Broad Outlines of Budget Plan OKd : Economy: Administration, Democratic leaders craft accord that boosts gasoline tax 4.3 cents. It comes close to meeting Clinton’s $500-billion deficit-reduction target.


The Administration and Democratic leaders announced Friday night that they have agreed on the broad outlines of an economic plan that increases the federal gasoline tax by 4.3 cents a gallon but falls just short of President Clinton’s $500-billion deficit-reduction target.

Negotiators also agreed to take a bigger income tax bite from wealthy Americans by moving back by two months--to Jan. 1, 1993--the effective date for a higher tax bracket.

“A couple of issues remain open but the overwhelming number of issues have been resolved,” House Speaker Thomas S. Foley (D-Wash.) said after marathon negotiations on the politically sensitive bill.


At the White House, a spokesman for Clinton said: “There’s agreement in principle and we’re very encouraged by that.”

Foley and Senate Majority Leader George J. Mitchell (D-Me.) refused to disclose details of the tentative accord but both predicted that the legislation would pass the House and Senate next week.

The President and his top aides plan a heavy blitz of sales events between now and those votes in hopes of shoring up support for the package. Republicans and billionaire businessman Ross Perot are expected to fight the plan just as vigorously.

Clinton spent the last several days giving interviews to next week’s news magazines touting the plan. He probably will deliver a speech to the nation from the Oval Office--his third since taking office--Monday night. And senior officials, from Vice President Al Gore and Treasury Secretary Lloyd Bentsen on down, plan a nearly constant series of appearances, television interviews and events to provide political cover for members of Congress who may be reluctant to support the measure.

A finished product is expected to be ready for presentation to Senate-House conferees Monday and details will be made public then. Negotiators and staff aides will work over the weekend to fill in the remaining blanks and complete the calculations on revenue gains and losses, a White House official said.

“There is no final deal yet,” said George Stephanopoulos, a senior adviser to Clinton, but he indicated that Congress will be able to vote on the bill before it begins its scheduled summer recess next Friday.


The marathon negotiations were aimed at finding the delicate balance that was needed to avoid losing any votes in the Senate or even a handful of votes in the House. The House, which passed its version of the legislation by 219 to 213, is expected to vote on Thursday, with a Senate vote following later that day or Friday.

Every vote will count in the Senate, which passed an earlier version of the bill when Gore cast a tie-breaking vote.

Although some final details remain to be worked out, the package clearly contains some important victories for Clinton as well as some signal defeats.

The President achieved two overriding goals. First, while the package will not eliminate the deficit, it stands a chance to reduce it substantially. Further progress on deficit reduction will depend on Clinton’s ability to rein in inflation of medical costs, which are the fastest rising part of the federal budget. That task is one of the chief goals of the health reform package that he is expected to unveil late next month.

The second Clinton goal is a major shift in the burden of taxation, an objective of liberal social reformers for at least two decades.

Lower-income families--those with incomes below $30,000--will pay billions of dollars less in taxes, while families with incomes above $140,000 will pay tens of billions of dollars more. The broad middle class will pay only the additional gasoline tax, an increase of about $30 a year for drivers who travel 12,000 miles yearly.

But Clinton lost bids for several other goals, most notably, his energy tax. The President initially had proposed a $78-billion tax on the heat-content of fuels that was designed not only to raise money but to promote energy conservation. He had to settle for a $23-billion increase in the gasoline tax that, he concedes, will be too small to have any significant impact on conservation but will be large enough to cause him political problems.

Clinton also had to sacrifice some of the added spending on social programs that he wanted, agreeing to smaller amounts for so-called empowerment zones that would provide businesses with incentives to locate in inner cities and for expanding the Head Start program for preschoolers from disadvantaged homes.

The Administration had hoped to add 6 cents to the existing 14.1-cent-a-gallon tax but Senate negotiators insisted that the increase be held to 4.3 cents. The decision meant that the conferees had to find other sources of funds to protect House-backed anti-poverty provisions in the bill.

To offset part of the lost revenue, negotiators decided that the new 36% tax bracket for individuals whose taxable income exceeds $115,000 and couples earning more than $140,000 will take effect as of last Jan. 1 instead of March 1, as they had tentatively agreed last week. The shift, which also applies to a new 10% surtax on those earning more than $250,000, will raise an additional $6 billion. The current top tax rate is 31%.

Even with that change, Foley and Mitchell said, deficit spending over the next five years would be lowered by $496 billion to $498 billion, slightly less than Clinton’s $500-billion target.

Among the outstanding questions Friday night were the precise amount of Medicare spending cuts and the number of depressed urban areas to be designated as “empowerment zones” qualified for special federal assistance.

Conferees had decided earlier to cut Medicare spending by $54 billion over the next five years, splitting the difference between the $50 billion figure sought by the House and $58 billion reduction the Senate favored.

They tentatively agreed Friday to reduce Medicare spending by $56 billion but the cut triggered immediate protests from senior citizens’ groups and medical providers. Congressional aides familiar with the bargaining said that it was the biggest unresolved issue.

Lawrence T. Smedley, executive director of the National Conference of Senior Citizens, said that his organization cannot support cuts beyond the $54-billion figure.

“There is every appearance that key negotiators in the conference view Medicare and senior citizens as . . . fiscal cash cows to be milked to protect special interests and to make up for shortfalls in fair taxation of energy use, large business and the wealthy,” Smedley said in a statement.

Lonnie R. Bristow, chairman of the American Medical Assn. board of trustees, said that $56 billion in Medicare cuts would “threaten access to health care for people over 65, the fastest growing segment of our population. . . . We recognize the need for the most effective budget package possible but not if it compromises the health of millions of Americans.”

On the empowerment zones, conferees had agreed earlier to spend $1 billion to help 10 urban areas with high jobless rates through programs that include incentives to attract businesses and to hire local residents.

The compromise legislation also would:

* Expand the earned-income tax credit for the working poor by increasing the amount available to families earning less than $30,000 a year. The adjustment would cost an additional $21 billion over the five years.

* Impose taxes on 85% of Social Security benefits for individuals with retirement incomes above $32,000 and retired couples with incomes of more than $40,000. The change would bring in an additional $26 billion in revenues over five years. The current tax is on 50% of benefits for individuals with incomes above $25,000 and couples earning more than $32,000.

* Include a 35% tax on corporation income of $10 million or more, one percentage point higher than the current rate but one percentage point below the 36% rate that Clinton originally proposed.

Although the bargaining has gone on for two weeks, the final stages proceeded slowly in a room near the House floor during the morning and in Mitchell’s office in the afternoon and evening.

While Democrats struggled to nail down an agreement, Republicans kept firing at the President’s budget proposal as a “recipe for disaster” and some argued that the Administration should start thinking about a fallback if the package is defeated.

“The American people don’t like this bill,” said Sen. Trent Lott (R-Miss.). “They don’t like the gasoline tax increases. They don’t like the tax increases generally. . . . I predict that . . . the Senate will defeat this package.”

In another development, two House members urged that a special session of Congress devoted to budget-cutting be convened. Rep. Robert E. Andrews (D-N.J.) and Rep. Bill Zeliff (R-N.H.) called for the session after 11 senators supported the same plan as a way of making more spending cuts.

Times staff writer David Lauter contributed to this story.

Evolution of the Budget Deficit Plan

The plan originally proposed by President Clinton was modified in the House and Senate. Democratic leaders just finished reconciling differences. Here’s a look at how the key elements have progressed:


* Clinton: Create broad-based “BTU” tax on energy consumption based on heat content of such fuels as oil, gas, alcohol and coal. Revenue: $71 billion.

* House: Essentially the same.

* Senate: Scrap BTU tax and impose 4.3-cent-per-gallon tax increase on gasoline and diesel fuel. Revenue: $22 billion.

* Negotiators: Accept Senate version.


* Clinton: Raise top individual income tax rate to 36% from 31% for individuals earning $115,000 or couples earning $140,000. Impose 10% surtax on income of more than $250,000, except capital gains. Revenue: $115 billion.

* House: Same.

* Senate: Same, except 10% surtax would also apply to capital gains, and 36% rate would be reduced to 33.5%. Revenue: $106 billion.

* Negotiators: Accept House version.


* Clinton: Tax 85% of Social Security benefits for married couples with incomes of more than $32,000; $25,000 for individuals. Revenue: $32 billion.

* House: Same.

* Senate: Tax 85% of Social Security benefits for married couples with incomes of more than $40,000; $32,000 for individuals. Revenue: $26 billion.

* Negotiators: Accept Senate version.


* Clinton: Remove $135,000 ceiling on wages subject to Medicare payroll tax. Cut Medicare payments to providers by $50 million over five years.

* House: Same.

* Senate: Same payroll tax plan. Reduce Medicare payments by $58 billion.

* Negotiators: Same on payroll tax plan. Agree to reduce Medicare payments by $56 billion.


* Clinton: Expand tax credit for working poor over two years. Families with at least two children would get up to $2,685 in 1994, $3,371 thereafter. Cost: $28 billion.

* House: Same.

* Senate: Smaller, more gradual increase in tax credit for families with children. Cost: $18 billion.

* Negotiators: Agree on compromise costing $21 billion.


* Clinton: Create a new 36% tax bracket for corporate income exceeding $10 million. Impose 3% surtax on taxable income between $15 million and $22 million. Projected revenue: $32 billion.

* House: New tax rate would be 35% for income exceeding $10 million. Projected revenue: $16 billion.

* Senate: Same as House.

* Negotiators: Adopt 35% tax rate.


* Clinton: Reduce alternative minimum tax on corporations. Provide investment tax credit and research-and-development tax credit. Cost: $48 billion.

* House: Same alternative minimum tax relief and R&D; credit. No investment tax credit. Raise amount small businesses can write off for equipment purchases from $10,000 to $25,000. Cost: $26 billion.

* Senate: Reduce alternative minimum tax relief for corporations. No investment tax credit. Same increase in allowance for equipment purchases. Provide R&D; credit for 12 months. Cost: $13 billion.

* Negotiators: Details unknown.


* Clinton: Create 10 empowerment zones and 100 enterprise communities. Each would receive special employment and investment tax incentives. Cost: $5 billion.

* House: Essentially the same. Cost: $5 billion.

* Senate: No provision.

* Negotiators: Details unknown.

All figures represent estimated revenues and costs over five years

Source: Times Washington Bureau