For three years, the major U.S. political parties have been fighting over how to spend the federal budget surplus. Now, that battle is shifting to how to spend more even as the surplus is rapidly shrinking.

The change stems from several factors: The tax cut Congress passed has eroded much of the projected surplus. The economic slowdown is reducing tax revenue. And the White House and lawmakers have new spending plans of their own.

"The combination is going to change the dynamic of the appropriations debate in September and October," said Robert D. Reischauer, former head of the Congressional Budget Office and now president of the non-partisan Urban Institute.

Democrats already have begun test-firing what might be their most potent weapon: The prospect that unless some solution is found, lawmakers will be forced to dip into the surpluses in the special Medicare and Social Security trust funds.

Senate Budget Committee Chairman Kent Conrad of North Dakota warns that the government is likely to have to tap the Medicare trust fund to finance its operating expenses in fiscal 2001, and may have to use money from the Social Security fund in fiscal 2002.

From a budget-maker's viewpoint, that prospect is essentially meaningless. Since 1969, the government has used a "unified" budget system that lumps its operating budget in with the Medicare and Social Security trust funds.

Until recently, the government almost always ran a deficit in its operating budget, which invariably was offset by chronic surpluses in the trust funds. The overall budget outcome combines the two figures.

Politically, however, the dynamic has changed. In fiscal 1998, when the operating budget unexpectedly swung into surplus, both parties vowed to protect the Social Security trust fund by keeping the operating budget from plunging into deficit.

As a result, their pledge to avoid having to dip into the Social Security surplus has become politically sacrosanct, says Robert Bixby, executive director of The Concord Coalition, a bi-partisan budget-monitoring group.

There's no doubt that the possibility that the government will have to use the Medicare and Social Security trust funds is growing. Both sides acknowledge the danger, although Republicans say it won't come as quickly as Conrad suggests.

The combined effect of the tax cut and the weakening of the economy is likely to turn the projected $92 billion surplus in the operating budget to a $17 billion deficit, Conrad projects, forcing the government to use money from the Medicare trust fund.

To many analysts, however, the real threat comes from lawmakers' plans to approve billions of dollars in extra spending for everything from agricultural subsidies to health insurance benefits and defense.

Lawmakers may get a better fix on the budget situation next month when both the White House and CBO come out with their revised budget estimates.

Both sides say they have contingency plans to avert a budget squeeze. Bush wants lawmakers to hold new spending increases to 4 percent. Democrats want to cut some programs to pay for the added defense spending and to postpone portions of the tax cut.

Yet, with Democrats controlling the Senate and House Republicans eager to boost spending, prospects for either plan seem dim, says Tony Brush, a political analyst for Bradley Woods and Co., a Washington consulting firm.

As far as the sanctity of the Social Security trust fund goes, Brush recalls that lawmakers faced a similar obstacle in scrapping the old budget "caps" — category-by-category spending ceilings — that became unrealistic in the late 1990s. "After denying for months that they were abandoning the caps, lawmakers just did it and then said, 'whoops — what happened?'" Brush said.

Keep your eye on the prohibition against dipping into the trust funds. Now you see it, soon you won't.

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