CLINTON TO UNVEIL PLANS FOR SURPLUS.

Byline: Richard W. Stevenson with Adam Clymer The New York Times

Setting up a new round of intense budget negotiations with Republicans in Congress, President Clinton is completing work on a proposal encompassing ideas for shoring up Social Security and using unexpectedly large federal budget surpluses, administration officials said Sunday.

The White House declined to provide details of the proposal, which Clinton is likely to unveil today, a day before he sets out a separate strategy for overhauling Medicare, the health insurance system for the elderly.

But officials said the new plan would include a component intended to extend Social Security's solvency, though not to the full 75 years that has long been the benchmark for the system's financial health. Without any changes, Social Security will run short of money to pay full retirement benefits starting in 2034, following the retirement of the 76 million strong baby boom generation.

The plan's release could signal a new willingness on the part of the White House to consider a broader bipartisan deal on taxes and spending even if Social Security's problems are not fully dealt with. Until now, Clinton has stuck adamantly to a demand he first made a year and a half ago, that the surplus be off limits until the retirement system's future has been assured.

But efforts to bring Republicans and Democrats together on a full fix for Social Security are all but dead in Congress. And with the White House and Congress about to release separate new projections showing that budget surpluses will be even bigger than expected in coming years, both parties have been seeking ways to put the additional money to their priorities without allowing the other to paint them as fiscally irresponsible.

Clinton's proposal is expected to specify how he would like to use the bigger surplus, which is being generated largely by the strong economy. The new White House budget projections are likely to show that the federal government could run an operating surplus next year, a year earlier than expected, meaning that it would spend less than it takes in even without including excess Social Security payroll taxes, which have erased the deficit in the last several years.

Tax cut pressure

The growth in the surplus, and especially any early shift to a surplus not dependent on Social Security, would bring renewed calls from Republicans for tax cuts. It would also bring pressure from members of both parties to ease tight spending restrictions put in place over the last decade, when budget politics was built on deficit reduction rather than competing visions of how to use the surplus.

In putting forward a new budget proposal, Clinton is effectively putting down a marker for what is expected to be several months of intense partisan maneuvering over tax-and-spending policy.

Clinton's new plan includes a revised version of a proposal that the two parties have been jockeying over in Congress for the past several months: a ``lock box'' to ensure that the excess Social Security revenues are not spent, but used only to reduce the national debt or ensure the retirement system's long-term viability.

In his original budget proposal in January, Clinton proposed reserving 62 percent of the budget surplus over 15 years for Social Security, but in a way that would allow him to spend a portion of the Social Security surplus in the next few years. Both parties have rejected that approach, and although they differ on details, have basically endorsed setting aside every dollar of each year's Social Security surplus.

White House strategy

White House officials said their new plan would respond to the congressional criticism and would also include a provision that would link reducing the national debt to improving Social Security's long-term financial condition. The administration's original attempt to do that in its January budget was built around a complex proposal under which the benefits of reducing the national debt would have been funneled to Social Security in the form of new government bonds, an approach that Republicans rejected.

Administration officials said the new plan would attempt to reach the same end by different means.

``We are very hopeful that the new presidential proposal - that new Social Security lock box - will be a way of bringing together both Democrats and Republicans,'' Gene Sperling, the director of the White House's National Economic Council, told CNN's ``Late Edition'' Sunday.

In part because of Clinton's ``Social Security first'' strategy, the degree to which the two parties can agree on tax and spending priorities seems largely to depend on whether they can make enough progress on shoring up the retirement system to give them political cover for using the surplus for other purposes.

With their efforts to pass spending bills in danger because of the tight spending caps - and with Clinton likely to veto the $775 billion, 10-year tax cut they have in mind - Republican leaders have increasingly been banking on a budget windfall to help avoid gridlock. Speaker Dennis Hastert said last week that he expected to use promptly any non-Social Security surpluses that become available.

But there are several different sets of ideas of what to do with any windfall. Congressional Republicans will say it underlines the good sense of tax cuts. Clinton indicated Friday he would use the money as a way to help deal with both Medicare and Social Security.

But House Democrats openly - and many Republicans quietly - see new good news on the budget as the only way out of a spending box they built for themselves in 1997. Then, they set tight caps on the amount of money Congress could spend on the military and on domestic programs other than Social Security, Medicare, welfare and other so-called entitlement programs.