Clinton, GOP Near Agreement on Plan to Balance Budget

WASHINGTON — President Clinton and Republican leaders were putting the finishing touches Thursday night on the outlines of a plan intended to balance the federal budget in 2002 while cutting taxes by $135 billion and imposing new curbs on Medicare and Social Security spending.

Although elements of the far-reaching plan were still being negotiated, announcement of the accord was expected today. As administration officials and GOP congressional leaders wrestled over the deal’s details, they also were beginning the process of trying to build support for it among their rank and file.

Despite criticism from conservative Republicans and liberal Democrats--including House Minority Leader Richard A. Gephardt (D-Mo.)--proponents of the emerging accord predicted that it will win broad support when formally unveiled.

“The far edges of the chamber may not like what is about to happen,” said Rep. W.J. “Billy” Tauzin (R-La.), “but the great center . . . is applauding the extraordinary progress that’s been made.”

Highlights of the tentative agreement:

* A phased-in, $500-per-child tax credit for families.

* Cuts in inheritance taxes and on capital gains.

* An estimated $32 billion for expanded health coverage for needy children and other Clinton domestic initiatives, including $10 billion to restore some benefits for disabled immigrants.

* Increased spending on schools and the environment.

* A projected $115-billion cut in Medicare spending, with $100 billion coming from reduced payments to doctors and hospitals and $15 billion coming from increased premiums or other costs for beneficiaries.

* New limits on federal spending for Medicaid, the health care program for the poor. Under a so-called “per-capita cap,” federal contributions to state Medicaid programs would be limited to a certain amount for each beneficiary.

Negotiators also agreed to a technical change in the government’s inflation index that could mean smaller increases in Social Security and other federal benefits. Overall, this move--which would change the way the Bureau of Labor Statistics computes the consumer price index and would likely spark opposition from organized labor and senior citizens’ groups--could cut federal spending by as much as $55 billion over five years.

White House officials were cautious Thursday night in describing the budget talks, since the negotiations were viewed with deep suspicion by many congressional Democrats who remain skeptical about the size of the tax cuts and spending limits affecting Medicare and other programs.

Administration negotiators also were concerned that the tax cuts could spark an explosion of the deficit after 2002. And they sought assurances that new tax breaks for higher education--some form of Clinton proposals that would provide a $1,500 tax credit and $10,000 tax deduction for college tuition--would become law.

One White House official said that the process was concluding “in a cloud of dust” as the two sides argued over the final two yards on a long and tortuous path to a budget deal.

But by late Thursday, White House aides acknowledged that the basic framework of a deal was at hand.

“It represents a framework that protects the priorities we have articulated,” said Senate Minority Leader Tom Daschle (D-S.D.) after being briefed by the White House. “At this point, a majority of [Senate Democrats] would support this agreement.”

But in the House, the plan can expect stiff opposition from some Democrats. Gephardt complained: “It’s unfortunate that this has not been a budget summit arrangement that has included House Democrats. It does not give me great optimism or confidence that you’ll get enough Democrats” to back the plan.

Expressing frustration that the plan ignores written concerns that liberal Democrats had sent to Clinton, Rep. Barney Frank (D-Mass.) said, “We addressed it to the Democratic president of the United States, and it came back ‘addressee unknown.’ ”

Even if the agreement is nailed down, it is just the first step in a long legislative process to enact a budget deal intended to eliminate the deficit by 2002.

Still, the accord would mark an extraordinary turning point in long-running and often bitter budget disputes between Clinton and the GOP. Ideological divisions over these issues led to two partial government shutdowns in the winter of 1995-96 and were a central issue of the 1996 elections.

The White House seemed prepared to unveil the accord even if it lacked the blessing of some Democratic leaders in Congress.

White House Press Secretary Mike McCurry said that, while the president would only agree to a budget that a majority of Democrats ultimately could support, political realities had to be recognized.

“We can’t govern in an environment in which the Democrats--who are the minority in Congress--can get everything they want,” McCurry told reporters. “That’s a practical reality. And I could well understand any frustration that [Democrats] have that they can’t get as good a deal as they might want.”

McCurry added: “No deal is going to be perfect.”

The budget has been the subject of negotiations among congressional and White House officials for months, and the talks intensified recently in an effort to sew up a deal before Clinton leaves for a trip to Mexico on Monday.

All along, the principal sticking points involved the GOP bid for broader, deeper tax cuts than the Democrats could support. And the White House pushed for additional spending for such domestic priorities as education, the environment and restoring welfare benefits for legal immigrants.

According to sources familiar with the deal, the estimated $135 billion in tax cuts agreed to by White House and congressional negotiators over five years would be partly offset by $50 billion in tax increases, including extension of an existing tax on airline tickets. But the savings necessary to balance the budget would come largely from projected savings in spending on such entitlement programs as Medicare and Medicaid, as well as the change in formulating the consumer price index.

The tax cut figure is less than the $200 billion sought by the GOP but more than the $98 billion Clinton had proposed in his initial budget.

Once a deal is struck, the next step would be for the House and Senate Budget committees to incorporate the agreement into Congress’ annual budget resolution, a measure that sets only general targets for spending and revenue. Then Congress must pass legislation to meet those targets. At every step of the way, the key question is whether there is enough support to back the deal.

Moderate Democrats and many Republicans immediately stepped forward to endorse the deal and predicted that there would be a broad majority behind it. “We’re going to have widespread, enthusiastic support for this agreement,” said Rep. Zach Wamp (R-Tenn.).

But the agreement came under fire from liberal Democrats and conservative Republicans.

Conservatives complained that the emerging agreement seemed to cut spending and taxes too little. “This budget will be great for Washington and bad for America,” said Sen. Phil Gramm (R-Texas).

On the other hand, Democrats fumed that the deal would give too many tax breaks to the wealthy and provide too little for their party’s domestic priorities. “This does not speak to what Democrats are all about in this country,” said House Minority Whip David E. Bonior (D-Mich.).

Times staff writers Edwin Chen and Sam Fulwood III contributed to this story.