opening 900 charter schools.
   Protected and restored some of the Nation's most treasured 
          lands, such as Yellowstone National Park, and the Everglades, 
          provided the funds to conserve others, and accelerated toxic 
          waste clean-ups.
   Built the COPS program to support community policing. This 
          year COPS will reach the goal of putting 100,000 more police 
          on the streets of America's communities. COPS has helped 
          reduce violent crime for six straight years. The 21st Century 
          Policing Initiative, proposed in this budget, will expand on 
          the number of police and provide other law enforcement tools 
          to the community.

Streamlining Government

   A key element in the Administration's ability to expanding strategic 
investments, while balancing the budget, is the reinvention of 
Government--doing more with less. Efforts led by Vice President Gore's 
National Partnership for Reinvention have streamlined Government, 
reduced its work force, and focused on performance to improve operations 
and delivery of service. And these efforts, by reducing the cost of 
government operations, have improved the bottom line and contributed to 
our strong economy.
   Since 1993, the Administration, working with Congress, has eliminated 
and reduced hundreds of unnecessary programs and projects. The size of 
Government--that is, the actual total of Government spending--has 
equaled a smaller share of GDP than in any year of the previous two 
Administrations, and in 2000 will drop to 19.4 percent of GDP, its 
lowest level since the early 1970s. The Administration has cut the size 
of the Federal civilian work force by 365,000, creating the smallest 
work force in 36 years and, as a share of total civilian employment, the 
smallest since 1933.
   The Administration, however, is working to create not just a smaller 
Government, but a better one, a Government that best provides services 
and benefits to its ultimate customers--the American people. It has not 
just cut the Federal work force, it has streamlined layers of 
bureaucracy. It has not just reorganized headquarters and field offices, 
it has ensured that those closest to the customers can best serve them.
   For 2000, the Administration once again is turning its efforts to the 
next stage of ``reinventing'' the Federal Government. It plans to 
dramatically overhaul 32 Federal agencies to improve performance in key 
services, such as expediting student loan processing and speeding aid to 
disaster victims. It also plans to tackle critical challenges, such as 
ensuring that Government computers can process the year 2000 date change 
and making more Government services available electronically. (For a 
full discussion of the Administration's management agenda, see Section 
IV, ``Improving Performance Through Better Management.'')
   Under the 1993 Government Performance and Results Act, Cabinet 
departments and agencies have prepared individual performance plans that 
they will send to Congress with the performance goals they plan to meet

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in 2000. These plans provided the basis for the second Goverment-wide 
Performance Plan which is contained in this Budget. In 2000, for the 
first time, agencies will submit to the President and Congress annual 
reports for 1999 that compare actual and target performance levels and 
explain any difference between them.

Investing in the Future to Save Social Security

  In his State of the Union address, President Clinton proposed a 
framework for saving Social Security; it builds upon our successful 
fiscal discipline and the resources it has provided to the Nation. The 
President's plan devotes some of the surplus--62 percent of the unified 
budget surplus for the next 15 years--to the Social Security Trust Fund, 
making more than $2.7 trillion available and extending the life of the 
system through the middle of the next century.
  This plan would also tap the power of private financial markets by 
setting aside roughly one-fifth of the surplus that has been transferred 
to Social Security for investment in private securities. With these 
additional contributions, plus the higher returns earned by private 
investments, this plan will keep Social Security safe and strong until 
2055. Then, in a bipartisan effort envisioned by the national dialogue 
of the last year, the President is urging Congress to join him to make 
the difficult but achievable choices to save Social Security until 2075. 
In the context of these tough choices, the President also noted the need 
to made additional reforms, including reducing the poverty rate for 
elderly women and other groups on Social Security who are 
disproportionately vulnerable and removing the barriers to work that are 
a result of the earnings test.
  It is time to fix Social Security now. We are able to do so because 
the surplus has been saved for Social Security. Last year's commitment 
still stands--not to drain the surplus until Social Security has been 
resolved; however, it is also our obligation to look toward the future, 
and to plan wisely for the time when Social Security reform has been 
accomplished, and we can responsibly allocate the surplus for other 
National needs.
  Once Social Security is on sound financial footing, we must fulfill 
our obligation to save and improve Medicare. The President's framework 
will reserve 15 percent of the projected surplus for Medicare, ensuring 
that the Medicare Trust Fund is secure for 20 years.
  The President is also committed to helping all Americans save and 
invest so that they will have additional sources of income in 
retirement. Dedicating just over 10 percent of the surplus will fund new 
Universal Savings Accounts to help Americans save, allowing them to 
invest as they choose and receive matching contributions.
  And looking ahead to the Nation's other vital needs that will arise in 
the future, the President's plan will reserve 11 percent of the 
projected surplus for military readiness, education, and other critical 
domestic priorities.
   This budget builds on the President's efforts to invest in the skills 
of the American people. It continues his policy of helping working 
families with their basic needs--raising their children, sending them to 
college, and expanding access to health care. It also invests in 
education and training, the environment, science and technology, law 
enforcement and other priorities to help raise the standard of living 
and quality of life of Americans.
   The President is proposing major initiatives that will continue his 
investments in high-priority areas--from helping working families with 
their child care expenses to allowing Americans from 55 to 65 to buy 
into Medicare; from helping States and school districts recruit and 
prepare thousands more teachers and build thousands more classrooms to 
making every effort to fight tobacco and its use among young people.

  Families and Children: For six years, the President has sought to help 
working families balance the demands of work and family. In this budget 
he proposes a major effort to make child care more affordable, 
accessible and safe, by expanding tax credits for middle-income families 
and for businesses to expand their

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child care resources, assisting parents who want to attend college meet 
their child care needs, and increasing funds with which the Child Care 
and Development Block Grant can help more poor and near-poor children. 
The budget proposes an Early Learning Fund, which would provide grants 
to communities for activities that improve early childhood education and 
the quality of childcare for those under age five.
  Health Care: The President has worked hard to expand health care 
coverage and improve the Nation's health. The budget gives new insurance 
options to hundreds of thousands of Americans aged 55 to 65 and it 
advocates bipartisan national legislation that would reduce tobacco use 
among the young. The President's budget proposes initiatives to help 
patients, families and caregivers cope with the burdens of long-term 
care; and it helps reduce barriers to employment for individuals with 
disabilities. The budget also enables more Medicare recipients to 
receive promising cancer treatments by participating more easily in 
clinical trials. And it improves the fiscal soundness of Medicare and 
Medicaid through new management proposals, including programs to combat 
waste, fraud and abuse.
  Education: The President has worked to enhance access to, and the 
quality of, education and training. The budget takes the next steps by 
continuing to help States and school districts reduce class size by 
recruiting and preparing thousands more teachers and building thousands 
more new classrooms. The President proposes improving school 
accountability by funding monetary awards to the highest performing 
schools that serve low-income students, providing resources to States to 
help them identify and change the least successful schools, and ending 
social promotion by funding additional education hours through programs 
like the 21st Century Community Learning Centers. The budget also 
proposes further increases in the maximum Pell Grant to help low-income 
undergraduates complete their college education and more funding for 
universal reemployment services to help train or find jobs for all 
dislocated workers who need help.
   
   

  Environment: The Administration proposes an historic inter-agency 
Lands Legacy initiative to both preserve the Nation's Great Places and 
advance preservation of open spaces in every community. This initiative 
will give State and local governments the tools for orderly growth while 
protecting and enhancing green spaces, clean water, wildlife habitat, 
and outdoor recreation. The Administration also proposes a Livability 
Initiative with a new financing mechanism, Better America Bonds, to 
further creation of open spaces in urban and suburban areas, improve 
water quality, and clean-up abandoned industrial sites. In addition, the 
budget would restore and rehabilitate national parks, forests, and 
public lands and facilities; expand efforts to restore and protect the 
water quality of rivers and lakes; continue efforts to double the pace 
of Superfund cleanups; and better protect endangered species.
  International Affairs and Defense: The President has worked to bring 
peace to troubled parts of the world, and has played a leadership role 
in Northern Ireland, Bosnia, and most recently with the Wye River 
agreement on the Middle East. The budget reinforces America's commitment 
to peace in the Middle East by providing for an economic and military 
assistance package arising from the Wye River Memorandum. The work of 
diplomacy, advancing peace and United States interests, has inherent 
dangers, as the death toll from the terrorist attacks on two U.S. 
Embassies in Africa last year reminds us. The budget proposes increased 
funding to ensure the continued protection of American embassies, 
consulates and other facilities, and the valuable employees who work 
there. It also supports significant increases in funding for State 
Department programs to address the threats posed by weapons of mass 
destruction. The budget also increases programs that support US 
manufacturing exports and continues our long standing policy of opening 
foreign markets.
  The mission of our Armed Forces has changed in this post-Cold War era, 
and in many ways it is more complex. Today, the U.S. military must guard 
against major threats to the Nation's security, including regional 
dangers like cross-border aggression,
   
   

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the proliferation of the technology of weapons of mass destruction, 
transnational dangers like the spread of drugs and terrorism, and direct 
attacks on the U.S. homeland from intercontinental ballistic missiles or 
other weapons of mass destruction. The U.S. Armed Forces are well 
prepared to meet this mission. Military readiness--the ability to engage 
where and when necessary--is razor sharp, and the budget provides 
resources to make sure that it stays that way for years to come. The 
budget provides a long-term, sustained increase in defense spending to 
enhance the military's ability to respond to crises, build for the 
future through programs for weapons modernization, and take care of 
military personnel and their families by enhancing the quality of life, 
thereby increasing retention and recruitment.

Looking Ahead

   There is much to be proud of in America today. We have not simply put 
our fiscal house in order by balancing the budget; we have left behind 
an era in which the budget deficit, as the President said recently, 
``came to symbolize what was amiss with the way we were dealing with 
changes in the world.'' Today we have risen to the challenge of change--
by preparing our people through education and training to compete in the 
global economy, by funding the research that will lead to the 
technological tools of the next generation, by helping working parents 
balance the twin demands of work and family, and by providing investment 
to our distressed communities in order to bridge the opportunity gap.
   If the deficit once loomed over us as a symbol of what was wrong, our 
balanced budget is proof that we can set it right. Not only do we have 
well-deserved confidence, we have hard-earned resources with which to 
enter the next century.
  Today, we have an opportunity to address the needs of the future. We 
have an obligation to proceed prudently. The President's plan proposes 
that most of the surplus be invested in Social Security, thereby saving 
the system for generations to come. And while the plan honors his pledge 
of last year not to drain the surplus until Social Security has been 
saved, it also plans prudently for the future. After Social Security 
reform is enacted, the President proposes using additional portions of 
the surplus to strengthen Medicare, to encourage Americans to save, and 
to provide resources for pressing national needs, including military 
readiness, education, and other critical domestic priorities.
   There is no more pressing issue facing us as a Nation than the need 
to guarantee that Social Security will be there for generations to come. 
And there is no better time to act than now while the system is still 
strong. This is truly an exceptional moment in America--the economy is 
prosperous, the budget is in balance, and the President's commitment to 
national dialogue has created conditions for constructive action.
  We must seize this moment and work together now, where a solution will 
be much easier to reach than waiting until the problem is closer at 
hand. We should take this rare opportunity to enact comprehensive, 
bipartisan Social Security reform this year--or as the old saying goes, 
we should fix the roof now while the sun is shining.
   It is time, from our position of strength, to meet this challenge. Or 
as the President recently declared at the White House Conference on 
Social Security:
         ``Our economy is indeed a powerful engine of prosperity. In its 
      wide wake it creates something every bit as important as jobs and 
      growth--the opportunity to do something meaningful for America's 
      future and the confidence that we can actually do it--an 
      opportunity to save Social Security for the 21st Century. I hope 
      history will record that we seized this opportunity.''