Senate Is Poised to OK Deficit Reduction Plan : Budget: Among other concessions, Democrats agree to restore about $9 billion in spending for Medicare.

Stepping gingerly through volatile political territory, the Senate moved closer early today to approving President Clinton’s $500-billion deficit reduction plan--a highly controversial measure that would accomplish its goals through complex spending cuts and tax increases.

Although passage seemed assured, the Senate worked into the early morning hours, voting on more than a dozen amendments offered at the eleventh hour in hopes of modifying the bill. But no major changes were anticipated before a final vote.

Throughout the day Thursday, Democratic leaders were forced to make relatively minor concessions to preserve the majority they needed to gain passage and send the bill to a conference committee that would reconcile it with the sharply different version approved by the House.

The bill expected to clear the Senate would raise taxes by about $245 billion from now until 1998, mainly affecting the wealthiest taxpayers, and reduce outlays for mandatory benefit programs by about $107 billion. Additional savings would come from a freeze on spending for defense, foreign aid and domestic programs, plus lower interest payments as the deficit dwindled.

Among the deals Thursday that helped pick up or retain votes for the President’s bill was one in which Democratic leaders and the White House agreed to scale back Medicare spending cuts by $9 billion, restoring funds for rural hospitals, home health and hospice care.

The Senate also approved an exemption for airlines from the 4.3-cent-per-gallon gasoline and fuels tax in the bill, cutting the levy’s five-year revenue from $25 billion to $22.5 billion.

The efforts were cheered on by Sen. Daniel Patrick Moynihan (D-N.Y.), chairman of the Senate Finance Committee.

“We have to do this,” he said Thursday. “Why? Twelve years of devastatingly high deficits. . . . We are sending a message to the financial markets and to the world that we’re going to tough it.”

Republicans, acknowledging that the bill would pass but unified in their opposition to it, continued to denounce the measure as “the largest tax increase in history” and warned that it would shatter the economy and destroy jobs.

Democrats countered that, instead, the bill was “the largest deficit-reduction package in history” with nearly 80% of the tax increases imposed on families with incomes above $200,000 a year.

Even while the Senate debated the massive bill, independent political leader Ross Perot showed up on Capitol Hill with petitions for a balanced federal budget that he said were signed by 2.5 million people.

Perot, who was welcomed by Republican senators but brushed off by Democrats, sharply assailed the President’s program, arguing that it “does not even balance the budget ever.”

While supporters cheered for “President Ross,” Perot alluded to future health care reform proposals when he said: “This is the little tax increase we’re looking at now.”

Democrats noted in response that Perot has advocated a 50-cent-a-gallon gasoline tax increase as part of his deficit-cutting package--an amount considered politically unacceptable in Congress.

With Republicans solidly against the bill, Senate Majority Leader George J. Mitchell (D-Me.) performed a political balancing act to avoid defeat through a coalition of Republicans and dissatisfied Democrats.

Conservative Democrats complained about heavy taxation of business, for example, while liberal members of the party demanded fewer cuts in Medicare than the committee bill contained. Clinton lobbied the doubtful Democrats, in person and over the phone, in an effort to get the bill passed.

The outcome of some votes on key amendments was so doubtful, however, that Vice President Al Gore was on hand to break a tie, if necessary.

The Senate divided 50 to 48 to defeat a proposal by Sen. Don Nickles (R-Okla.) to drop the 4.3-cent gasoline tax increase put into the bill by the Finance Committee in place of the more controversial energy tax geared to the heat content of fuels as measured by British thermal units that is in the House version of the legislation.

Five Democrats--including four facing reelection next year--lined up with 43 Republicans against the gas tax, which would be expected to raise almost $25 billion over the next five years. It survived by a two-vote margin.

Similarly, five Democrats deserted their leadership when Sen. Trent Lott (R-Miss.) proposed to eliminate a tax increase on an estimated 3 million Social Security recipients with taxable incomes above $32,000 for individuals and $40,000 for couples.

Sen. John C. Danforth (R-Mo.), who has announced that he will not seek reelection in 1994, was the only Republican to vote with 50 Democrats to preserve this tax provision, expected to raise $28 billion over the next five years.

Republicans blocked a Democratic attempt to impose a hard freeze on spending for defense, foreign aid and domestic programs at $547 billion for each of the next five years, along with a new mechanism for compelling congressional action on overruns in spending on mandatory benefit programs, such as Medicaid.

Sen. Phil Gramm (R-Tex.) argued that the proposed enforcement provisions--already part of the House-approved bill--are little more than “a small fig leaf” that would not have any real impact on spending levels in the future.

Democrats fell six votes short of the 60 votes they needed to override a formal Republican objection that the enforcement language was not in order under the special restrictions for consideration of the budget bill.

A proposal by Mitchell to expand a tax break for business was the only major amendment to receive bipartisan support. The Senate voted, 93 to 5, for Mitchell’s plan to raise the amount of fast tax write-offs for businesses from $15,000 in the committee bill to $20,000 at a five-year cost of $3.6 billion.

In a gesture to restaurants and others who benefit from deductibility of business meals and entertainment expenses, the Senate by voice vote approved a resolution urging Senate-House conferees to retain the current 80% deductibility for such business outlays, rather than the 50% level approved by the House and by the Senate Finance Committee.

The main revenue-raising provision in the Senate bill would increase the top-bracket income tax rate from 31% to 36% for individuals making more than $115,000 and couples making more than $140,000, effective July 1. A surtax, raising the rate to 39.6%, would be imposed on incomes above $250,000, with a 10% surtax on capital gains for individuals who earn above $200,000 a year.

The Senate bill includes an expansion of the credit against income taxes for “working poor” families with one or two children that would cost $18 billion over five years, about $10 billion less than the House bill would provide.

Only the 4.3-cent-a-gallon increase in gasoline and diesel fuel taxes would affect middle-income Americans, sponsors said, adding $61 a year to gas taxes for a typical family, according to Congressional Budget Office estimates.

Both the House and Senate bills would repeal the luxury tax on expensive boats, airplanes, furs and jewelry, retroactive to last Jan. 1 and modify the tax on high-priced cars by indexing the current $30,000 tax threshold for inflation.

On the spending side, the Senate bill would reduce mandatory spending, such as Medicare and Medicaid, by $107 billion over the next five years. Another $102 billion would be saved from programs which receive annual appropriations from Congress.

In another compromise, a coalition of liberal Democrats won a weeklong battle to reduce the amount of cuts to Medicare providers from $67 billion in the committee version to $58 billion in the Senate bill. They had threatened to vote against the legislation unless some of the committee’s cuts were restored.

Staff writer Greg Miller contributed to this story.

House vs. Senate: Proposed Taxes

How families at various income levels would fare under the House and Senate tax bills:

Average Change Change Current Under Under Federal House Senate Income Taxes Bill Bill Under $10,000 $455 $-120 $-37 $10,000-19,999 1,718 -59 -73 $20,000-29,999 4,240 24 -31 $30,000-39,999 6,891 161 61 $40,000-49,999 9,667 270 122 $50,000-74,999 14,295 368 216 $75,000-99,999 21,604 491 338 $100,000-199,999 33,910 765 703 $200,000 up 135,359 23,217 25,195 Average $10,107 $463 $423

Note: Income is a broad definition that includes wages, rents, interest, dividends, capital gains, welfare and similar cash transfer payments and the employer share of Social Security taxes.

Source: Congressional Budget Office