CLINTON OPTIMISTIC OVER USES OF WINDFALL.

Byline: Jodi Enda and Robert A. Rankin Knight Ridder Newspapers

Armed with new predictions for a virtual budget bonanza, President Clinton laid out an optimistic plan Monday that he said could extend the life of Social Security, bolster Medicare with a new prescription drug plan and have enough money left over to eliminate the national debt by 2015.

This year alone, Clinton said, the budget surplus is projected to be $99 billion, a full 20 percent more than the administration anticipated just five months ago. Based significantly on the booming economy, the surplus was expected to grow to $142 billion next year and to a noteworthy $5.9 trillion in 15 years, he said.

While Clinton spoke in flowery language about using ``the fruits of our prosperity today to strengthen our prospects for tomorrow,'' his chief of staff, John Podesta, laid it on the line. The new forecasts, he said, are ``a big damn deal.''

But even as Clinton outlined his priorities for the windfall - starting with programs for senior citizens and children and including tax incentives for savings accounts - Republicans on Capitol Hill began lining up support for tax cuts, setting the stage for what could be a vicious budget battle this year.

Pointedly noting that he inherited a large debt from Presidents Bush and Reagan, Clinton said, ``We have now cut up Washington's credit card. Now we can pay off the debt. By 2015, this country can be entirely out of debt.''

``This is a remarkable milestone, but it is clearly within reach if we do not squander the surplus by choosing short-term gain over long-term national goals,'' he said, drawing a verbal line in the sand against deep tax cuts.

Clinton proposed setting aside a large chunk of the surplus - $794 billion over 15 years - to buttress Medicare and offer a prescription drug program for senior citizens. Today, the president will detail a plan to modernize the program and extend its life at least 25 years.

Clinton also proposed allocating $543 billion for Social Security, which he said would guarantee its solvency until 2053.

``Social Security taxes should be saved for Social Security. Period,'' Clinton said.

For the first time in four decades, Clinton said, new forecasts project a $5 billion surplus on the non-Social Security side of the budget for the fiscal year that begins Oct. 1. That projection provided Republicans with the opening they sought for tax cuts.

While there clearly is some sentiment for cooperation - both congressional Republicans and the administration want to shore up Social Security, for example - GOP leaders also seized on Clinton's comments to advance their tax-cut proposals.

``As the economy continues to grow, we have a responsibility to use the budget surplus to fix Social Security and Medicare's long-term health, and then return some of the surplus to the hard-working people who earned it,'' said House Majority Leader Dick Armey of Texas.

Republicans have proposed reducing the so-called marriage penalty, which taxes two-income couples at higher rates than unmarried taxpayers. They also want to phase out the estate tax and cut the capital gains tax rate. Those changes would cost about $775 billion over 10 years.

``Republicans see this surplus as an opportunity to indulge in shortsighted tax cuts that don't do enough to help working families,'' said House Democratic leader Richard Gephardt of Missouri.

The administration opposes across-the-board tax cuts. However, Clinton reiterated a plan he unveiled earlier this year to give a tax break to workers who save money through subsidized retirement plans, called USA Accounts.

And he proposed spending $156 billion over 15 years for a ``children and education trust fund'' that would finance Head Start, the government preschool program, and new teachers, particularly in low-income areas.

Administration officials defended their long-range economic projections as conservative, though they acknowledge a recession sometime is likely. By using conservative assumptions for the entire period, ``it all averages out,'' said Treasury Secretary Robert Rubin.

But analysts say basing policy decisions on distant economic projections can be dangerous.

``He is saying we're going to pay off the national debt, pay for a new prescription drug benefit, save Social Security, save Medicare, spend more on the military, spend more on education - this all adds up to too good to be true,'' said Bob Bixby, policy director of the Concord Coalition, a bipartisan group dedicated to fiscal discipline. ``We're going to spend more and pay off the national debt - how many people believe that, raise your hands. . . .

``The danger is we'll make permanent new spending commitments based on these surpluses,'' he said. ``If the way of paying for these new entitlements is the projected surplus, and the surplus doesn't come to pass, then you've built in new deficits down the road.''