Major Tax Hike, Benefit Levy OKd in Budget Talks

House and Senate negotiators agreed Thursday to back-date to March 1 a major tax hike imposed on upper income Americans and to scale back proposed tax increases on higher income Social Security recipients

Lawmakers working to forge a compromise on House and Senate versions of President Clinton’s deficit reduction package decided to lock in income tax rate increases on individuals with taxable earnings above $115,000 a year and couples making $140,000 a year or more. The conferees decided to make the tax hikes retroactive to March 1, splitting the difference between Jan. 1 in the House bill and July 1 in the Senate version.

The bill would add a new top bracket of 35% for those above the income thresholds and impose a 10% surtax on taxable income over $250,000. But the negotiators agreed to drop a Senate provision that would have imposed a new surtax on capital gains--the profit from the sale of assets--on taxpayers with incomes above the quarter-million-dollar level.

Negotiators also decided to limit new taxes on Social Security recipients to 85% of benefits of individuals with incomes above $32,000 a year and couples receiving more than $40,000.

Current law taxes 50% of Social Security benefits for individuals earning more than $25,000 a year and $32,000 for couples. Clinton had proposed to tax 85% of the benefits of everybody above those levels.

Although negotiators reached agreement on a number of other matters as well, they remain far apart on such major issues as proposed increases in the gasoline tax and efforts to curtail Medicare spending.

“On revenues, we are about halfway there,” Rep. Dan Rostenkowski (D-Ill.) told his fellow negotiators at an open meeting of their conference. “But there is not much progress on the spending side.”

As compromise talks continued, the House took an extraordinary step that illustrated growing congressional resolve to cut the budget deficit, voting to block approval of a $3-billion flood relief bill at least temporarily because it did not include off-setting reductions in spending.

The 216-205 vote against consideration of a bill providing emergency aid to flood victims in eight Midwestern states jolted the House Democratic leadership and even surprised those who advocate paying for disaster aid by cutting other federal spending--a stricture known as “pay-as-you-go.”

Many who voted to block the measure Thursday did so largely to force the House to consider the issue of off-setting cuts. They are expected to vote for the aid eventually, even if proposed spending cuts are turned down.

Normally, disaster relief measures are approved by overwhelming majorities in both the House and Senate and are not subject to pay-as-you-go requirements. As a result of the vote, the bill was set aside temporarily so House leaders can decide how to deal with the new demand. No House action is likely before Monday, although approval is expected some time next week.

In another sign of heightened deficit awareness, the Senate Judiciary committee voted, 15 to 3, to approve a constitutional amendment to require a balanced budget, a measure opposed by Clinton that has grown increasingly popular among Democrats in Congress. It still faces major obstacles before it is likely to be passed by the Senate and the House. Two-thirds majorities are required in both chambers.

The House flood relief revolt was backed by a solid bloc of 171 Republicans and 45 Democrats, including many freshmen who were elected to deal with ever-rising deficits. It was the first time since approval of the 1990 budget act, which required pay-as-you-go for most federal outlays, that Congress has balked at providing disaster aid without off-setting reductions.

The vote dramatized new congressional concern over spending at a time when President Clinton is pushing for passage of a bill designed to reduce the deficit by $500 billion.

It also represented a tricky political problem for those who blocked the relief because they may be blamed for delaying assistance to hundreds of thousands of flood victims to make a point about fiscal prudence.

“Time is of the essence,” said Rep. William H. Natcher (D-Ky.), chairman of the Appropriations Committee, which rushed the legislation to the floor at Clinton’s request.

“The pay-as-you-go approach is unprecedented,” complained Rep. Richard J. Durbin (D-Ill.), a chief advocate of emergency flood aid. “People from Florida who had their hands out after Hurricane Andrew are voting against aid for Midwesterners.”

But Rep. Jim Nussle (R-Iowa), who led the battle for new spending cuts to offset the amount of flood aid, declared: “This sets a precedent: we won today the opportunity to discuss how we are going to pay for it.”

Nussle acknowledged, however, that he would vote in favor of flood relief even if he loses his attempt to get off-setting reductions in spending and he seemed anxious to have another chance to do just that.

Showing similar political uneasiness, House Minority Whip Newt Gingrich (R-Ga.) demanded another vote Thursday night but he was rebuffed by House Majority Leader Richard A. Gephardt (D-Mo.), whose hometown of St. Louis has been battered by floodwaters.

Gephardt said that he would try to produce a rule governing debate that would accommodate those who want to finance flood relief by cutting spending. He noted that no such offsets were required for other major disasters in the last four years--hurricanes in Florida, Hawaii and South Carolina and the 1989 California earthquake.

“I don’t want my constituents to have to fork up the money or accept cuts in Social Security or some other program,” Gephardt said.

The argument for off-setting flood relief with spending cuts was led by two members of Congress from flooded areas--Nussle and Rep. Timothy J. Penny (D-Minn.)--and others from flood-affected states joined with them.

The emotional debate featured a series of loud disputes. Noting the flowery tributes paid to flood victims, Durbin shouted: “Member after member stood up to salute their courage and valor and then turned around to stick a knife in their backs when it came to sending federal disaster aid.”

Rep. Carrie Meek (D-Fla.) said that the public did not understand the delay in approving the aid, saying that some members were having a “mental disaster.”

Defending his position, Nussle replied: “It’s very easy to spend other people’s money, particularly when you are in a mood of compassion.”

But Durbin noted that a $3 billion cut in spending for the current fiscal year--which ends Sept. 30--would be difficult, if not impossible, because most of the funds already have been obligated.

“Nussle wants to cut the Corps of Engineers by 16% and they are the ones who are dealing with the flood,” Durbin complained.