Clinton Plans Tax Hike for Individuals, Firms : Economy: He confirms that increases sought in move to cut deficit may reach beyond ‘wealthiest Americans.’

Saying that the nation faces a crisis that could undermine future living standards, President Clinton flatly told an audience of business leaders Thursday that the economic package he plans to offer next week will raise taxes for both individuals and corporations.

Clinton has walked around the subject of tax increases rhetorically for weeks. But in the last few days, with next week’s economic speech fast approaching, he has moved steadily closer to confirming widespread reports that broad tax increases are in the offing.

He conceded to an audience during his televised town meeting Wednesday that, “I cannot tell you that I won’t ask you to make any contribution.”

On Thursday, his language was more direct.

“I will ask for an increase, as I said in the campaign, on the income tax of the wealthiest Americans and corporations,” Clinton said, adding that because the deficit has worsened, “we may have to broaden the range of revenues which we seek” to include taxes on other people as well.

More indications came from House Majority Leader Richard A. Gephardt (D-Mo.), who emerged after a two-hour meeting between the President and House Democrats on Thursday to talk about tax increases.

“The people who will pay the most are those who have the greatest ability to pay the most--the ones who benefited the most in the 1980s,” Gephardt said. “But I think everybody in the society will be asked to make a proportionate contribution for the good of the whole.”

Rep. Eliot L. Engel (D-N.Y.) described Clinton’s message as “short-term pain for long-term viability of the country,” while Rep. Donald M. Payne (D-N.J.) added: “He (Clinton) told us we’re going to have to take some tough hits.”

Gephardt said that he believes most Democrats and some Republicans will support the President’s economic package without major changes. Rep. Jim Slattery (D-Kan.) added: “This may be tough, this may be hard--but we’re going to do it.”

Clinton pledged to the business leaders that his economic plan will include cuts in federal spending that will be “real, definable and measurable, not imaginary.” But aides conceded that the Administration will not follow through on an earlier statement by Budget Director Leon E. Panetta that spending cuts would form two-thirds of the deficit reduction package.

Aides said the President has not made a final decision on how large a deficit cut to seek. But they have sent clear signals that the reduction will be less than the $145 billion Clinton forecast earlier this year. That goal, in turn, was less than his campaign pledge to “cut the deficit in half.”

The deficit cuts will be “very significant and very real” and will be large enough to reassure the public and financial markets that the President is serious about cutting the government’s red ink, Clinton economic aide Gene Sperling said. But, he added, “the markets aren’t going to care about a specific number. What they care about is that it’s real” and that the deficit is “heading in the right direction.”

Even a goal less dramatic than a $145-billion cut will require politically difficult measures. Clinton admitted as much in his speech, saying that the economic package will cause “pain.” But he quickly added that “the short-term pain of making changes now is so much less than the long-term costs of continuing to do things the way we’re doing them.

“If we don’t reform our economic policies, I’m convinced eventually we will fall further and further behind. Ten years from now we won’t even recognize the country that we all grew up in.”

Those sharply worded warnings are a foretaste of the rhetoric Clinton likely will use in next week’s speech as he and his aides try to persuade Americans to accept tax increases on the grounds that the alternatives are far worse.

“Americans are at their best answering alarm bells in the night, but I think every one of you know that today we face a crisis which, while quieter, is every bit as profound as those we have faced in our past,” Clinton said. “I want to reduce this deficit, not as an end in itself, but because I think it is a critical part of a strategy to build jobs and growth for America today and over the long run.”

In part to convince Americans that the deficit outlook is much worse than he anticipated during last year’s campaign, Clinton will use much higher deficit forecasts than either the Bush Administration or Congress published before. The higher deficit projections also will be an important element in his campaign to convince key constituencies that they need to accept higher taxes or other painful measures.

Clinton aides are continuing to debate what forecast for the deficit they should use. Depending on what assumptions they make in calculating the deficit, the red ink for 1997 could range from $356 billion to $384 billion.

As he begins the public sales campaign for his plan, Clinton will step up his meetings with congressional leaders. He plans two more congressional sessions today, followed by more gatherings Saturday, Monday and Tuesday, aides said. The meetings for the next several days will include only Democratic members of Congress. Sessions with Republicans will take place next week, aides said.

Clinton did not say how much of a tax increase he will seek. During the campaign, he proposed raising the top tax rate for upper-income Americans from 31% to 36%, but White House Communications Director George Stephanopoulos said that he could not rule out the possibility of a larger increase. Aides also have hinted that Clinton might move away from his campaign pledge that the increase would affect only those with family incomes over $200,000.

After the meeting with House Democrats, Rep. Payne told reporters: “Those who benefited and partied in the ‘80s will be asked to pay their fair share, or even more than their fair share.”

In the campaign, Clinton did not propose raising the corporate tax rate, but Treasury Secretary Lloyd Bentsen has pushed him to do so, arguing that if he raises the individual but not the corporate rate, wealthy individuals will have a powerful incentive to set up tax shelters that would allow them to redefine personal income as corporate income and thereby take advantage of a lower tax rate.

Most Americans, however, probably will not see their income taxes go up. Instead, it appears increasingly likely that they will pay higher taxes in the form of a new federal energy tax. Clinton aides have said that the package will include some mechanism to offset the impact of the energy tax increase for at least some low- and moderate-income Americans but have not said precisely how that offset would be structured.

Clinton also repeated his campaign promise to change current tax laws in a way that would discourage excessive pay for corporate executives, adding that “excessive (is) defined as unrelated to the productivity of the enterprise.”