Clinton’s Deficit Goal Divides Democrats : Congress: Some say retreating from five-year, $500-billion target will ease House-Senate budget clash. Others say the President’s credibility is at stake.

As House and Senate negotiators begin work today on a final version of President Clinton’s economic plan, some Democrats are expressing second thoughts about the Administration’s goal of cutting the deficit by $500 billion over five years.

Retreating from the President’s deficit-reduction target would make it easier for the two chambers to resolve their considerable differences over proposed tax increases and spending cuts.

They could, for example, drop or reduce the proposed energy tax that is the most controversial provision of the package and the element that would hit the middle class the hardest.

They would also have more flexibility to include such popular items as urban aid funds and tax breaks for the working poor.

However, a failure to reach Clinton’s often-stated $500-billion goal raises the risk of undermining the President’s credibility and opening up the Democrats to criticism that they are not serious enough about deficit reduction.

House Democrats caucused Wednesday to plan their strategy for the House-Senate conference committee that will work on the President’s plan.

Much of the discussion centered on a proposal by liberal Rep. David R. Obey (D-Wis.) to replace the energy tax with higher taxes on corporations and wealthy people.

Barring that, he said, the energy tax should be scrapped altogether, even if that means missing the deficit reduction target by $30 billion or so.

“It takes away from the Republicans the phony argument that they are the protectors of the middle class,” Obey said. “We’re not talking about substance here. We’re talking about message. We’re talking about ability to get votes.”

He noted that the economy’s performance will have a far greater effect on the size of the deficit than will the additional taxes.

Moreover, as Congress learned when the recession wiped out the deficit reduction it had expected from its painful 1990 budget agreement, the economy can veer sharply from government projections.

“They’re just estimates, for God’s sake,” Obey said. “The flood (that has hit the Midwest) will make a bigger variance in the economy” than missing the deficit-reduction target by $30 billion.

Rep. Jim Slattery (D-Kan.), a moderate, agreed: “I don’t think we should declare a disaster if it’s $470 billion.”

Far more important than reaching any numerical target, he said, is assuring that the deficit-reduction package includes a restraint on the growth of entitlement programs.

Their comments echoed remarks a day earlier by Sen. John B. Breaux, a moderate Democrat from Louisiana.

“The $500 billion was not kicked out by some magical computer that said: ‘You’ve got to have this to have a strong economy,’ ” he told reporters. “That’s a number that was arrived at several months ago, and I think, (considering) the economy and the status of it, that a proposal that has less taxes and less spending cuts may be the right thing.”

But others insisted that it is crucial to come very close to the $500-billion target because Clinton’s credibility is on the line.

In virtually every speech, the President has cited $500 billion in deficit reduction as the most important element of his overall economic package.

A failure by the Democratic-controlled Congress to reach that figure would not only open Clinton to attacks by the GOP but could also send shock waves through financial markets, which already are skeptical of Washington’s commitment to deficit reduction.

On Wednesday, House Speaker Thomas S. Foley (D-Wash.) reiterated: “It’s $500 billion, and I think that the final conference report will be in that neighborhood.”

Congressional leaders said they hope that the committee will produce a version of the economic plan that can pass both chambers before Congress adjourns for its August break.