Clinton Budget Triumphs, 51-50 : Gore Casts a Tie-Breaking Vote in the Senate : Deficit: President says Congress 'laid the foundation for the renewal of the American dream.' Sen. Kerrey's decision to back plan in last hours assured its passage.

TIMES STAFF WRITERS

In a much-needed victory for his young Administration, President Clinton's sweeping economic program of tax increases and spending cuts cleared its final congressional hurdle Friday night, when the Senate narrowly approved it, 51 to 50, on a tie-breaking vote cast by Vice President Al Gore.

Immediately after the outcome was announced, cheers erupted from the floor of the Senate and its spectator galleries and a stern-looking vice president called for order.

When the final tally was in, all of the Senate's 44 Republicans had voted against the plan, as expected, along with six of the chamber's 56 Democrats. The measure, approved by a 218-216 margin in the House Thursday, now requires only Clinton's signature to enact it into law.

Despite having won by the slimmest of margins, an exuberant President, flanked by Gore, appeared after the vote at the North Portico of the White House.

"After a long season of denial and drift and decline, we are seizing control of our economic destiny," Clinton said, adding, "this is not easy, but real change is never easy."

Calling the outcome "a very, very important beginning," he said that by acting on the economic plan, Congress "laid the foundation for the renewal of the American dream."

Meanwhile, the President's chief opponent in the six-month-long battle over the program, Senate Minority Leader Bob Dole (R-Kan.), declared: "This was not a battle against a President. It was a battle against a plan that we didn't think was very good."

Victory in the tortuous process was assured only in the last hours before the vote, when Sen. Bob Kerrey (D-Neb.), whose vote was essential for passage, announced that he would reluctantly support the plan rather than bring down the first Democratic presidency in 12 years.

"This plan is a first step--not the only one, not the last one--but a first one," Senate Majority Leader George J. Mitchell (D-Me.) promised the senators as they prepared to vote on the unpopular package that some feared could end their political careers. "Join me in voting yes on this bill, not for your reelection. . . . Make the decision based upon what is best for our country."

But it was a vote that few cast with enthusiasm.

In a dramatic speech in the Senate that ended days of Hamlet-like public agonizing, Kerrey accused Clinton of backing away from his call for "shared sacrifice" to conquer the deficit. "The price of this proposal is too low. It's too little to match the greatness needed from Americans now, at this critical moment in this world's history," he lectured Clinton, pleading: "Get back on the high road, Mr. President, where you are at your best."

Nonetheless, Clinton's onetime rival for the Democratic presidential nomination added: "I could not, and should not, cast a vote that brings down your presidency. . . . I do not trust (the Senate's) 44 Republicans enough to say no to this bill."

With Kerrey's commitment, the Senate was evenly divided, opening the way for Gore to cast the vote that would send it to Clinton's desk to be signed into law. Gore played the same role when the Senate stalemated over its original version of the budget bill earlier this summer.

When Kerrey made clear which way he would vote, Senate Finance Committee Chairman Daniel Patrick Moynihan (D-N.Y.) leapt to his feet and applauded and Kerrey's Democratic colleagues rushed to congratulate the Nebraska senator. White House aides, watching on television, broke into applause.

Kerrey, talking to reporters after his speech, said that he would have voted "no" if the vote had occurred Thursday because he was unhappy over the Administration's acceptance of a $3-billion increase in funds for Midwestern flood relief.

"I was upset," Kerrey said, because the White House failed to oppose the move by a bipartisan group of senators to increase the size of the disaster aid. "He (Clinton) almost lost Sen. (Robert C.) Byrd (D-W.Va.) for the same reason."

Throughout the day, Clinton himself, along with senior Administration officials and Senate leaders, spared no effort to win Kerrey's support. The President spoke to his onetime rival for the presidency three times Friday, once in person at the White House and twice by phone.

As the wooing of Kerrey wore on, 10 hours of debate raged on the Senate floor over the highly controversial bill that is designed to reduce the soaring federal deficit by $496 billion over five years through a complex web of spending cuts and tax increases. The tone of the seemingly endless oratory was marked by the same bitter partisanship that has characterized the negotiations over the budget package since Clinton introduced it in mid-February.

Clearly, both sides recognized that the vote on the bill represented the most significant test faced thus far by the President and could indicate how he might fare in the major initiatives still to come, among them, health care and welfare reform.

Democrats promised that Americans would find new jobs by the millions and rarely missed an opportunity to align Republicans with the special interests of the well-to-do or to lay blame for the nation's staggering deficit at their feet.

"The Republicans do not like our plan. This is not surprising. We do raise taxes on the wealthiest Americans," Sen. Barbara Boxer (D-Calif.) said, adding that Republicans "never forget who brought them to the dance. I say they have had their chance and California has suffered from these policies."

In turn, Republican after Republican rattled off cataclysmic forecasts of massive job losses and warned that the Clinton plan would devastate small businesses, the primary engine of job creation in the fragile economic recovery.

"Once you strip away the White House public relations veneer, you get to the real truth," said Sen. Pete V. Domenici of New Mexico, the ranking Republican on the Senate Budget Committee.

On occasion, despite the momentous step they were poised to take, some senators digressed during speeches on the chamber floor to take up issues of more narrow and personal concern: Sen. John W. Warner (R-Va.) to argue for more stringent laws governing truckers and Sen. Orrin G. Hatch (R-Utah) to complain about an unfavorable television report on him.

More than one senator relied on the charts and graphs that have become standard fare since the presidential candidacy of Ross Perot to drive home economic points. But only one--the flamboyant Republican from New York, Sen. Alfonse M. D'Amato, resorted to magic.

To dramatize his dim view of the budget bill, he made a dollar disappear, prompting Senate Budget Committee Chairman Jim Sasser (D-Tenn.) to suggest that he consider a new career on the carnival circuit.

Hyperbole was the order of the day. Sen. Charles E. Grassley, (R-Iowa) compared the bill to "a blivet--five pounds of manure pounded into a four-pound sack. The point is, if you vote for this package, you're voting for deep doo-doo."

The man who had more riding on the Senate vote than anyone--Clinton--spent much of the day trying to ignore it, aides said, except for his meeting with Kerrey. Unlike Thursday, when Clinton had spent most of the afternoon and evening on the phone cajoling members of the House, this time, with every vote but Kerrey's already committed before the debate began, there was little for Clinton to do.

"Everyone's walking around saying 'so what have you heard?' " said one senior White House aide. "We're just waiting."

Clinton watched little of the Senate debate, although Chief of Staff Thomas (Mack) McLarty and White House lobbyist Howard Paster spent large parts of the day in the study next to the Oval Office, watching the telecast and periodically giving Clinton updates. Instead, aides said, the President worked on plans for the health care reform package he wants to unveil next month and reviewed other paperwork for upcoming events.

House and Senate negotiators have spent weeks in their efforts to produce the final package, which was a compromise drawn from plans that had narrowly passed the two houses earlier this year.

Supporters claimed that the final bill would reduce the federal deficit, which is now running at roughly $300 billion annually, by $496 billion over the next five years. Instead of rising to $361 billion in fiscal 1998, as it would under current policies, it would fall to about $213 billion.

However, all the projections are based on assumptions about the underlying performance of the economy, and as history proves, those projections can be wrong.

After many changes by Congress, the bill retains the central elements of Clinton's original plan. Most significantly, it changes course from the tax policies of the 1980s, shifting more of the overall burden to the wealthy.

An estimated 90% of its $241 billion in new taxes would be paid by individuals and families earning more than $100,000 a year. The legislation also imposes $255 billion in spending cuts, the largest of which will come from Medicare and are significantly deeper than Clinton proposed.

At the same time, Congress rejected Clinton's initial proposal for a broad-based energy tax and accepted instead a smaller 4.3-cent-a-gallon addition to the federal gasoline tax, currently 14.1 cents a gallon. The change was necessary to win the votes of a handful of balky senators, some from oil-producing states.

Lawmakers also scaled back or eliminated some of the new spending and investment incentives that Clinton initially had sought. The final package expands by $21 billion the earned income tax credit for low-income working people, and provides relatively modest increases in social spending and investment incentives.

Overall, according to figures cited by Boxer and Sen. Dianne Feinstein (D-Calif.), roughly 300,000 of California's 13 million federal income tax filers will pay more, while the taxes of 2 million will be lower. Virtually everyone will pay more in gasoline taxes, which the Administration estimates will average about 46 cents a week for West Coast taxpayers.

For Democrats, Boxer said, the vote was one of "political courage." Indeed, every lawmaker voting for it was well aware that, as they adjourned for their August recess, they were going home to voters who are outraged over the bill's tax increases and spending cuts.

Moreover, even if the plan lives up to its billing, its promised benefits are unlikely to materialize in time to allow lawmakers to take credit for them in next year's elections, when all 435 House members and one-third of the Senate will be on the ballot.

To the contrary, in the view of many economists. They say that while the plan is better than doing nothing about the deficit, in the short run its higher taxes and lower government spending are likely to be a drag on the economy that would only partly be offset by the more nebulous stimulus of lower interest rates.

While all these considerations made voting for the plan difficult, most Democrats believed that there was an even worse alternative: killing the package and having no deficit-reduction plan at all to offer for their efforts.

In fact, both parties have been guilty of confusing public opinion by massaging the figures to suit their own purposes.

Clinton and the Democrats, for instance, took every opportunity to tout the bill as the largest deficit-reduction package in history--which is true only if inflation is not taken into account.

When it is, the 1990 deficit plan signed into law by former President George Bush comes out slightly bigger. And it is widely regarded as a failure. Even with those earlier spending cuts and tax increases in effect, the deficit has gone up, not down, primarily because the unexpectedly severe recession sent entitlement spending soaring.

Nor is the plan the biggest tax increase in history, as Republicans contended. With inflation factored in, the largest tax increase was the one enacted in 1982 under President Ronald Reagan and engineered in the Senate Finance Committee by its then-Chairman, Bob Dole.

The plan undeniably bets on many uncertainties. While most of its taxes would take effect immediately--and some on upper-income people would even be retroactive--the bulk of the cuts in government programs would not come until the last two years of the five-year plan. Republicans note hopefully that Clinton may not even be President when some of them take effect.

Moreover, while the plan would reduce the deficit over the next five years, economic projections show red ink increasing again after 1997, unless health care costs are somehow brought under control. Thus, in beating the deficit problem over the long term, Democrats clearly are banking on Clinton's health care proposals being enacted--and succeeding at cutting costs.

With all those uncertainties adding to voter Angst , many Democrats offered reassurances that additional spending cuts would be enacted this fall. Sen. Bill Bradley (D-N.J.) vowed that the package itself was only "an important first step--the biggest of the last decade to reduce the increase in the deficit."

Meanwhile, Republicans made a last-ditch effort to derail the bill through a series of parliamentary maneuvers. They knew they would fail, but each procedural challenge offered another opportunity for more debate that they could use to bore into the bill's political weaknesses.

Their boldest attempt challenged the constitutionality of a provision making the bill's massive tax increases on high-income Americans retroactive to last Jan. 1. Voting along party lines, however, the Senate rebuffed the challenge, 56 to 44, although several Democratic senators acknowledged in the debate that they do not approve of retroactive tax increases.

Other GOP attempts to pick apart the bill on grounds that some provisions violated the budget enforcement act were ruled out of order by the Senate parliamentarian. Attempts to appeal this ruling were turned down, mainly along party lines.

Times staff writers Michael Ross and David Lauter contributed to this story.

Cutting the Deficit: A Taxpayer's Guide to the Plan

Highlights of the deficit-reduction bill worked out by President Clinton and congressional Democrats:

The Goal: Deficit Reduction

Democrats claim the plan will reduce the deficit by $496 billion over five years, compared with what the red ink would be with no action. That still would leave about $1 trillion added to the national debt during the period.

The Start: Oct. 1

The plan takes effect in the coming fiscal year, which begins Oct. 1. But various elements kick in at different times:

Income tax hikes: Retroactive to Jan. 1, 1993, but affected individuals would have two years to pay the higher taxes without penalty.

Gas tax: Oct. 1

Medicare tax: Jan. 1, 1994

The Breakdown: More Cuts Than Taxes

(White House estimate)

Tax increase: $241 billion

Spending cuts and interest savings: $255 billion

Impact On The Rich

Income tax rates will jump. According to the President, every $10 in deficit reduction will come from:

$4: Taxes on those earning more than $200,000 a year.

$1: Taxes on those earning under $200,000 a year.

$5: Spending cuts

Impact On The Middle Class

For most Americans, the effect of the plan will be most evident at the gas pump, where the federal gas tax will rise by 4.3 cents per gallon. Here's an estimate of what a typical driver would pay per year:

California: $31

National average: $29.39

Highest: (Wyoming) $39.13

Lowest: (West Virginia) $10.38

Impact On The Poor

Working poor families with children will get tax breaks or government payments. Food stamp outlays will rise.

The Details

Individual income taxes: The current top rate of 31% will rise, retroactive to Jan. 1, to 36%. This will apply to single filers' taxable income--after deductions and exemptions--above $115,000 and couples above $140,000. In most cases, that will not affect singles with gross incomes less than about $140,000 and couples less than about $180,000. A new 10% surtax will hit taxable income above $250,000, producing a new top rate of 39.6%.

Social Security benefits: Starting next year, retirees whose total incomes, including half their Social Security, exceed $34,000 (singles) or $44,000 (couples) will pay income tax on up to 85% of their benefits. Those with incomes between $25,000 and $34,000 (singles) or $32,000 and $44,000 (couples) will continue being taxed on up to 50% of their benefits.

Energy: Taxes on gasoline, now 14.1 cents a gallon, and diesel, now 20.1 cents, will rise by 4.3 cents on Oct. 1. Commercial planes will be exempt through Sept. 30, 1995. Starting next Jan. 1, recreational motorboats will be subject to the full diesel tax.

Medicare tax: Effective Jan. 1, 1994, the $135,000 limit on the amount of annual wages and self-employment income subject to the Medicare tax would be eliminated.

Corporate income taxes: The current 34% top rate would rise to 35% for taxable income over $10 million, retroactive to Jan. 1.

Earned-income credit: Starting next year, this special tax cut or outright government payment to the working poor would be increased by about $4 billion a year and, for the first time, include a small benefit for childless people between ages 25 and 64. Under current law, the maximum credit is $2,364 this year; it would rise to about $2,600 next year and higher in subsequent years.

Business deductions: Effective next year, the portion of meals and entertainment costs that could be deducted as a business expense would drop to 50% from the current 80%. Club dues and lobbying expenses would no longer be deductible.

Sources: Commerce Department, White House, Congressional Budget Office, Democratic Study Group, Heritage Foundation, Federal Highway Administration data, Associated Press, Times staff

A Look At The Bottom Line

The impact on five hypothetical tax returns, according to the accounting firm of Deloitte & Touche: Head of Household

Total adjusted gross income: $14,000

Current New Plan Change Taxable income $1,050 $1,050 $0 Refund to taxpayer +511 +768 +257

*

Married Filing Jointly

Total adjusted gross income: $40,000

Current New Plan Change Taxable income $28,750 $28,750 $0 Total tax liability* 7,373 7,373 0

*

Married Filing Jointly (Retired)

Pension income: $47,000

Social Security benefits: $13,000

Total income: $60,000

Current New Plan Change Adjusted gross income $52,500 $58,500 $4,550 Income tax liability* 6,470 7,740 1,274

*

Married Filing Jointly

Total income: $200,000

Current New Plan Change Taxable income $169,020 $169,020 $0 Total tax liability* 55,002 56,453 1,451

*

Married Filing Jointly

Total adjusted gross income: $400,000

Current New Plan Change Taxable income $400,000 $400,000 $0 Total tax liability* 111,849 127,569 15,720

* Includes payroll deductions such as Social Security and Medicare

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