VIEW FROM WASHINGTON / JAMES RISEN : Working Poor Caught in the Cross-Fire of Deficit-Reduction Politics

Otto von Bismarck once remarked that the people shouldn’t see how their sausages or their laws were made.

Could that wily old Prussian possibly have had the Senate’s handling of Bill Clinton’s budget in mind?

Yes, the tax negotiations got ugly, as naked power politics so often does. As the Senate Finance Committee worked its will on Clinton’s economic package behind closed doors in late June, the corridors of the Dirksen Senate Office Building were filled with the sights and sounds of senators caviling, lobbyists baying and inexperienced White House officials running for cover.

Almost no one noticed, but the real losers in the end were America’s working poor, the tough-luck folks who always seem to get lost in the shuffle when politicians and Gucci-shoed flaks and lobbyists get together in Washington. This time they got caught in a vicious squeeze between two of the most powerful lobbying groups in Washington: the oil industry and senior citizen groups.

And in the process, an expanded tax break to help minimum-wage workers get out of poverty was gutted.

The story begins with the brutal arithmetic of the Clinton budget: The President and Congress agreed to achieve $500 billion in deficit reduction over five years.

All the arguments in the Senate were over how to get there.

On one side was Sen. David Boren (D-Okla.), who had bolted from Clinton’s camp by proclaiming, just before the budget was passed by the House and sent to the Senate, that he couldn’t vote for the broad-based, $71-billion energy tax included in the bill. Boren wanted deficit reduction achieved with more spending cuts and smaller tax increases; his demands were absolutely Republican.

Although he had once supported the President’s economic package, Boren was now under fierce pressure back home in Oklahoma to rebel against the White House. The energy industry had mounted a slick anti-tax advertising campaign--but that was almost redundant in Oklahoma. Most middle-class voters in the state, like their counterparts elsewhere around the nation, already hated the fact that Clinton wanted to raise their taxes after promising to cut them.

Privately, other Democratic senators and their staffs were denouncing Boren as a dissembling traitor, a man who had blindsided the President at the last minute.

But Boren mattered. He had to be appeased. The Senate Finance Committee was the choke point for the budget, and with all nine Republicans on the 20-member panel planning to vote against it, Clinton needed all 11 committee Democrats to keep the bill moving to the Senate floor and final passage.

Ah, but this is where it got tricky: How do you subtract $71 billion, find enough spending cuts to make up the difference and still come up with a budget that adds up to $500 billion in deficit reduction?

Given the arcane rules of the congressional budget process (believe me, you really don’t want to know about them), there were actually only two or three big pots of money available for the senators to raid.

One was Medicare. And as Boren and his allies on the finance panel demanded a smaller and smaller energy tax, they proposed larger and larger cuts in Medicare.

Another pot of money was the earned income tax credit, a measure designed to give the working poor a rebate on their taxes. Clinton had proposed expanding the tax credit by $28 billion, partially to offset the effects of his energy tax on the poor, but also to do more: The credit would pull millions of minimum-wage workers above the federal government’s official poverty line. It was one of Bill Clinton’s favorite provisions in the economic package.

Meanwhile, as Boren proposed more Medicare cuts, he ran right into the senior citizen lobby and Sen. Jay Rockefeller, the patrician liberal from West Virginia who is an ardent defender of Medicare funding. The American Assn. of Retired Persons, the powerful seniors lobbying group, held news conferences around the country warning against Medicare cuts, and, behind closed doors, Rockefeller stared down Boren. Boren got the message: Look for spending cuts elsewhere.

Elsewhere meant the earned income tax credit, despite Clinton’s love for the measure. Under the rules of the budget, the tax credit actually counted as spending, so scaling back Clinton’s proposed increase counted as a spending cut. That suited Boren’s purposes nicely; reducing the tax credit while gutting the energy tax would sharply improve the official ratio of taxes to spending cuts in the overall budget.

And, unlike Medicare, the earned income tax credit didn’t have a well-organized and powerful lobby behind it, or an important senator working to protect it. While Rockefeller supported the tax credit, he and other liberal Democrats used up their political chits in the negotiations defending Medicare; they couldn’t, or wouldn’t, expend the same amount of capital on the tax credit.

The result was predictable. The senators kept going back to the tax credit every time they needed to boost the ratio of spending cuts to taxes to appease Boren and other conservatives. When they were done, more than $10 billion had been taken out of Clinton’s initial proposal. Three million working-poor households were stripped of the benefit, according to the libewral Washington-based Center on Budget and Policy Priorities. What’s worse, those people would have no credit to offset the effects of the Senate’s proposed 4.5-cent gasoline tax hike.

Meanwhile, a $7.5-billion expansion of the Food Stamp program proposed by Clinton also disappeared from the Senate bill, hurting the poor once again.

Clinton may yet resurrect the tax credit during House-Senate budget negotiations, but the problems the proposal encountered in the Senate may be a preview of things to come. Now that deficit reduction really dominates policy-making in Washington, tough choices seem certain to be the order of the day. When you’re playing a zero-sum game, powerful forces will collide more frequently. And you can count on the weak and unrepresented to lose out.