Federal Agencies Ordered to Cut Spending by 10%

Hours after the Senate narrowly approved its version of President Clinton’s budget bill early Friday, the Administration ordered a 10% cut in a wide range of federal programs next year to comply with the measure’s deficit-reduction targets.

The directive, issued by Leon E. Panetta, director of the White House Office of Management and Budget, served as an early warning signal of the long-term consequences of the new focus on deficit reduction reflected in the bill, which calls for major tax increases and spending cuts aimed at reducing the budget deficit by $500 billion over the next five years.

The measure was passed at 3 a.m. Friday when Vice President Al Gore cast the vote that broke a tie. The 50-49 vote came after days of political maneuvering that culminated in a marathon session that spilled over from Thursday into Friday morning with no fewer than 39 amendments considered.

“With the adoption of an economic plan, both the Administration and the Congress must be committed to enforcing the deficit-reduction targets and to maintaining the credibility of this effort,” Panetta wrote in his letter to Cabinet secretaries and agency heads.

He then directed them to propose ways to slash spending in all discretionary programs that have not been given high priority by the President. The 10% across-the-board reductions would be imposed by Clinton in the 1995 budget year, which will begin in the fall of 1994.

Such steep cuts would be the only way for the Administration to comply with the spending limits in the $500-billion, five-year deficit-reduction package and still find room in the budget for new domestic initiatives, such as expanded job training and public works projects.

Clinton’s so-called “investment agenda” of new programs would cost $18 billion in 1995, but his budget for that year would exceed the congressional spending limits by $13.6 billion without further cuts.

The Administration already has run into the same sort of budgetary squeeze in the 1994 budget--and Clinton’s new programs were effectively gutted for 1994 as a result. The Administration’s action Friday was an effort to get an early start so that the same thing does not happen in the next budget cycle.

The spending limits being imposed by Congress, Panetta added, represent a “hard freeze on discretionary spending that will last for five years. Those limits are tough and real.”

The Administration began taking the steps even before the budget bill was in its final form. The Senate and House version differ markedly in how they would accomplish deficit reduction and must be reconciled by a House-Senate conference committee.

The measure approved by the Senate includes the $500 billion in deficit reduction that Clinton sought but does so with fewer tax increases and more spending cuts than either the President or liberal Democrats in the House appear willing to accept.

The White House is vowing to fight hard in conference to restore many of the programs slashed by the conservatives who were so influential in the Senate.

The most important change wrought by the Senate was to gut Clinton’s proposed broad-based energy tax and to compensate by scaling back tax cuts and new spending programs for the poor while reducing fees for health care providers under Medicare.

The House version includes the kind of broad-based energy tax that Clinton initially proposed and excludes many of the cuts in programs for the poor and elderly that the Senate passed. House liberals, including the newly energized Congressional Black Caucus, have vowed to oppose a final budget plan if it resembles the Senate version.

Gore, acknowledging that the Administration now faces a difficult task as it works at resolving the House and Senate differences, said Friday that a compromise bill emerging from Senate-House deliberations probably would receive only the same kind of “extremely narrow” majority in both chambers that the budget bill won Friday in the Senate. The 50-49 result in the Senate compared with a 219-213 vote in the House in late May.

Faced with a rebellion among key Senate Democrats, Gore was forced to cast the tie-breaking vote to ensure the victory. Appearing slightly nervous, Gore read the “nay” votes first--49--before giving the same total for the “aye” votes.

“The vice president votes in the affirmative . . . and the bill is passed,” Gore said firmly.

Sens. Patty Murray (D-Wash.) and Arlen Specter (R-Pa.), who both had recent surgery, were not present to vote.

Weary lawmakers on both sides of the aisle were obviously relieved that the hours of tension were over. Only a few spectators were in the gallery and only a smattering of applause could be heard from Senate Democrats when the result was announced.

Democratic leaders in the Senate, while not exuberant, were satisfied with the narrow victory.

“After 13 years of gimmicks and smoke and mirrors in the House and Senate, we have enacted a tough, balanced, fair approach to controlling the deficit,” Senate Majority Leader George J. Mitchell (D-Me.) said after Gore telephoned Clinton with the news. (The President had already learned the outcome from C-SPAN.)

In a statement Friday, Clinton said that the Senate had shown a “remarkable degree of courage” in passing the budget in the face of stiff opposition. “The most important thing is that now both houses of Congress under difficult circumstances with the same old rhetoric of the last 12 years flying at them had the courage to try to change this country for the better.”

Of the six Democrats who voted with Republicans against the budget bill Friday, three face reelection challenges next year. They are Sens. Richard H. Bryan of Neveda, Dennis DeConcini of Arizona and Frank R. Lautenberg of New Jersey. The other defectors included Sen. Richard C. Shelby of Alabama, who has consistently voted against Clinton’s economic programs.

Two others--Sen. J. Bennett Johnston of Louisiana and Sam Nunn of Georgia--were more surprising in their opposition. Johnston, for example, had been among the most vocal senators who helped to kill the energy tax in the Senate version of the bill. But he wound up voting against the measure, anyway.

Nunn had kept his own counsel but said in a statement that he opposed the legislation because the defense cuts are too large, there are no firm controls on entitlement spending and the ratio of tax increases to spending cuts is too high.

Meanwhile, Senate Minority Leader Bob Dole (R-Kan.) vowed that Republicans would try again to defeat the compromise budget bill that eventually will emerge from a Senate-House conference.

“We have 30 days to change the minds of some of our colleagues,” Dole told reporters Friday.

Comparing House, Senate Tax Packages

A look at how the House and Senate tax packages vary:

INDIVIDUAL TAXES

Both create two new income-tax brackets on the well-to-do, who now pay a maximum 31%. A 36% rate would apply to taxable incomes (after exemptions and deductions) above $115,000 for single people and $140,000 for couples. A 39.6% would apply to taxable income over $250,000. Senate would raise 28% top capital-gains rate to 30.8% on taxable income over $250,000; House would not.

ENERGY TAX

Senate raises taxes on gasoline, diesel and other transportation fuels by 4.3 cents on a gallon but exempts jet fuel. House taxes most forms of energy, including electricity, natural gas, coal and oil, according to heat content, raising, for example, the gasoline tax by about 8 cents a gallon.

SOCIAL SECURITY

Senate requires single people whose incomes plus half their Social Security exceed $32,000 and couples above $40,000 to pay tax on up to 85% of their Social Security benefits. House applies that rule to singles above $25,000 and couples over $32,000.

MEDICARE TAX

Both remove the $135,000 limit on annual wages subject to the 1.45% tax. Earned-income credit: Both expand this benefit for low-income families with children; the House also extends it to some childless couples for the first time. Senate provides a credit or outright government payment of up to $2,550; House, up to $2,685.

LUXURY TAXES

Both repeal luxury taxes on expensive yachts, planes, jewels and furs and keep tax on high-priced cars but adjust $30,000 threshold at which it begins applying to account for inflation.

BUSINESS TAXES

Both bills raise 34% top corporate tax rate to 35%; allow deduction of 50% of business meals and entertainment cost, down from 80%; kill deductions for lobbying expenses and club dues; limit deduction for an executive’s pay to $1 million a year. House allows up to $25,000 of machinery to be written off in the year of purchase; Senate, $20,500.

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The Next Step: a Compromise

Here’s how the House and Senate will sort out the differences in their two plans:

HOUSE-SENATE CONFERENCE COMMITTEE

The House and Senate will assign members from both Democratic and Republican parties to the conference, possibly as early as next week. But a formal meeting of the conferences is likely to be delayed until after Congress returns July 12 from its July 4 recess.

THE GROUND RULES

Conferees will not necessarily be bound by the provisions in each bill. In practice, they can rewrite legislation so long as it can muster a majority in each chamber. Once the full House and Senate approve the compromise bill, it will be sent to the President for his signature.

Source: Times Washington Bureau, Associated Press