Clinton's Tax and Budget Gambit

GOP will counter president with deeper tax cuts; both parties court middle-class voters

PRESIDENT Clinton's budget for fiscal 1996 is in, and gone are his dreams of expansive retraining programs to keep American workers sharp in a hyper-changing economy.

Gone are his plans to revamp the nation's health-care insurance system from its roots.

And fading is his promise to cut the deficit in half during his term in office.

The telephone book-sized document he submitted to Congress yesterday is a defensive budget, the opening gambit by a president who never had strong leverage on Capitol Hill and is playing a game on Republican terms now.

Mr. Clinton has traded strong deficit cuts - the themes of his first two budgets - for tax cuts aimed at middle-class parents and preserving some vestige of his programs for workers.

Republicans plan to counter him with deeper and broader tax cuts.

His proposals for spending cuts cover the lost revenue of the tax cuts and whittle back the future growth of the federal government enough to hold the deficit roughly steady in dollar terms. Republicans plan to counter him with much deeper spending cuts that lower the deficit.

``He knows that anything he produces will be trumped immediately'' by Republican budget cutters, says Ted Van Dyk, a Democratic strategist here.

Both sides in this game have set themselves difficult rules to win by. Both sides want to cut taxes, increase defense spending, and hold down the deficit, yet leave the largest and fastest growing programs untouched - Social Security and Medicare.

Those entitlements plus the interest on the national debt put more than half the budget off limits to negotiation. Throw in national defense, which consumes 18 percent of Clinton's budget, and nearly two- thirds of the budget is untouchable for cuts.

Clinton's budget holds the federal deficit at roughly $200 billion a year through the rest of the century. That falls short of his 1992 pledge to halve the $290 billion deficit within four years.

Though deficits will gradually shrink as a percentage of the total economy, that is not enough, of course, for Republicans seeking a constitutional amendment to balance the budget by 2002. But in this budget battle, the GOP will be forced to trump Clinton with actual program cuts.

This will get them in trouble, warns populist political commentator Kevin Phillips, a Republican. ``Republicans are making cuts that affect everyone's grandmother - like shutting down subways and grounding planes just to get to 0.4 percent of GDP,'' he says.

Mr. Phillips finds Clinton's form of fiscal responsibility more practical and humane than the GOP's efforts to slash federal spending enough to practically wipe out the federal budget's debit column.

The Clinton administration's $1.6 trillion budget proposes to pare down three Cabinet departments and two federal agencies by $23 billion, save another $2 billion with the elimination of 131 programs, and generate an added $29 billion by selling off federal facilities, for example. The budget also reflects $9 billion in revenues from fees and regulations as well as a $5-billion reduction in interest payments on the federal debt.

More money

Clinton would raise Defense Department spending by $25 billion over six years.

The White House wants to spend $22.4 billion more on the Department of Health and Human Services' Public Health Service to beef up its research.

It also slates added funds for Head Start and for vaccines. The nation's two health-benefit programs, Medicare and Medicaid, continue to be the fastest-growing portions of the overall federal budget.

The president plans to increase resources for job training and employment assistance with more federal outlays and by re-positioning Labor Department funds.

The money would go toward vouchers for workers seeking training and helping those adversely impacted by trade agreements such as the North American Free Trade Agreement.

Contrary to GOP plans to gut the Environmental Protection Agency, Clinton calls for a modest increase in EPA's funding, some of which will go toward examining the merits of regulatory decisions.

Less money

Long-anticipated cutbacks in the Energy Department are set for $10.6 billion over five years. The White House would dump the clean-coal program, allocate less for nuclear-weapons cleanup, and sell off the US Naval Petroleum Reserve as well as four regional power-marketing administrations.

The 7 percent decline in Department of Transportation costs is largely based on White House plans for much smaller outlays for roads, tunnels, and bridges as well as for Amtrak and mass-transit subsidies.

Clinton's billion-dollar reduction in the Department of Housing and Urban Development falls short of his earlier pronouncements about dramatically slashing HUD. The department expects to reduce its budget by $13 billion over five years by streamlining the agency and bringing in added rental revenue.

The Education Department will save money by directly overseeing the student-loan program instead of farming the work out to private banks.

GOP plans to balance the budget are unrealistic, says Phillips.

``This is a dream world they conjure up,'' he says. ``I don't hold a brief for Clinton but to attack him for thinking a budget deficit is tolerable when it's 1.5 to 2 percent of GDP is an unfair criticism. But it's as far stretched as you can get in budget zealotry in an age of aging populations and immigration, all straining the nation's financing.''