Rare Surplus Sets Up Debate Over Tax Cuts President Prefers Targeted Trims While Gop Favors Broader Relief

President Clinton has not ruled out an across-the-board tax cut, called for by some Republican leaders, but he continues to favor trims aimed at the middle class, a senior White House aide said Sunday.

With the federal budget showing a 12-month surplus for the first time in nearly three decades, Clinton prefers a targeted and limited approach to tax cuts - one that does not assume the budget is now under control or that any surplus should automatically be converted into tax cuts, presidential assistant Rahm Emanuel said on NBC’s “Meet the Press.”

Yet Clinton would not necessarily veto a general tax cut that reaches across all income levels, Emanuel said.

“If others have an approach, we’d love to see it,” he said. But, he added, “Are they talking about cuts in education? Are they talking about cuts in health care? Are they talking about cuts in senior programs?”

Although Republicans have not been talking about those steps, his comments indicate the Clinton administration is preparing for a robust and wide-ranging debate with Republicans in 1998 over federal spending decisions in a new era of balanced budgets.

When Clinton took office in 1993, the annual deficit was $300 billion and was projected to rise to $570 billion by 2002. A five-year White House budget deal with the Republican-led Congress last year called for gradual elimination of the deficit by 2002. But the vigorous U.S. economy has closed the gap far sooner than expected. Some analysts have predicted a surplus of as much as $40 billion in the current fiscal year, which runs through Sept. 30.

Clinton, who sends his budget proposals to Congress after his State of the Union address next month, does not intend to offer a broadbased tax cut, nor attempt to achieve a balanced budget earlier than planned, Emanuel said.

“Washington should not return to its bad habits of spending money it doesn’t have,” Emanuel said. “That’s what got us into trouble in the first place. … One should not be spending a surplus that doesn’t exist yet.”