$9-Billion Tax Plan OKd; House Votes Spending Bill

The House and Senate late Monday approved a measure raising $9 billion in new taxes this fiscal year--the first of two installments in a $33-billion deficit-reduction plan agreed to last month by President Reagan and congressional leaders.

Meanwhile, the House narrowly approved the second part of that package, which is contained in a $600-billion spending bill. Negotiators cleared away the last obstacle when they agreed not to insist that the bill include a provision requiring broadcasters to offer air time to opposing viewpoints.

However, the spending bill was almost defeated by liberal House Democrats, who objected to provisions in the measure providing interim aid for the Nicaraguan Contras. The measure was passed on a 209-208 vote with the help of Republicans who favored such aid.

The President is expected to sign both measures, but some predicted that Congress would not complete final work on the legislation until today. The two bills are the only business that Congress must complete before it adjourns for its Christmas recess.

The tax legislation passed the House in a 237-181 vote. Support was largely Democratic; Republicans voted against the bill by an almost 3-to-1 margin. In the Senate, the tax bill was passed on a 61-28 vote.

In addition to raising taxes by $38 billion over three years, the measure also includes additional deficit reduction to be accomplished through sale of such government assets as loan portfolios; reductions in spending on federal benefits programs, such as Medicare and Medicaid, and new user fees for government services.

The brunt of the new taxes would fall on corporations and high-income individuals. The primary effect to be felt by most Americans would be an extension of the 3% telephone tax that had been scheduled to expire next year.

The savings in Medicare and Medicaid would come primarily from reducing government payments to hospitals, doctors and others providing health care to program recipients.

However, the elderly would also be forced to pay for part of the savings. The “supplementary premium” they now pay for certain types of outpatient care, which was scheduled to lapse in fiscal 1989, would be extended by the legislation.

Farm, Postal Cuts

Additional cuts are slated for agricultural programs and the U.S. Postal Service, which will be required to delay some construction projects.

A particularly controversial provision in the tax bill was a proposal by Rep. Henry A. Waxman (D-Los Angeles) to impose an excise tax on certain vaccinations. The funds would compensate victims who were injured by vaccinations received when they were children. The White House had opposed this proposal.

Another dispute in the tax measure centered on a provision, primarily sponsored by Rep. Charles B. Rangel (D-N.Y.), denying foreign tax credits to U.S. companies on income earned in South Africa. Sens. Jesse Helms (R-N.C.) and Richard G. Lugar (R-Ind.) have blasted the proposal, calling it an attempt to legislate “at the midnight hour and through the backdoor.”

White House and congressional negotiators went to work on the deficit-reduction plan in the wake of Oct. 19’s stock market crash, which was blamed in part on a deficit that was projected to reach $180 billion this year if budget and tax policies went unchanged.

Preferable to Gramm-Rudman

Although few in Congress were enthusiastic about the plan, they considered it preferable to their other option: allowing the Gramm-Rudman budget-balancing law’s spending cuts to become permanent.

Half of the Gramm-Rudman law’s $23 billion in spending cuts would have come from the defense budget--a prospect severe enough to force even President Reagan to drop his adamant opposition to higher taxes. By comparison, the deficit-reduction plan reduces projected military spending by only $5 billion.

But Reagan’s support was not enough to blunt criticism by other members of his party.

Rep. Hal Daub (R-Neb.) said: “This bill is outrageous. There are no savings in here. . . . It’s smoke-and-mirror money. My office has been inundated with complaints about tax increases. That’s not what people want.”

Rep. Delbert L. Latta of Ohio, the ranking Republican on the House Budget Committee, added: “Let’s not kid ourselves. You’ve got $9 billion in hard taxes in this bill. And what are you going to do with the money? You’re going to spend it. That’s not the way to run this government.”

See Unrealistic Claims

Opponents have contended that the plan will never live up to its claims of cutting the projected deficit by roughly $80 billion over two years. They say it is loaded with one-shot savings, rather than long-range changes in taxation and spending patterns.

For example, about one-sixth of its savings--$5.4 billion--come from allowing foreign purchasers of military goods to pay back their loans and refinance them privately at lower interest rates. While this will yield a windfall this year, it is projected to actually worsen the deficit in the long run by up to $2.8 billion.

Even if the plan does reduce the deficit as much as it claims, it will mark little if any improvement over the $148-billion shortfall recorded for fiscal 1987, which ended Sept. 30.

Supporters, while they conceded that the plan is flawed, argued that it was the best compromise that could be struck between the diverse priorities of a Democratic Congress and a Republican President.

House Budget Committee Chairman William H. Gray III (D-Pa.) said: “I can’t say this bill goes as far in deficit reduction as many of us would have liked. But we made difficult choices (during the negotiations), and now it’s time to carry them out.”

Others noted that shaky financial markets were looking for a signal that Washington could bring the flow of government red ink under control.

House Majority Leader Thomas S. Foley (D-Wash.) said: “We have to show with this vote tonight that we can govern. If the bill is defeated, we send a message that we cannot. Whatever else divides us, this will be a message that we are ready to stand up to our responsibilities.”

Projected Savings Hiked

After meeting through the weekend, weary and frustrated lawmakers spent yet another day haggling over the two bills. On Sunday night, they had settled what many believed to be the most contentious issue, providing aid to the Nicaraguan rebels. Also, they had increased the plan’s projected savings this year to $33 billion, from $30 billion.

But the final showdown came over the House’s insistence that the spending bill include a provision writing into law a requirement that broadcasters follow the so-called Fairness Doctrine of providing air time to opposing viewpoints.

The doctrine was followed by federal regulators for almost four decades before its repeal earlier this year. Reagan, who vetoed an earlier congressional effort to write the doctrine in the law, threatened again to kill the entire spending bill if Congress tried a second time to force him to accept it.

Opponents contend that the doctrine is an unconstitutional rein on free expression, while supporters say it is crucial to preventing broadcasting from being dominated by individual viewpoints.

Congressional leaders have conceded that they cannot muster the two-thirds’ majority necessary to override a presidential veto of the Fairness Doctrine. Thus, slipping it into a larger piece of more urgent legislation gives the doctrine its only immediate chance of becoming law.

Controversial Issues Attached

Because the spending legislation was vital to keeping the government operating--and, therefore, was certain to pass in some form--lawmakers attached to it hundreds of their favorite causes. Many had been too controversial to survive the legislative mill on their own. Among those wide-ranging additions:

--An eight-month reprieve for cities, including Los Angeles, that would have faced penalties on Jan. 1 for failing to meet the Clean Air Act’s standards for reducing ozone and carbon monoxide levels.

--Permission for up to 20 states to raise speed limits on certain of their major highways to 65 miles per hour. The first 20 states that apply will be allowed to test the effects of the higher speed limits for four years. Speed limits were raised on similar-size interstate highways earlier this year.

--A two-year smoking ban on airline flights of less than two hours, which amounts to 85% of all flights. Violators face fines of $1,000 or more.

--About $900 million--more than double the amount spent last year--to be spent on AIDS research, counseling, testing and other activities related to the deadly disease.

--A 2% pay raise for most civilian and military government employees. Excluded from the increase are congressmen, judges and senior executive branch officials.

--A prohibition, aimed at Japan, preventing other nations from participating in U.S. public works projects unless they allow U.S. firms to bid on such jobs in their countries.

--A waiver until April, 1990, of the current ban on aid to Pakistan. The previous waiver expired Sept. 30. It will allow that country to receive $480 million in military and economic assistance, despite reports that it has diverted nuclear materials from research to weapons, and is seen, in large part, as a means of rewarding Pakistan for its support of Afghan rebels.

Sale of Stinger Missiles

--Permission for the Administration to sell up to 70 shoulder-fired Stinger anti-aircraft missiles to Bahrain, and allow the sheikdom to keep the missiles for up to 18 months. The provision contains safeguards aimed at preventing the state-of-the-art weapons from falling into terrorist hands in that troubled region.

--A new lease on life for the controversial Midgetman missile, after the Senate Appropriations Committee had voted to discontinue its funding. The legislation would spend $700 million on the single-warhead, mobile missile, which is less than half the amount the House approved. It also includes compromises reached by the House and Senate on spending for rail-mobile MX missile basing, anti-satellite weapons and Reagan’s space-based Strategic Defense Initiative, also known as “Star Wars.”