Democrats Must Agree On Budget Compromise

PRESIDENT Clinton has won two hard-fought battles in Congress, gaining passage of two versions of his deficit-reduction plan by the thinnest of margins in both houses.

Now the hard part begins.

More precisely, it begins in two weeks, when both houses return from the July 4 recess. Members of the House of Representatives and the Senate will sit down in conference to meld their two plans into one bill, which each house must then pass again.

The bills contain substantial differences: a wide-ranging energy tax in the House vs. a gasoline tax in the Senate; business investment incentives approved by the House that were reduced or dropped by the Senate; greater cuts in Medicare by the Senate than by the House.

Not one Republican voted for the president's package in either house, and thus the focus of negotiation at the conference will be within the Democratic Party. Crafting a package that can pass muster with the extremes of the party - from the liberal, newly emboldened Congressional Black Caucus in the House to the balky conservative wing of the Senate led by David Boren of Oklahoma - will take all the political skill the president can summon.

"The negotiations will be difficult," President Clinton acknowledged on radio Saturday.

"It could, on a couple of occasions, look like it's falling apart," says Robert Greenstein, executive director of the Center on Budget and Policy Priorities. With such narrow margins of victory in each house - six votes in the House and only one in the Senate - Clinton "can't lose people," Mr. Greenstein points out. Squeaker vote

On Friday, hours after the Senate's 3 a.m. vote, which carried only because Vice-President Al Gore Jr. came in to break a 49 to 49 tie, Senator Boren was already laying down conference markers. In a press conference, Boren laid down his terms for approval of the bill: a lower ratio of spending cuts to tax increases, more entitlement cuts, and no Btu tax, the levy approved by the House based on the heat content of energy.

The Senate should not have much trouble getting the House to give up the Btu tax, since the House approved it only reluctantly. The question will be how to make up for the lost tax revenue. The Btu tax would have raised $72 billion over five years, compared with the Senate's 4.3-cent-a-gallon gasoline tax, which would raise only $22 billion.

Options include a higher gasoline tax and the addition of a value-added tax on electricity, says a senior House leadership aide. But in past years, Congress has balked at boosting the federal gasoline tax, saying it unfairly burdens states with residents who drive long distances to work.

House Speaker Thomas Foley, for one, is a big supporter of a higher gasoline tax and can be expected to wield his clout to push for it.

For the president, the bottom line is that the package must reduce the budget deficit by at least $500 billion over the next five years. The House bill reduced the deficit by $517 billion, but the Senate came in at only $499 billion. The conference package must contain spending cuts at least as large as tax increases. At least three-fourths of the tax increases must come from the top 6 percent of income-earners. And it must, he says, provide "real incentives to create new jobs and to encourage the workin g poor, to move people from welfare to work." Key to compromise

The key to arriving at a conference compromise will be to formulate not just the right ratio but the right mix of spending cuts and tax increases. Senate liberals achieved a last-minute concession Thursday of a lower cut in Medicare. To make up for some of the lost revenue in the elimination of the lucrative Btu tax, the Senate was set to pass a Medicare cut of $69 billion over five years, compared with the House's cut of $50 billion. The Senate settled for a $60 billion cut.

But in the House, the Congressional Black Caucus will be tough to appease. When Clinton dropped the nomination of Lani Guinier, a black civil-rights lawyer, for a key Justice Department position, the black caucus promised to retaliate. And with 38 Democratic House members, the caucus can sink the administration's deficit-reduction plans.

Several elements of the Senate bill are not to the black caucus's liking, including a smaller boost in the earned-income tax credit for the working poor, a smaller increase in the food-stamps program, and elimination of "empowerment zones" to boost business investment in poor, mostly urban areas.

The Clinton administration has said it will rejoin the negotiating process when the conference begins. It played a central role in achieving the narrow victory in the House, but laid back on the Senate wrangling.

In the end, the administration expects another cliffhanger in August. "The margin will be extremely narrow in both bodies when the conference report is voted on," Vice-President Gore said Friday. But, administration and Capitol Hill leaders say, some sort of package will pass.