Perot Had Harsh Fiscal Plan Waiting in Wings : Economy: Formula aimed to balance budget in 5 years with higher taxes and cuts in defense and domestic programs.

Ross Perot’s abrupt decision to abandon his presidential bid came as his campaign was on the verge of announcing a harsh economic recovery plan that would have imposed widespread financial pain affecting everyone from the well-to-do Social Security pensioner to the government bureaucrat, the defense contractor to the rich yachtsman, his senior advisers said Friday.

Designed to be the keystone in his campaign strategy, the plan called for balancing the budget in five years by raising taxes on alcohol, cigarettes and gasoline; imposing steeper defense cuts, eliminating special tax favors, cutting domestic programs across the board by 10% and then slicing another 5% out of administrative costs through selective cutting. To spur investment and create jobs, it proposed new tax breaks and incentives for start-up businesses.

“It was sort of a shared sacrifice and shared reward thing,” said one adviser, adding that it would have taken at least 12 years to implement the entire proposal.

Although Perot took himself out of the race on Thursday, his prescription for a national economic recovery still may become something of an agenda-setter in the election campaign.

Perot is expected to release the detailed economic plan--now nearing completion--in the near future in the hope that it will influence the campaign debate as Democrat Bill Clinton and Republican George Bush battle for the office he once coveted.

The plan borrows many of the elements and themes advanced by former Massachusetts Sen. Paul E. Tsongas, an unsuccessful contender for the Democratic nomination whose message of sacrifice--such as opposing a middle-class tax cut and proposing a 5-cent-per-gallon gas tax hike--did not go over well during the primary elections. But Democrats who vote in primaries tend to be more liberal than the rest of their party, and than the electorate at large, and Tsongas’ proposals were castigated as pro-business.

Tsongas met for three hours two weeks ago with Perot confidant Morton H. Meyerson and other issues advisers to discuss federal budget matters, the Texas billionaire’s advisers said Friday. Earlier, Perot himself met with the former senator.

In recent weeks Perot has gone out of his way to praise Tsongas’ plan. But a Perot adviser said Friday that Tsongas’ plan “doesn’t cut as deeply as Perot’s.”

He conceded that Perot and his advisers realized that the plan’s call for broad sacrifice would be political “dynamite,” and said it may well have been a crucial factor that led Perot to conclude he no longer could capture the Oval Office.

The adviser, who participated in the plan’s drafting, characterized Perot’s proposal as putting “common sense back into government,” and said that Perot had been prepared to debate the tough medicine “line by line.”

Advisers said they had not reached agreement on all the major elements of the economic strategy until Wednesday--the day they would later discover that their candidate was formulating his own plans to leave the race.

The atmosphere among the senior advisers that day they said was euphoric, as they congratulated each other for finally devising a detailed economic proposal that they hoped would breathe new life into the campaign and allow Perot to define himself on his own terms.

“Wednesday was the best day of the campaign,” said one.

Like thousands of volunteers throughout the nation, Perot’s announcement the next day stunned the small core of senior advisers, drawing anger from some and despair from others.

“I don’t understand what the man was thinking,” one said. “I think it is totally outrageous and he has done a tremendous disservice to his country.” On Thursday, Perot had said he was withdrawing from the race for the good of the country because he knew he couldn’t win outright, and a three-way race would have swung the election to the House of Representatives.

Several advisers, speaking anonymously, sought to release a general outline of the economic plan, hoping that it could get a public airing while the Perot campaign was still attracting media coverage.

They acknowledged that the program would have been a tough sell but--until Thursday--they believed Perot was prepared to withstand the political heat it would have generated.

To achieve the 5% cuts that were to follow the initial 10% across the board reduction in domestic programs, the advisers said the plan would have eliminated whole programs including many they described as “extremely popular.” They declined to say what programs these were, explaining that a final list had not been completed.

Believing there was no way to balance the budget without attacking the so-called entitlement programs--those in which need is not a requirement for participation--they said Perot had decided that benefits from Social Security and military and other government pensions would also have to be reduced.

While the way that would be carried out was unclear, an aide familiar with the economic plan said it would introduce for the first time “progressivity” to these programs, meaning that benefits for the poor would be cut much less than for those with substantial assets or other income.

In a move aimed primarily at the wealthy, the plan would have eliminated what Perot called the “special favors” of government, especially tax loopholes that applied to specific individuals and corporations and government services that are provided to special interests at below cost.

One adviser gave timber fees as an example of the kind of “favors” Perot wanted to eliminate. He said the fees timber companies pay to harvest on public lands are less than it costs the federal government to maintain the forests. He said Perot would like to bring fees like that more in line with costs.

Among the tax loopholes he hoped to close, the adviser said, were those which gave businesses deductions for entertainment.

The advisers said Perot planned to cut more from defense than Bush but less than Clinton. Perot would cut $90 billion over the next four years, Clinton $100 billion and Bush $50 billion.