Senate Gives Clinton Budget Plan a Lift

PRESIDENT Clinton's budget marathon still has many miles to run.

Despite a deal struck in the Senate Finance Committee, the president's heavily revised budget faces major tests. Analysts predict a long, contentious summer on Capitol Hill when the liberal House and the more conservative Senate try to hammer out crucial differences.

In the Senate, members will balk at any House effort to restore the controversial, $71.5-billion Btu tax on energy. Senators call the Btu tax a job-killer, and scaled it back sharply to a 4.3-cent-per-gallon tax on transportation fuels.

In the House, liberal Democrats are expected to oppose a Senate Finance Committee recommendation that another $19 billion be cut in Medicare spending on top of $49 billion in previous reductions. Nor will the House like the senators' decision to reduce outlays for the earned-income tax for the working poor from $29.3 billion to $20 billion.

The Senate committee's budget deal momentarily overshadowed all these looming problems. Wall Street stocks rallied at the news. The dollar gained strength overseas against the German mark. The value of 30-year Treasury bonds rose. Treasury Secretary Lloyd Bentsen said: "I am pleased [the Democrats] agreed on legislation that meets - and even exceeds - the president's request."

At the embattled White House, the Senate deal provided a welcome respite. Clinton got other good news as well. The Senate broke a lengthy filibuster that was blocking White House-supported, campaign-finance reform. The same day, House and Senate committees approved, without significant changes, Clinton's national service program to help students pay for college.

On the budget deal, White House press secretary Dee Dee Myers said: "As long as the process moves forward and maintains $500 billion in deficit reduction [and] it's fair [and] there is a broad-based energy tax," the president will be pleased.

Yet the broad-based energy tax that Clinton wanted was clearly missing from the Senate package. Under pressure from Westerners (who drive long distances), manufacturers (who claimed the tax would hurt exports), and the energy industry, the Senate version includes only the tax on gasoline, diesel oil, jet fuel, and other transportation fuels, plus a tax on pipelines. Total take: less than $24 billion.

There were other significant changes emerging in the Senate, and Clinton may find some of them hard to accept.

The Senate Finance Committee would delay until July 1 the increase in taxes on upper-income individuals and big businesses. Clinton and the House wanted the new taxes retroactive to Jan. 1, 1993.

The president wants a 10 percent surtax on individuals earning over $250,000. The Senate committee, trying to make up for lost energy taxes, expanded the surtax on wealthy individuals to include capital gains, which would now be taxed at 30.8 percent, up from 28 percent.

Senators eased Clinton's proposed taxes on some Social Security recipients. Under their plan, taxes would be boosted only on Social Security retirees with total incomes, including half their Social Security income, over $32,000 ($40,000 for couples). In the House version, it is $25,000 for individuals, $32,000 for couples.

Sen. Daniel Patrick Moynihan (D) of New York, chairman of the Senate Finance Committee, needed a unanimous Democratic vote to strike a deal, since his party holds only an 11-to-9 majority. Every Republican on the committee opposes the Clinton budget.

Senator Moynihan, perhaps sensing opposition in the House, praised his committee's compromise as "the most progressive change in our tax system to take place since the 1940s."

Although Clinton lost his Btu tax in the Senate committee, some analysts suggest he is still on course toward a lower budget deficit. A few losses here and there are to be expected, they say.

Roger Porter, who was an adviser in the Bush White House, says the Senate committee's deal helps Clinton "live to fight another day." Clinton also got it without making too many promises. As Mr. Porter notes:

"This will give him a much freer hand in conference because he's not tied to particulars in the Senate the way he was in the House."

Meanwhile, Clinton finally appears to be getting help from the economy in his war against the deficit.

US companies added 209,000 jobs in April, and another 216,000 in May - the first such consecutive monthly gains in over three years. Every new wage-earner adds to the tax rolls, and cuts the government deficit. Further, a McGraw-Hill survey of 20 economists predicts 3 percent annual growth through 1994. If true, that will add jobs at a steady clip, and enrich the Treasury.