Clinton’s Budget Seeks $1.5 Trillion : Spending: President’s plan exceeds Congress’ new caps on outlays, likely forcing a battle over his domestic programs. Further defense cuts are not on the table.

The Clinton Administration unveiled a $1.51-trillion 1994 federal budget Thursday that exceeds the new spending ceilings just imposed by Congress, setting the stage for a fierce battle between the White House and the legislative branch over Clinton’s proposals for costly new domestic initiatives.

The Administration’s budget proposes more than $19 billion more in spending than Congress just approved for 1994 and 1995, and Leon E. Panetta, director of the White House Office of Management and Budget, told reporters that the gap will force the Administration to find more savings than are included in the proposed budget.

That means that the Administration will have to fight with influential lawmakers in both parties to cut existing spending programs to make room for the core of Clinton’s economic plan--his “investment agenda” that includes roughly $29 billion over the next two years for such initiatives as job training, education and public works projects.

Panetta stressed that the Administration will not seek further reductions in defense spending to make room for the investment program, which means that Clinton will have to go head to head with Congress over domestic spending priorities.

With a defense budget of $263.4 billion for 1994, Clinton already has proposed slashing Pentagon spending by about $10 billion from 1993 levels. And even those cuts are running into opposition from congressional leaders, including Senate Armed Services Committee Chairman Sam Nunn (D-Ga.). The latest round of political instability in Russia also has given the Administration second thoughts about even steeper reductions in military programs.

Taken together, those factors mean that President Clinton’s long-term economic package now seems certain to face real trouble on Capitol Hill.

Panetta acknowledged that Clinton faces an uphill battle to salvage his long-term package now that Congress is so intent on cutting spending.

“We are going to define our sets of investments that we care about . . . and fight for those priorities,” Panetta said. But “make no mistake about it, we understand that each of the appropriations committees have their priorities” from past years.

Panetta and other Administration officials also used Thursday’s announcement as an opportunity once again to chide Republicans for blocking passage of the Clinton stimulus package, which has been bottled up in the Senate by a Republican filibuster. Laura D’Andrea Tyson, who chairs the White House Council of Economic Advisers, stressed in a briefing for reporters that the nation is still threatened by a “jobless recovery” and that the economy needs a quick infusion of public spending. She noted once again that the stimulus plan could generate up to 500,000 full- and part-time jobs.

“We still have an unemployment rate stuck at 7%, and it has been at 7% or higher for 16 consecutive months,” Tyson said. “So it is very important to give a boost to the economy, to help it get closer to (recovery) so we can maneuver through deficit reduction in the coming years.”

But Republicans, who sense an opening now that they have at least temporarily blocked the stimulus package, seized on the release of the budget to attack Clinton’s long-range priorities. They complained that the budget reveals that Clinton is not a new Democrat but an old-fashioned tax-and-spend liberal.

“The Clinton budget stands for everything the American people thought they were voting against in November--bigger taxes, bigger spending and bigger government,” Senate Minority Leader Bob Dole (R-Kan.) said.

Rep. John R. Kasich (R-Ohio), the ranking Republican on the House Budget Committee, said that “this budget is nothing more than a return to the failed policies of the past--higher taxes on everyone, more federal spending and bigger government.”

In fact, the White House reluctantly acknowledged Thursday that 72% of its deficit reduction package in 1994 will come from tax increases, and only 28% from spending cuts.

The Administration stressed that, over the life of the five-year Clinton deficit reduction plan, the ratio between taxes and spending cuts will shift to 52% in spending cuts and 48% in tax increases. But officials conceded that they are counting as spending cuts many provisions that outside observers define as tax hikes, including user fees and a significant tax increase on Social Security beneficiaries.

Clinton’s first budget, which calls for a 1994 deficit of $264.1 billion, essentially fleshes out the details of the broad five-year economic plan announced in February. It does not reflect the changes made by Congress since then, but it does include some significant revisions in budget estimates, noted Alice Rivlin, deputy director of the Office of Management and Budget.

The Clinton plan now calls for a total of $447.5 billion in deficit reduction by 1998, down from the February estimate of $473 billion.

But even over the five-year period, Clinton’s package remains far short of the new targets established by Congress. For that period, Congress is calling for tens of billions in spending cuts over and above those proposed by Clinton.

The budget proposal also does not include the costs or the probable new taxes connected with Clinton’s health care reform plans, which are expected to be announced next month. Estimates have ranged as high as $90 billion for the cost of guaranteeing health care for all Americans, although Administration officials have talked of shifting much of that cost to the private sector.

Despite its difficulties, the budget received a much warmer welcome from Democrats in Congress than they have given Republican budgets for the past 12 years. It was not labeled “dead on arrival” by Democrats the way so many budgets from Presidents Ronald Reagan and George Bush were.

In fact, despite looming fights between congressional Democrats and the White House over spending, Democrats on Thursday publicly echoed Panetta’s statements that the budget represents a new direction for the federal government, with more equity in taxation and greater emphasis on preparing for an age of technology.

The budget “will spur economic growth, invest wisely in the people of this country and reduce federal deficits,” Senate Majority Leader George J. Mitchell (D-Me.) said. “Last November, the American people voted for change in our economic policies. This budget puts us on the path to that needed change.”

Even so, there are an array of proposals that are already clearly in trouble on Capital Hill.

For example, Clinton’s plan to save money by canceling cost-of-living allowances for all federal and military employees next year barely survived a test vote in the Senate last week, 51 to 49, with nine Democrats deserting Clinton on the politically sensitive issue.

Similarly, taxing more Social Security benefits for retirees with incomes of more than $25,000 for individuals and $32,000 for couples also is on the endangered list, with Republicans and many Democrats ready to vote against it unless the income levels are increased significantly.

Proposed reductions in farm subsidies also may face rough sledding in the House and the Senate, with lawmakers from rural areas complaining that they have been singled out for more than their fair share of “sacrifice” in the first Clinton budget. Especially in the Senate, the farm-state representatives often are the swing votes on legislation decided by narrow margins.

Democrats, however, appear to be holding firm on raising taxes on the most affluent Americans, as Clinton has proposed, and on increasing corporate taxes. But the President’s proposal for an energy tax is under fire from many quarters, and further compromises may be needed to get enough votes in the Senate to secure its passage.

The difficult trade-offs involved in shoehorning Clinton’s proposed new spending programs into the spending plan can be seen in the budget for the government’s largest department--Health and Human Services.

During his campaign, Clinton promised to increase funds for AIDS research and for research into diseases that have a particular impact on women, such as breast cancer and osteoporosis. The new budget fulfills that pledge, promising to spend an additional $183 million on those research programs.

To pay for that increase, HHS Secretary Donna Shalala carved small chunks out of nearly all other disease-research program budgets. The budget for the National Institute on Drug Abuse, for example, will drop from $405 million this year to $401 million in 1994. The National Institute on Aging will go from $403 million to $397 million.

Each of the research programs that will lose money has its own lobbying group, and many of those groups objected Thursday. If Congress accepts their arguments and rejects the cuts, Clinton’s proposed increases for AIDS and women’s health may evaporate.

The Administration also said it has modestly revised the tax provision of the Clinton plan announced in February.

Among the more notable changes, the Administration said its proposal to prohibit publicly held corporations from taking tax deductions for salaries of executives who make more than $1 million would apply only to the top five executives in each firm, rather than to all employees who earn more than $1 million.

That would appear to give a break to Wall Street investment firms, where many executives earn more than $1 million a year.

The Administration also provided greater detail on its proposed earned-income tax credit, which was designed to offset the effects of the new energy tax on low-income Americans.

Families with income between $8,500 and $11,000 would receive a maximum tax credit of $2,685 a year. The credit would be gradually reduced for those with incomes at higher levels, with the credit phased out for families with incomes of more than $28,000.

Low-income workers without children would also be eligible for smaller credits. Clinton had insisted on including the tax credit so that his new broad-based energy tax would not throw any Americans below the poverty level.

Times staff writers David Lauter, William J. Eaton and Rudy Abramson contributed to this story.

Tracking Your Tax Dollar

Here’s a look at how the money flows in the $1.5-trillion budget the Administration released Thursday:

Where It Comes From Individual income tax: 37% Social Security payroll tax: 31% Borrowing: 17% Corporate income tax: 8% Excise tax: 3% Other: 4%

Where It Goes Social Security, Medicare, Medicaid and other benefits: 46% National defense: 18% Net interest: 14% Grants to states and localities: 15% Deposit insurance: 1% Other: 6%

The Winners and Losers

(in billions) 1993 1994 Cabinet agencies % change estimated estimated Defense -4.7 $277.3 $264.2 Education 0.3 30.9 31.0 State 0 5.5 5.5 Energy -2.9 17.5 17.0 Health and Human 8.2 591.7 640.1 Services Housing and 11.0 26.0 28.9 Urban Development Interior -4.0 7.5 7.2 Justice -2.8 10.6 10.3 Labor -19.7 46.8 37.6 Transportation 7.1 36.5 39.1 Treasury 5.7 301.7 318.9 Veterans Affairs 6.5 35.4 37.7 Agriculture -5.8 66.9 63.0 Commerce -3.1 3.2 3.3 Major agencies Corps of Engineers* 4.1 29.5 30.7 Environmental Protection Agency 33.8 6.5 8.7 Federal Emergency Management Agency -41.9 3.1 1.8 Funds Appropriated to President 2.5 11.8 12.1 General Services Administration -38.5 1.3 0.8 Judicial Branch 19.2 2.6 3.1 Legislative Branch 10.7 2.8 3.1 NASA 4.3 14.1 14.7 Office of Personnel Management 4.0 37.2 38.7 Postal Service 0 1.6 1.6 All other agencies 25.3 17.4 21.8 Offsetting receipts -119.0 -124.5 Total 3.3 1,467.6 1,515.3

* Includes military retirement Source: Office of Management and Budget

Unraveling the Budget Process

President Clinton’s budget, released Thursday, and Congress’ budget resolution, adopted last week, will be the two main guides followed by House and Senate committees as they make their spending and taxing decisions.

* Next step: Congress’ must now come up with a massive “reconciliation” bill to reduce the federal deficit by about $496 billion over five years. It must combine tax increases with permanent cuts in mandatory “entitlements” programs, such as Social Security and Medicaid. In developing the reconciliation bill, each committee will follow tax-hike and spending-cut targets laid out by the congressional budget resolution. Each panel may decide its own details, but the Democratic-controlled Congress is expected to follow most of the Democratic President’s recommendations.

* Target: Congressional leaders hope to finish the reconciliation bill by August.

* Dividing up the money: Then Congress must complete 13 appropriations bills that fund government programs for fiscal 1994, which begins Oct. 1. Senate and House Appropriations committees will subdivide the overall total among 13 bills, reflecting spending priorities in the $1.5-trillion congressional budget resolution. But the committees also will be guided by Clinton’s $1.5-trillion budget.

* If deadline is missed: Congress and Clinton should agree on final details in the appropriations measures by Oct. 1. If they do not, stopgap measures--called continuing resolutions--will have to suffice until final agreement is reached.

Source: Times staff