WASHINGTON (AllPolitics, January 19) -- President Bill Clinton will cap off a day of high political drama with his seventh State of the Union address Tuesday night that is expected to focus on domestic priorities like using the bulk of the federal surplus to shore up Social Security.

Warning the nation not to allow the "hum of our prosperity to lull us into complacency," Clinton will tell Americans that the state of the union is "strong" and ask lawmakers to save the federal budget surplus to prepare for the approaching senior boom.

"Last year we wisely reserved all of the surplus until we knew what it would take to save Social Security. Again, I say, we should not spend any of it until after Social Security is truly saved. First things first," Clinton will say, according to advance excerpts of the president's seventh State of the Union address.

Improving education, promoting free trade, increasing defense spending and fighting crime are all discussed in Clinton's address.

For a second year, Clinton will deliver his State of the Union message under the sex-and-perjury cloud that is threatening his presidency. While Clinton is not expected to directly speak about his ongoing impeachment trial, he will be making the case that he deserves another two years office to an audience that includes the 100 U.S. senators who sat as his jury just hours earlier.

Also in this story:
• How Clinton wants to spend the surplus
• Government to invest in stocks?
• New IRAs like 401(k)s sought
• Clinton's prescription for Medicare
• GOP: Save Social Security, cut taxes
• Two Republicans break ranks to boycott speech

Earlier in the day, White House Counsel Charles Ruff kicked off the president's three-day opening presentation in the Senate impeachment trial, arguing that the president did not commit perjury and obstruction of justice.

On Tuesday night Clinton would like to put all of that aside and focus on his agenda for the year.

The president will propose saving Social Security by creating new 401(k)-style retirement accounts for most American workers and infusing the system with cash, some of which will be invested in the stock market. Clinton will also suggest using some of the budget surplus to fund the ailing Medicare system as well as military and domestic programs.

Senate Majority Leader Trent Lott (R-Mississippi) said Tuesday that he and House Speaker Dennis Hastert (R-Illinois) have agreed to earmark the first House and Senate bills of the year (H.R. 1 and S.1) for Clinton's proposal to save Social Security.

But Lott also warned that at first glance the president's plan "does not provide the long-term solution that we were looking for." In a preview of the GOP response, Lott also announced the Republicans' plan for a 10 percent across-the-board cut in income tax rates.

The official GOP response to Clinton's State of the Union message will be delivered by Reps. Jennifer Dunn of Washington and Steve Largent of Oklahoma.

But while the president and congressional leadership would like to focus on policy, two House members are openly disregarding their speaker's instructions and urging fellow Republicans to boycott Clinton's speech.

Clinton's proposals would commit more than $4 trillion in budget surpluses expected by the federal government over the next 15 years.

The surpluses are the result of spending curbs lawmakers set in the 1997 balanced-budget act and tax revenue flowing in because of the healthy U.S. economy.

Clinton's proposal includes no income tax cuts and is certain to set up conflicts with many Republicans who want the budget surplus used, at least in part, to reduce taxes.

"The president is saying through his plan that by saving instead of squandering the surpluses brought on by our discipline and prosperity, we can address much of our long-term retirement challenge in a way that lifts that burden off our children and grandchildren," said White House economic adviser Gene Sperling.

• The president will suggest using about 62 percent of the extra money -- or $2.8 trillion -- to directly bolster Social Security's cash reserves. Of that, Clinton will propose about one-fourth should be invested, in bulk by an independent government board, in the stock market in hopes of increasing its value.

• Another 11 percent, or $500 billion, would go to new government-subsidized retirement savings accounts.

• Another 15 percent would go to strengthen Medicare, the nation's health insurance program for the elderly and disabled. Like Social Security, Medicare is expected to be financially stressed by the huge, aging baby-boom generation.

• The rest of the surplus -- about 11 percent -- Clinton wants for other spending, including money for military readiness and domestic programs.

The White House estimates the spending would keep Social Security solvent through 2054 and Medicare through 2020.

Clinton also will suggest that other changes in the Social Security system may be needed, but he would leave those choices, which could include painful choices such as raising the retirement age, to be decided through negotiations with Congress.

The president will also ask Congress to help him devise a way that bulk investment decisions could be made by a board insulated from politics and limited to options such as stock index funds.

The rest of the Social Security cash infusion would be kept in safer, but historically lower-yielding U.S. Treasury bonds, as has traditionally been the case.

As a result, Clinton Administration officials predict, Social Security would be prevented from running short of cash until about 2054, more than 20 years longer than now expected.

Many Republicans strongly oppose government-controlled investment of Social Security money, citing the risk of political interference in private companies.

They would prefer to see some Social Security taxes diverted into personal accounts that individuals would control. But Clinton has sided with Democrats who counter that would expose people to too much financial risk.

Once Social Security is shored up, Clinton will ask that 11 percent of the surplus go to subsidize new Individual Retirement Accounts -- dubbed Universal Saving Accounts -- to supplement Social Security benefits.

The accounts would work something like the 401(k) savings plans many companies offer, allowing workers to choose among several investment options such as stocks and bond funds.

The government would make an annual lump-sum contribution to individual accounts, then match workers' own contributions up to a limit.

The president favors a sliding scale for the matching dollars to give more help to those with lower incomes, and might disqualify the wealthiest -- perhaps the top 5 percent -- from the money altogether.

As a hypothetical example, Sperling said a worker earning $45,000 a year might get an initial government payment of $100, then a 50 percent government match of his or her own contributions up to a maximum of $600.

The result would be $1,000 in the worker's account at year's end, with $400 of that from the government.

The portion of the surplus going to Medicare -- about $650 billion to $700 billion -- would push back the date that program is expected to run short of money from 2008 to about 2020, administration officials estimate. Clinton will suggest that with additional structural reforms to Social Security and Medicare, the money could go even further.

The president will ask lawmakers to strive to keep both programs fully funded until 2075, to add a Medicare prescription drug benefit and provide additional help to single elderly women, now the poorest retirees.

Congressional Republicans have placed Social Security atop their own agenda for the new Congress.

The White House proposal answers Republican congressional leaders' demands for Clinton to specify how he wants to see surpluses spent.

Lott said Tuesday he and Hastert sent Clinton a letter Saturday asking him to present his ideas for saving Social Security. In addition to saving the first bills of the year for the president's plan, Lott and Hastert have scheduled a joint hearing of the Senate Finance Committee and the House Ways and Means Committee to consider the Social Security plan on March 1.

Clinton has been trying to come up with a plan that could appeal to both parties, Sperling said.

But Lott also indicated the GOP will focus on tax cuts this session.

"Clearly, we need to give the people an opportunity to keep more of their money which is now creating the surplus, for them to decide how to make use of their own money," Lott said. "Now ... the way to do that is to do it with an across-the-board, tax-rate cut. I would like to see it be 10 percent across the board."

Meanwhile, Rep. John Shadegg (R-Arizona) and Rep. Bob Schaffer (R-Colorado) are calling on Republicans to not attend the president's speech Tuesday.

In a "Dear Republican Colleague" letter, the congressmen write, "While some argue that attending the address is a matter of respect for the OFFICE of the presidency, it is difficult to accept in the current context.

"By proceeding with his speech, the President is demonstrating his lack of respect for the Congress and its legitimate role," the pair complain. "He also clearly intends to gain political advantage and demean the significance of the impeachment proceeding now going forward in the Senate."

Saying they "will not play a role in facilitating his disrespect," Shadegg and Schaffer call on Clinton to either postpone his speech or deliver it from the Oval Office, not the House chamber.

"If he refuses to do so, we will not be present in the chamber for the address," they wrote.

The letter comes on the heels of letter from the newly-elected Speaker Hastert, calling on his colleagues to attend the speech.

Tuesday January 19, 1999

• Clinton ignores impeachment, calls for Social Security reform
• In State of Union response, GOP promises to stick to 'practical matters'
• Social Security tops Clinton State of Union address
• Clinton: 'State of our union is strong'
• Transcript: Clinton's State of the Union speech
• Transcript: Republican response to the State of the Union address
• Poll: Most State of the Union viewers liked the speech
• White House lawyer derides impeachment case as weak
• White House drops plans to use House Democrats in defense
• Senate Dems: Defense presentation was 'powerful'
• Transcript: White House Counsel Ruff's opening statement
• Gov. Bush begins second term in Texas
• Supreme Court decisions on death, long-distance and Ticketmaster
• Congressional clash looms on taxes, Social Security
• Ventura's appointment to wildlife post withdraws under pressure
• Clinton legal team contrasts with House prosecutors
• With crime down and economy up, America's mood is cheery
• Jones' team says old lawyers abandoned her, should get nothing
• Dunn, Largent to give GOP response to Clinton speech
• Witness in Willey case pleads innocent to making up story
• Sosa, activists to attend State of Union
• Mortgage company head says Clinton announcement a surprise

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