Congress Chips Apart Clinton's Fiscal Plan, One Item at a Time

Under criticism from interest groups and Ross Perot, White House backs off business, energy, alcohol taxes

NOW the hard part begins.

President Clinton's $1.5 trillion budget, criticized on several fronts, has begun a summer-long journey up the steep path to approval on Capitol Hill.

The Senate and House are devoting several months to Mr. Clinton's proposals, looking for weak spots. The president's plan includes hefty new taxes on energy and income, lower federal retirement benefits, cuts in Medicare payments to doctors, and other prickly issues.

Many congressmen, especially Democrats, are increasingly uneasy about what's on the table. Most of them must answer to tax-weary voters in less than 18 months. Yet the political payoff in Clinton's plan to reduce the federal deficit comes too late to help them on election day.

Ross Perot, like an angry bee, also hovers over Washington's budget deliberations. He grows more critical of Clinton every day. Congressmen cannot ignore him. A new survey, sponsored by U.S. News & World Report, finds the Texas billionaire running neck-and-neck with Clinton, 35 percent each, in a hypothetical race for the White House.

All this makes Wall Street jittery. Major traders reportedly are shedding long-term Treasury bonds. They worry that Clinton's plan will be picked apart by Congress, and that deficit reduction won't happen. If they are right, interest rates could rise, bond values could fall, and the weak recovery could be stifled.

Midweek passed with the president talking tough to voters, while sending signals about compromise to Capitol Hill. Clinton's speedy reversal on some of his proposals worries supporters.

Criticized by utility companies on his energy tax, Clinton softened. He agreed that firms could list the additional fuels tax as a separate item on customers' bills. The tax would rise in three stages - in the summers of 1994, 1995, 1996.

Under fire for suggesting that health-care costs could be paid, in part, with new alcohol taxes, the White House again weakened. Beer would be exempt.

Faced with defeat of its $30 billion investment tax credit to stimulate business, the White House gave up. Instead, Clinton edged toward a smaller increase in the corporate tax rate. He first wanted a 2 percent rise, to 36 percent. Now the final rate could be 35.25 percent, or less.

Republicans and some Democrats predict more changes coming, with some of the biggest originating in the Senate. Democrats hold only an 11-to-9 edge in the all-important Senate Finance Committee.

FOR the next few weeks, however, the focus will be on the House, beginning with the Ways and Means Committee, headed by Rep. Dan Rostenkowski (D) of Illinois. Ways and Means will decide on $299.8 billion of Clinton's deficit-reduction measures. Among those will be an increase in the amount of Social Security subject to taxation, higher energy levies, and higher corporate and individual income taxes.

Ways and Means has a Friday deadline. Then leaders hope the entire budget can be approved in the full House before July 4. Senate action may come by Labor Day. The new fiscal year begins Oct. 1.

Rep. Timothy Penny (D) of Minnesota, an ardent deficit fighter, says the mood of Congress has shifted toward spending cuts, and away from tax increases. That's why the president's budget could encounter problems. "If anything, the Clinton budget, with its high-profile taxes, increased the public's desire to see cuts," Representative Penny says.

Republicans and cost-conscious Democrats may combine their efforts to force additional budget cuts, Penny says. One possible option is a cap on entitlement spending. Such a cap may be essential if spending for entitlements like Medicare or Social Security begins exceeding their budgeted levels in two, three, or four years.

Rep. Lamar Smith (R) of Texas, a member of the House Budget Committee, says Clinton's problem on the Hill is that "while he is personally popular, his programs are not selling well across the country. [This is] the largest tax increase in history, and two-thirds of it is going to new spending programs, not to reduce the deficit."

Like Penny, Representative Smith says: "The popular sentiment is to reduce the deficit more than for government to spend more.... At three town meetings [attended by 500 people] in San Antonio, all I heard was about the need to reduce the deficit and balance the budget."

Voters told the congressman: "We are taxed enough. The government already spends enough," he reports.