Clinton Plans to Propose Tax Cut for Middle Class

President Clinton, plunging into a possible tax-cutting contest with Congress’ new Republican leadership, said Sunday that he plans to propose a middle-class tax reduction--and believes he can do it without increasing the federal budget deficit.

“I intend to propose one as long as I can pay for it,” Clinton told a news conference at the end of his three-day summit meeting with 33 other leaders of Western Hemisphere nations.

“I do not want to see this deficit start going up again,” he said. “That is my objective. I think we can achieve that objective.”

Aides said the tax plan may be unveiled as early as Thursday, when Clinton plans a major speech outlining goals and priorities for the second half of his term.

Clinton called for a middle-class tax cut in his 1992 presidential campaign, but edged away from the promise when he found it impossible to cut taxes and reduce the deficit. Now, he said, “I want to fulfill the commitment of our campaign and my commitment to tax fairness.”

It was the strongest such promise yet from the President, who renewed his interest in reducing middle-class taxes after Republicans won majorities in both houses of Congress last month.

Clinton did not offer any details of the tax relief he may propose, but aides said proposals include a tax credit aimed at middle-income families of several hundred dollars per child.

The President posed two conditions for any tax-cut proposal. He said any tax cut must not increase the deficit. At the same time, he said, it should not be paid for by reductions in federal spending that would come at the expense of people he described as the “temporarily poor” and “responsible parents.”

“I think we can achieve that objective . . . without hurting poor people,” he said.

“I don’t believe that we should be pitting the middle class against the poor, who themselves are willing to embrace the values of work and family and community--and I don’t think we have to do that,” he added.

“Government funds should not be used to reward irresponsibility,” he said. “But if people are temporarily poor through no fault of their own, if they’re doing their best to improve their lot in life . . . I don’t think the American people want to put a lot of folks in the street.”

His comments reflected the central problem he and his aides have faced in devising new domestic-policy proposals: How to combine a middle-class tax cut, welfare reform and other reductions in government spending so as to convince voters that Clinton is a “New Democrat” centrist--without alienating too many “old Democrat” liberals whose votes he needs as well.

Asked about reports that he has considered eliminating the Department of Housing and Urban Development and other federal agencies as a way to cut spending dramatically, Clinton said: “I wouldn’t rule anything out.”

But he insisted that any such action would be a natural outgrowth of his own interest in reducing government spending, not just a reaction to Republican pressures.

“If you ask me a purely political question--Do I think it’s necessary to do that for show?--the answer is no,” he said. Instead, he said, “it is terribly important that we continue . . . to downsize the government.”

A senior White House official said it was unlikely that Clinton would announce the abolition of HUD or any other major federal agencies in his speech this week. “Those ideas are still being studied,” the official said.

During three days of economic diplomacy, formal ceremony and a multicultural variety show here, Clinton and his aides have yearned discreetly to get back to Washington and the central policy battles that will define the 1996 election campaign and the rest of his presidency.

“It feels like we’ve been talking about trade forever,” one aide sighed.

Officials said Clinton had considered taking a one-day trip to Haiti after his time in Miami in order to visit U.S. troops and highlight the success of his decision to intervene on the island. But the tour was scrapped so he could concentrate on his domestic policy plans.

While Clinton pledged that any tax cut he presents will be fiscally responsible, other Administration officials rejected out of hand Sunday a budget-relief proposal on trimming Social Security and Medicare spending, offered by the leaders of a presidential bipartisan commission on federal entitlements reform.

Sen. Bob Kerrey (D-Neb.) and Sen. John C. Danforth (R-Mo.), leaders of the panel, said on NBC-TV’s “Meet the Press” that reining in the growing cost of such massive federal programs was the only way of averting a financial crisis after the turn of the century that would punish future recipients.

Among other changes, the senators are advocating gradually raising the eligibility age to 70.

Sharply rebuking those who shrink from such ideas, Kerrey said: “Once again, this is a situation that people can say: ‘Yeah, it needs to be solved,’ but, God, once they start looking at the ugly things that need to be done, manana looks more attractive.”

However, White House Chief of Staff Leon E. Panetta told the CBS-TV program “Face the Nation” that changing Social Security is out of the question. “The President made clear during the campaign and before that, that we were not going to touch Social Security. And we’re not,” he said.

Outgoing Treasury Secretary Lloyd Bentsen blasted Republicans for offering cost-saving and tax-reducing ideas that he said were short on specifics or on consideration of consequences.

In particular, he suggested that Clinton might fight a broad capital gains tax cut, which will be pressed by Republicans in Congress. “I’m sure that he would not sign one unless he felt sure that it was middle-income America that was the primary beneficiary of it,” Bentsen said on ABC-TV’s “This Week With David Brinkley.”

Bentsen said Clinton will not allow a return to “the experience of 1981,” which involved “a bidding war as far as the cutting of taxes, and then we saw the escalation of debt--quadrupling it.”

Times staff writer Thomas B. Rosenstiel in Washington contributed to this story.

* CLINTON PREPARES SPEECH: Clinton weighs conflicting advice as he crafts address. A36