NEWS ANALYSIS : Nation May Lack Resolve to Tackle Real Reform : Economy: Voters in ’92 election blasted gridlock and demanded new fight on deficit. But budget plan shows America may not be ready for harsh solutions.

Did America flinch last week?

A year ago, all the pieces appeared to be in place for economic change. The nation finally seemed ready to tackle the government’s long overdue accounts and put its fiscal house in order. An angry electorate vilified Washington for gridlock and demanded that it address the federal budget deficit and other basic economic issues that had been ignored or finessed by a generation of political leaders.

The 1992 election, if nothing else, was a mandate for action.

But the budget plan narrowly approved by Congress last week fell short of that mandate, and in so doing, it raised fundamental questions about the nation’s resolve to make the tough choices necessary to bring about genuine reform.

The drama surrounding the budget plan’s final passage in the House and Senate made for great political theater. In the terrified look on the face of freshman Rep. Marjorie Margolies-Mezvinski (D-Pa.), when she switched sides at the last minute to put the budget over the top on the House floor, and in the agonizingly public deliberations of Sen. Bob Kerrey (D-Neb.), who helped provide the margin of victory in the Senate, there was the appearance that America was finally taking harsh economic medicine.

Yet the reality is that the package the House and Senate sent back to the President looks very much like government as usual.

The budget plan does include one of the largest tax increases in U.S. history. But even many supporters say they are worried that Clinton’s plan could turn out to be nothing more than a reprise of the failed 1990 budget accord, which raised taxes while failing to solve the nation’s fiscal crisis.

Indeed, Kerrey made it clear in a Senate floor speech Friday night that the reason he nearly voted against the budget was that it appeared to him to be yet another halfway measure.

“My heart hurts with the conclusion: I will vote yes for a bill which challenges Americans too little,” he said.

At best, the Clinton plan is just one more step in the nation’s decade-long effort to deal with the budget deficit, dating back to the 1982 tax boost and running through the Gramm-Rudman deficit-reduction measure and up to the 1990 agreement.

Whether pushed through by Republicans or Democrats, each was designed to chip away at the massive fiscal imbalances built into the system at the very onset of the Ronald Reagan Revolution in 1981. Each was flawed, but taken together they have held the deficit below the unthinkable levels it otherwise would have reached.

History may view each merely as indistinguishable elements of the long deficit-reduction campaign that dominated the Washington agenda of the 1980s and 1990s. Yet the job has never been completed.

The Administration forecasts that the deficit will be reduced by a total of $496 billion over five years, but even with those cuts, the plan will never take the gap below the $200-billion annual level.

And the Congressional Budget Office predicts that the deficit will begin to explode once more at the turn of the century as a result of dramatic demographic shifts, most notably the aging of the baby-boomer generation, which will lead to soaring retirement and health care costs.

“Regardless of the politics, we will have to do a series of these, and each one will become progressively more difficult,” said Robert Greenstein, executive director of the Center on Budget and Policy Priorities, a Washington-based think tank.

But the dirty little secret in all such talk is that phrases like “progressively more difficult” translate into a simple equation: If the deficit is to be eliminated, say many in Washington, the middle class will have to accept real sacrifices.

During the last six months of budget wrangling, Clinton and Congress and, to some extent, the American people demonstrated they are unwilling to take that step. Middle-income Americans were not asked to accept significant new taxes or particularly painful spending cuts in popular programs.

This summer, as his proposed broad-based energy tax came under criticism, Clinton agreed to eliminate it in favor of a 4.3-cent increase in the gasoline tax. Clinton then sold his program to the public based on the populist notion that the middle class didn’t need to participate in any meaningful way in the nation’s reform efforts.

Clinton said the plan would require only a “dime a day” in higher gasoline taxes from the middle class and that working Americans earning less than $180,000 wouldn’t pay higher income taxes. People making more than $200,000--those who Clinton believes benefited the most from GOP economic policies of the 1980s--would pay 80% of the plan’s $241 billion in new taxes.

At 4.3 cents a gallon, the gasoline tax increase could easily be lost among the routine price fluctuations at the pump, and it provides less than a third of the revenues of Clinton’s original energy tax.

Clinton’s other major proposal to increase taxes on the middle class--a provision to increase taxes on the Social Security benefits of middle-class retirees also ran into a buzz saw of opposition. Clinton originally planned to increase taxes on married retirees making more than $32,000; in the end the threshold was raised to $44,000, taking $7.4 billion out of the package. Fewer than 13% of Social Security recipients--generally those with incomes that average over $50,000--will have to pay.

“If we are going to get serious, the President has got to back off this rhetoric that we can solve this problem without the participation of the middle class,” said Rep. Jim Slattery (D-Kan.), a young leader among moderate Democrats.

On the spending side of the ledger, middle-income Americans were similarly protected.

“Some have asserted that the reason we have a deficit and a fiscal problem is that the rich aren’t paying enough,” Kerrey said. “The truth of the matter is (that) our No. 1 problem is very rapid growth in mandatory spending programs that principally do benefit the middle class.”

Those programs--health care, retirement and other entitlement benefits--are in fact driving the deficit, and their beneficiaries suffered only glancing blows from the budget package. Only at the last minute, when facing possible defeat in Congress, did Clinton agree to issue an executive order creating a new review procedure to address the surge in entitlement spending.

As House Majority Leader Richard A. Gephardt (D-Mo.) observed in a dramatic speech on the House floor moments before the vote there Thursday night, Americans “all suffer from the same schizophrenia--all of us want cuts in general but none of us want them when it comes to specifics.”

Clinton and Congress backed off several savings provisions included in the President’s original budget plan, including a temporary pay freeze for federal workers and active-duty military personnel. Congress also rejected Clinton’s bid to scale back costly subsidies for programs, such as the Rural Electrification Administration.

Middle-class retirees who are recipients of Medicare, the program that is contributing more than any other to the deficit’s growth, will largely be spared. The only savings from Medicare beneficiaries will come in the form of a three-year extension of an existing requirement that certain premiums, known as Part B, cover 25% of program costs.

Of course, one reason the budget plan falls short is that the voters were just as conflicted as Clinton. In 1992, America wanted deficit reduction, but it also wanted jobs--priorities that call for nearly opposite economic policies. Deficit reduction costs jobs.

But Clinton’s presidency will still be judged on his success in squaring that circle: taming the budget while not giving up on earlier agenda of job creation. If that is the measure, however, the 1993 agreement has left many unsatisfied on both counts.

“This plan doesn’t take us very far,” said Jeff Faux, president of the Economic Policy Institute, a Washington think tank. “We have a problem of economic growth and jobs that is not solved by this plan. And if we were obsessed as a nation about deficit reduction, there isn’t enough here either.”