President tackles huge cash surplus

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PRESIDENT BILL Clinton launched his annual budget plan yesterday, ignoring the continuing drama of the impeachment trial to focus on the remaining two years of his term in office.

Spurning Republican calls for tax cuts, the President instead proposed a welter of projects that will put money into people's pockets by other means.

The budget contains a vast array of mini-projects that seem designed to underpin support for the Democrats in the 2000 elections. It must be passed by the Republican-controlled Congress before it takes effect.

The main issue in the budget is how to deal with the vast surplus that the United States believes it will accumulate over the next few years. In 2000, the year covered by the budget plan, the President predicts a surplus of $117bn (pounds 71bn), and for the decade as a whole, the surplus is likely to be about 2.41 trillion dollars, the White House says. For most of the past 30 years, the US government has been spending beyond its means, running up large deficits every year and hefty debt.

For most of that time, the politics of the US was the politics of the deficit, but that has now shifted abruptly to working out what to do with a growing cash mountain. The White House wants to use it to prop up the ailing pension system, which will be heavily depleted as the baby-boom generation moves towards retirement. The Republicans want to reduce taxes. This is likely to be one of the main issues they will use as they head into the 2000 Presidential elections.

The main proposal from Mr Clinton is to put nearly two-thirds of the surplus into the pension system, and more into the scheme that pays for medical care for elderly people. The President wants to put some of the surplus into the stock market under government management, an idea that makes Wall Street, the US central bank and others nervous. It would give the government a big stake in the stock market, and it is hard to see how the scheme could be made safe from government interference.

But the White House has also artfully constructed a spending and revenue package that has something for everyone, especially core Democrat supporters. The budget includes tax relief for childcare and for people caring for elderly relatives. It proposes more money for education, and would put in place incentives for companies to invest in poor inner-city areas. It would close a series of corporate tax loopholes to raise more cash to fund these, emphasising that the President wants to save, not spend the surplus.

The budget also protects a weak political flank by proposing a boost to defence spending of $112bn up to 2005. Next year's spending increase is more modest, about $12bn, of which most is either cash reallocated from other Pentagon spending plans or projected economic savings. Only about $5bn is new money. But the effect is to plug many of the gaps the military had identified and make it much less likely that there will be a dispuste over defence spending.

t A US Marine pilot went on trial at the Camp Lejeune base in North Carolina yesterday charged with the negligent killing of 20 people when his plane sliced through the cables of a ski lift in the Italian alps last year.

Captain Richard Ashby, whose co-pilot also faces court martial, has said in his defence that the lift was not marked on his US-issued map. The prosecution case is that the plane was flouting regulations by deliberately flying too low and too fast, something Captain Ashby denies. The defendants also claim they are being made scapegoats because of diplomatic pressure from Italy.