Clinton Yields to Opponents of Energy Tax : Economy: President will scale back controversial levy in favor of 8-cent-a-gallon gas tax hike, sources say. Move is aimed at saving deficit-cutting plan in Senate.

President Clinton has decided to abandon most elements of his proposed energy tax and accept an 8-cent-per-gallon gasoline tax increase in its place as the price of winning Senate approval of his embattled economic agenda, White House and Senate sources said Friday.

And after almost losing a highly partisan battle over his economic package in the House, Clinton now recognizes that he must reach out to Republican lawmakers and he plans to launch a true bipartisan lobbying effort on behalf of his initiatives, officials said.

Although sources insist that the President still expects Congress to pass the major elements of his $496-billion deficit-reduction plan, he has resigned himself to accepting drastic revisions in the energy levy at the hands of the Senate Finance Committee.

The energy tax has become the most controversial element of the President’s economic package, which squeaked through the House with only two votes more than the 217 needed for passage Thursday night despite an intensive lobbying effort by Administration officials.

The BTU tax, which would be based on the energy content of different fuels as measured in British thermal units, would raise $72 billion over five years. It is opposed by oil state lawmakers, who fear it will hurt the energy industry and cause a considerable loss of jobs.

White House and Senate sources who requested anonymity said the President is willing to eliminate most elements of the tax and settle instead for increasing the federal gasoline tax by 8 cents a gallon, which would raise about $40 billion over five years. The BTU tax would increase the pump price of gasoline by an estimated 7.6 cents per gallon.

Clinton’s decision was made after Sen. David L. Boren (D-Okla.) and other moderate Democrats warned that keeping the BTU tax in the form it passed the House would doom the bill in the Senate, officials said.

In addition, the moderates cautioned the White House that Clinton’s failure to win bipartisan support for his initiatives could imperil his presidency in the long run.

Some Democrats contend that Clinton, after campaigning as a centrist, has been unduly influenced by the liberal wing of the party. They say he has paid little attention to conservative Democrats and has ignored moderate Republicans altogether.

With Republicans voting solidly against his budget measure, Clinton had to pull out the stops to secure House passage by a razor-thin 219-213 vote.

One Democratic congressman in close contact with the White House said the narrowness of the win came as “something of a shock” to Clinton and forced him to “finally understand that he needs to listen more carefully to the moderate and conservative” wings of the party.

Sources said conservative Democrats have urged Clinton privately to make major changes in his program, his strategy and his staff to save his presidency from the political miscues that have marred his relations with Congress and sent his popularity into a tailspin.

A Newsweek poll released Friday showed Clinton’s approval rating has sunk to 36%, a loss of 10 percentage points in a month and the lowest figure recorded this early in the term of any President.

White House Chief of Staff Thomas (Mack) McLarty said that in the wake of the House vote, the Administration was busy contacting conservative Democrats and moderate Republicans in the Senate. Both the President and Vice President Al Gore will lead the lobbying effort on behalf of the economic package, he said.

The President’s willingness to scale back the energy tax may win over skeptical senators, but it could alienate many House members who voted for the BTU levy only after receiving assurances from Clinton that he would fight for it in the Senate.

But Clinton apparently was persuaded by Boren and others that because so many Democratic senators are opposed to the tax as currently formulated, the Senate will defeat the overall package of spending cuts and tax increases unless the BTU levy is drastically altered.

Boren, in a breakfast session with reporters, said 10 to 12 Democratic senators have told him they oppose Clinton’s budget bill because they object to the BTU tax and because the measure includes more tax increases than spending cuts. Boren said seven or eight senators, including himself, are “very hard against” the bill as passed by the House.

The bill is designed to reduce the deficit by $496 billion over five years. Although the Administration insists that the package is balanced equally between tax hikes and spending cuts, many analysts have concluded that it is somewhat tax-heavy. By Boren’s accounting, the package includes $270 billion in tax increases and $170 billion in spending cuts.

Boren and Sen. John B. Breaux (D-La.), both of whom will cast critical votes on the budget bill in the Senate Finance Committee, said they could support an 8-cent increase in the federal gas tax. While that would impose about the same amount of additional tax on gasoline as the BTU levy, it would not affect other fuels included in the President’s proposal.

Sources said Boren, Senate Majority Leader George J. Mitchell (D-Me.) and Senate Finance Committee Chairman Daniel Patrick Moynihan (D-N.Y.) have been discussing a plan that would add $30 billion to $35 billion in spending cuts to the budget package when Moynihan’s panel takes it up after returning from the Memorial Day recess.

While McLarty would not discuss specifics of the Administration’s negotiating plans, he predicted in an interview that the Senate ultimately “will pass the essential elements of the President’s plan.”

He also refused to discuss the fate of the BTU tax, except to say he expects the Senate to pass the deficit-reduction bill with “an energy tax element” still intact.

Several conservative House Democrats who rallied behind the budget bill at the last minute said they voted for it to demonstrate support for the President but would endorse it again only if it returns from the Senate with more spending cuts and major alterations in the BTU tax.

They said that in return for their pivotal votes, the White House had promised that the tax would be altered and more spending cuts added.

Staff writer Michael Ross contributed to this story.