Reich Calls on GOP to Add ‘Corporate Welfare’ to Cuts : Budget: Proposal to trim business ‘incentives’ may have won the labor secretary some Republican allies. White House steps back from plan.

Labor Secretary Robert B. Reich challenged the new Republican Congress on Tuesday to scale back business tax breaks and other forms of “corporate welfare” at the same time that it tries to reduce assistance to the poor.

The provocative proposal caught the Clinton Administration off guard and potentially won Reich some unlikely allies among conservative Republicans.

Reich said that the federal government could increase its revenues significantly by doing away with various tax deductions, credits and other “incentives” that reduce the corporate income taxes paid by American businesses.

“Since we are committed to moving the disadvantaged from welfare to work, why not target corporate welfare as well?” Reich declared in a keynote economic speech to members of the centrist Democratic Leadership Council.

The speech reflected a desire on the part of some top Administration officials to press GOP lawmakers to direct their budget-cutting at some beneficiaries of government largess that Republicans have traditionally protected.

“Everything should be on the table,” Reich said in an interview later. He refused to specify programs or tax loopholes that should be eliminated.

President Clinton took a step back from his labor secretary’s challenge to Congress to cut corporate and agricultural subsidies, saying that he had made “absolutely no decision about any of the specifics in Secretary Reich’s proposal.”

Clinton said, however, that a Democratic Leadership Council proposal with more specifics on cutting corporate subsidies and tax breaks that Reich cited in his speech is “conceptually . . . an attractive idea.” He said that he would take the proposal into consideration as he prepares the fiscal 1996 budget for submission to Congress early next year.

Reich may have unusual allies for the campaign to strike special tax benefits for particular industries. Sen. Phil Gramm (R-Tex.) indicated his willingness Monday to go after what he called “corporate subsidies,” including subsidized interest rates and direct loans from the Small Business Administration.

But while Reich proposed using savings from such cuts to pay for education and job training to foster a more solid middle class and lessen the growing gap between the affluent and the rest of society, Gramm suggested using it to fund a capital gains tax cut.

Larry Neal, Gramm’s press spokesman, said that there may be some room for cooperation with Reich, but that the senator is withholding judgment. “We’re not sure what Secretary Reich is talking about,” Neal said. “I suspect as usual the Administration does not mean what it says.”

Business lobbyists cautioned that cutting benefits to industries so that Americans can get job training may be self-defeating.

“I would tell you for a lot of industries, what he may consider a special break they consider essential for their survival,” said John Satagaj, president of the Small Business Legislative Council, a coalition of 100 trade associations. “It’s fine to talk about worker-training programs but if there are no jobs to place them in because you’ve destroyed the industries they would have worked in, what good have you done?”

Pro-business analysts and Republicans suggested that Reich should first consolidate and improve the scores of training programs funded by the federal government and prove their efficacy before asking for more of the taxpayers’ money.

Reich cited a report by the Democratic Leadership Council’s research arm, the Progressive Policy Institute, which pinpointed savings over five years of $225 billion in government subsidies and tax breaks, which help the energy, agriculture, transportation and high-tech industries, companies doing business in Puerto Rico and others.

The institute’s proposed cuts range from canceling the National Aeronautics and Space Administration space station program to eliminating subsidies for wealthy farmers and closing the tax loophole that allows businesses to depreciate rental housing at a different rate than other structures.

While proposing such cuts as a “powerful theme for the 104th Congress,” Reich called on two conservative think tanks, the Heritage Foundation and the Cato Institute, to come up with their own proposals on the subject.

Conservative analysts and Republican staff members on Capitol Hill generally agreed with Reich that, if Congress decides to cut welfare for the poor, it should also cut the safety net for the corporate world, including agriculture subsidies, the Export-Import Bank, Commerce Department programs and other programs.

“It would only be fair and just if we’re cutting welfare to cut those programs as well,” said Daniel Mitchell, a senior fellow at the conservative Heritage Foundation think tank.

However, Mitchell and other conservatives took issue with the way Reich equated tax breaks with government spending, saying that there is a fundamental difference between government spending and a government decision not to impose a tax.

Reich countered that tax breaks are comparable to welfare spending because, when companies get tax breaks, other companies and individuals must pay more taxes to compensate.

House Republicans plan to introduce a bill that would end the entitlement status for food stamps, Aid to Families With Dependent Children and other programs that assist the poor. It would also permit states to cut cash benefits to all welfare recipients after two years without guaranteeing a job, and deny benefits permanently to children born out of wedlock to teen-age parents. Immigrants who are not yet citizens would become ineligible for about 60 programs under their proposals.