Bentsen Signals Possible White House Tax Plan : Budget: Treasury secretary’s comments are the strongest indication the Administration may propose a middle-class cut. GOP welcomes remarks.

Treasury Secretary Lloyd Bentsen, sending the strongest signal yet of White House plans to propose tax relief next year, said Friday a middle-class tax cut is desirable so long as it doesn’t worsen the federal deficit.

“We agree on the desirability of a tax cut for middle-income Americans, but something of that nature must be properly paid for,” said Bentsen, the Clinton Administration’s chief spokesman on economic matters.

Following the sweeping victory by Republicans in last week’s elections, the Administration has been scrambling to revise its still-developing budget proposal and come up with other ways to deal with a Congress that will be in Republican hands for the first time in 40 years.

Bentsen’s comments--to a group of U.S. and European legislators called the North Atlantic Assembly--were the Administration’s strongest indication that a middle-class tax cut is a top option as President Clinton begins in coming weeks to make final decisions on the Administration’s 1996 budget.

Rep. Dick Armey (R-Tex.), the incoming House majority leader, said: “I welcome the Clinton Administration’s belated support for our 1994 Republican budget initiative. The average American family today pays more in taxes than food, shelter and clothing combined, and we look forward to working with the White House to remedy that.”

During his 1992 election campaign, Clinton promised tax relief for the middle class. But he abandoned the pledge after saying federal deficits looked worse than he thought.

Bentsen said any tax relief offered by the Administration would be offset either by spending cuts or higher taxes elsewhere to ensure that the budget deficit does not grow larger and crowd out private demands for capital.

“No one wants higher interest rates and slow growth if it’s the price for a slightly smaller tax burden,” Bentsen said.

While he did not specifically say what type of tax relief the Administration was considering, private economists said they viewed Bentsen’s comments as an Administration signal.

“It is significant,” said economist David Jones of Aubrey G. Lanston & Co., a New York City government securities dealer. But he added that if a bidding war develops between the Administration and Republicans over the size of a tax cut, it could threaten financial stability.

Lawrence Chimerine of the Economic Strategy Institute, a think tank, said the Administration could be caving in on taxes. Bentsen “is sort of capitulating already to the Republican strategy,” he said. “The Administration is saying if there are spending cuts, the first priority is to pay for tax cuts rather than cut the deficit.”

On Tuesday, Clinton budget chief Alice Rivlin said proposed GOP tax cuts could drive the deficits skyward and shove the economy into a recession.

Rivlin, head of the Office of Management and Budget, said it would be irresponsible to cut taxes without paying for them with offsetting spending cuts. “If we had a big tax cut right now and people were spending more, the inflation danger would be much more real than it is now,” she said.

While sounding a similar theme, Bentsen was more conciliatory.

Bentsen, who served 22 years in the Senate, said: “I learned in my years as chairman of the Finance Committee, and as a minority member, that cooperation takes you a great deal farther than does confrontation.”