Clinton Threshold on Tax Bite Dips to $30,000 Incomes : Economy: His $500-billion plan, outlined for Congress tonight, casts a wider net on taxpayers. But the President says his agenda will leave middle class ‘much better off.’

President Clinton’s economic plan will require Americans earning more than $30,000 to pay higher taxes, a much lower income threshold for tax increases than the Administration had previously suggested, the White House said Tuesday.

As Clinton prepared to unveil his $500-billion package of tax increases and spending cuts in a nationally televised address to Congress tonight, he promised Tuesday that the middle class would be “much better off” as a result of his new agenda.

“I think that when you see the whole program,” Clinton said during a photo session with congressional Democrats, “it won’t be ‘raw pain,’ ” as Sen. Phil Gramm (R-Tex.) had characterized it.

But the initial reaction in many quarters to the plan was one of alarm.

Wall Street took its biggest tumble in 15 months, apparently out of concern that higher taxes would stall the recovery and that promised spending cuts to reduce the deficit might not materialize.

But Clinton and his advisers were encouraged by the bond markets, which remained steady, as traders seemed pleased by Clinton’s tough talk on the deficit.

With opposition to his plan already building, the challenge facing the new President is clear: to assure the nation that his program of long-term deficit reduction and increased investment spending will produce economic benefits great enough to offset the burden of higher taxes.

And he must convince the American people that new taxes are necessary to reduce the deficit and will not be used just to fund big new spending programs.

The White House is clearly sensitive to claims that it is raising taxes more than it is reducing spending. Clinton’s spokesman, George Stephanopoulos, said that the Administration’s budget plan includes about $100 billion in cuts in domestic spending programs. It remained unclear, however, how firm some of those cuts would be. Included among them are billions of dollars in savings from administrative efficiencies--the sort of projection that has often disappeared in the past once actual budgets were put into place.

The Clinton Administration said that, when all of its proposed tax increases and tax credits are taken together--including an energy consumption tax and higher taxes on Social Security pensions--families earning more than $30,000 will see their taxes rise.

The middle class will be hit hardest by a broad-based 5% tax on most forms of energy use and by an increase in that part of Social Security benefits that will be taxed, from 50% to 85%. Benefits are taxed only on individual retirees with incomes of more than $25,000 annually and on couples with incomes of more than $32,000.

But to assure that people earning less than $30,000 a year do not experience an overall increase in their tax bills, the White House said that it intends to expand the earned income tax credit to offset higher energy and retirement taxes. The credit enables the working poor to obtain refunds from the government if their incomes fall below the level at which taxes are owed.

The White House acknowledgment that tax increases will be felt by all those with incomes above $30,000 seemed to confirm charges leveled by the Republicans last year. During the campaign, then-President George Bush repeatedly warned that Clinton’s numbers did not “add up” and that he would have to raise taxes on the middle class to achieve his goals of deficit reduction and additional spending. The GOP argued that to fulfill his promises, Clinton would have to raise taxes on everyone making more than $36,000 a year.

Clinton and his advisers have defended their decision to raise taxes on the middle class, arguing that the budget deficit is far worse than they imagined last year. On Tuesday, the Administration said that it will project in its budget that the deficit will reach $346 billion in fiscal 1997, nearly $110 billion higher than the Bush Administration projected in the middle of the campaign last summer.

White House officials also said Tuesday that Clinton will propose higher income tax rates on a much broader group of taxpayers than he proposed in his campaign, and again said that the higher deficit figures have forced them to reach farther down the income ladder for tax increases.

Under the revised program that he will unveil this evening, Clinton will seek to raise the top income tax rate from 31% to 36% for families earning more than $180,000 a year and individuals earning more than $140,000, officials said. The plan also would raise the corporate income tax rate from 34% to 36%.

In addition, a proposed 10% “millionaire’s surtax” is likely to apply to all taxpayers earning more than $250,000. During the campaign, Clinton said that he would seek higher income taxes only for households earning more than $200,000 and that his surtax would apply only to those with incomes over $1 million.

In his national television address Monday, Clinton said that, taken together, 70% of the new tax increases he will seek would be paid for by families earning more than $100,000. According to new Congressional Budget Office projections, 5.8 million families, or 18.1 million people, will have incomes over $100,000 in 1994. That number represents 5.3% of families and 7% of the nation’s people.

Those families will account for 27% of all pretax income next year, the CBO projects.

White House officials--starting with the President--also stepped up their campaign to portray Clinton’s budget as more honest than Bush’s. Clinton said that he would present Congress “for the first time in 10 years” with “truth in budgeting.” Even those who oppose his policy ideas “will have to admit at least I’m shooting it straight with the numbers,” Clinton said. “These are real cuts. It’s not just a bunch of rhetoric.”

Meanwhile, Clinton also offered a more specific sales pitch Tuesday aimed at California. Speaking by a satellite hookup to a gathering of some 500 public officials, economists and business leaders gathered in Los Angeles, Clinton said that California would “receive a significant number” of the jobs he hopes his program will produce.

“This country cannot rise again to its full potential until California is on the move again,” Clinton said, but he offered few specifics about the plan he had in mind to help the state. Clinton said that he would ask Congress to change tax rules on passive losses in a way that would benefit the state’s real estate investors and that he was looking for a way to send more federal aid to states heavily burdened by immigration-related costs--particularly California, Florida and Texas. Clinton offered no details on that proposal, which has been pushed by Gov. Pete Wilson.

The economic program that President Clinton will unveil Wednesday has three basic elements: an emergency jobs plan, longer-term “investment” spending, and gradual, multi-year deficit reduction. A fourth key element, health-care reform, will play a role in the economic plan but will be fleshed out when the Administration completes its study of the issue in May.

The part of Clinton’s agenda that is certain to get the most immediate attention both by Congress and the Administration is his emergency jobs program, which is designed to provide a short-term stimulus for an economy just now recovering from three years of doldrums.

The national economy began to revive almost as soon as the presidential campaign was over last November, and in the fourth quarter grew at a 3.8% rate--the fastest pace of George Bush’s presidency. Yet Clinton and his advisers are still concerned that the recovery is not generating enough jobs. Structural problems--defense industry cutbacks, the credit crunch, the weak real estate market, the shrinking of major corporations--have kept employment depressed. Clinton said recently that he believes 3 million more jobs should have been created by this point if the economic recovery had been following its traditional pattern.

To stimulate the kind of job growth that the current recovery still lacks, Clinton is expected to announce a $31-billion emergency job and economic stimulus package.

The goal will be to create 500,000 jobs over the coming year, a down payment on Clinton’s campaign pledge to generate 8 million jobs during his first term.

The job plan will include about $15 billion in new spending that will be targeted at high unemployment areas of the country, such as Los Angeles. And much of the money will be designed to create jobs quickly in ailing inner cities, where youth unemployment is at staggering levels.

It will include up to $3 billion in new funds for community development block grants for large cities, funds for a summer job program for inner-city youths, money for basic road and bridge maintenance that can be geared up quickly, and a smaller package for child health programs. Clinton already has announced that $300 million will go for immunizations of 1 million children.

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