Clinton Offers Tax Cut Plan for Middle Class : Presidency: He calls for package of child credits and school-aid deductions but leaves out means to finance it.

President Clinton, in an effort to reclaim the allegiance of middle-income voters, proposed a series of personal tax cuts Thursday but did not offer a detailed plan to pay for them.

Clinton’s middle-class tax cuts include a $500-per-child tax credit for children under the age of 13 and tax deductions for as much as $10,000 a year in post-high school education costs.

He also proposed a more liberal individual retirement account savings program and consolidating all of the government’s job training programs into a single plan that would provide training vouchers for those who lost their jobs.

All the tax proposals, in what Clinton called his “middle-class bill of rights” would take effect Jan. 1, 1996.

In an 11-minute address from the Oval Office, Clinton expressed sympathy for the millions of Americans who have not benefited from the current economic recovery and are “hurting, frustrated, disappointed, even angry.”

However, since Clinton did not outline hard choices on spending cuts to compensate for the revenue loss that would result from the tax cuts, he is in the position of underbidding the Republicans on the size of his tax cuts without being able to claim that he is any more responsible than the opposition in holding down the federal budget deficit.

The major competing GOP plan, the House Republicans’ “contract with America,” calls for a $500-per-child tax credit for all dependent children, not just those under 13. Families with incomes of as much as $200,000 a year would qualify for the Republican tax credit, compared with a $75,000 income ceiling under Clinton’s plan.

Clinton estimated that his plan would cost about $60 billion in lost revenue over its first five years. House Republicans have estimated that the five-year cost of their plan, which also includes a capital gains tax cut, would be $147 billion.

Although Clinton had promised explicitly not to propose a tax cut that would increase the federal deficit, he offered only vague promises of future spending cuts as the means to finance the bulk of his tax package--something that he has accused the Republicans of doing.

Specifically, Clinton called for these tax cuts:

* A $500 credit for each child under the age of 13 for all families with incomes of $60,000 or less. Families with incomes between $60,000 and $75,000 would be entitled to a reduced credit. Families with more income would get none.

* A provision that would allow families with annual incomes of up to $100,000 to deduct $10,000 in college tuition expenses from their taxable income each year. Families with incomes between $100,000 and $120,000 could take a smaller deduction.

“Just as we made mortgage interest income deductible because we want people to own homes, we should make college tuition deductible because we want people to go to college,” Clinton said.

* An IRA deduction of $4,000 ($2,000 for a single taxpayer) for all couples with incomes up to $80,000. Couples earning up to $100,000 could take smaller deductions. Taxpayers would be permitted to withdraw IRA funds without penalty not only for retirement but also for education, catastrophic illnesses, the purchase of a first home or the care of an elderly parent.

“Even though the economic statistics are moving up, most of our living standards aren’t,” Clinton said in his brief talk. “It’s almost as if some Americans are being punished for their productivity in this new economy. We have got to change that. More jobs aren’t enough. We have to raise incomes.”

Accordingly, the President said, he was proposing a “middle-class bill of rights” to provide tax relief and federal assistance for education and job training.

In the Republican response to the Clinton speech, newly elected Sen. Fred Thompson of Tennessee mocked Clinton for having said before the November election that tax cuts were unjustified and irresponsible.

“From what we heard tonight, the President’s vision for the future now looks a lot like what Republicans just campaigned for,” Thompson said.

“We welcome the President to help us lead America in a new direction, but if he will not, we will welcome the President to follow--because we are moving ahead,” Thompson said.

Administration officials said that the money to compensate for the tax cut would come from streamlining five government agencies and from extending a freeze on “discretionary” spending for two additional years, 1999 and 2000. The agency consolidations would provide about $24 billion over five years, while Clinton claimed that the extension of the discretionary cap would bring in $52 billion in savings in 1999 and 2000.

Aides said that the $16 billion in excess savings would be used to reduce the federal budget deficit.

Despite earlier discussions about reductions in spending for Medicare, Clinton said emphatically that the federal health care program for the elderly would not be touched.

Discretionary spending is a broad category that covers programs from defense spending to highway construction that can easily be adjusted, year by year. It excludes programs, including Social Security and welfare, that entitle certain individuals to federal benefits.

Administration officials acknowledged that calling for a discretionary spending cap falls short of proposing specific spending cuts to comply with that cap. In effect, Clinton was saying that he would propose a lower level of overall discretionary spending in future years--and would decide how to reduce that spending in those years.

What’s more, the spending reductions would not go into effect until three years after the tax cut first kicked in--and in the final two years of a second Clinton term in office.

In his bid to save $24 billion by consolidating and streamlining agencies, Clinton would not eliminate any departments.

Rather, he has ordered a “major restructuring” at the departments of Energy, Transportation and Housing and Urban Development. The General Services Administration and the Office of Personnel Management also would be subject to sizable cuts, officials said.

The President also would turn over to private industry the air traffic control system run by the Federal Aviation Administration and the Energy Department’s emergency petroleum reserve.

Finally, Clinton would consolidate roughly $12 billion in job training programs administered by the Labor Department into a single program that would funnel grants of $2,000 to $3,000 to those who had lost their jobs or wanted to change careers. They could then spend the money on a broad array of programs without having to deal with a federal or local bureaucracy.

Some senior Administration officials conceded privately that they were “uncomfortable” with the President’s proposal. Some said that they see potential damage from the proposal to the Administration’s credibility on deficit reduction.

White House Chief of Staff Leon E. Panetta repeatedly has argued that the GOP approach to paying for the “contract with America” tax cut proposal--a cap on spending for entitlement programs coupled with a constitutional amendment requiring a balanced federal budget--represented “policy gimmicks” because cuts were not specified to comply with their spending limits.

As recently as last Sunday, Clinton promised to avoid such budgetary sleight of hand.

“I intend to propose (a middle-class tax cut) as long as I can pay for it,” Clinton said Sunday in his last public appearance, a press conference at the close of the hemispheric summit in Miami. “I do not want to see this deficit start going up again.”

The proposals were the product of weeks of furious debate within the Administration over how to respond to the shellacking that the Democrats took in the November elections and how to make viable the remainder of the President’s term in office.

Beset by rambunctious Republicans, mutinous Democrats and a wary public, Clinton concluded that he must offer some sort of tax relief to beleaguered middle-class families and try in other ways to address their economic anxiety and political alienation.

Clinton and his advisers were scrambling all day Thursday to make major, last-minute changes in the shape of their tax plan, apparently to position the President’s package in between the Republican alternative and a third proposal from Rep. Richard A. Gephardt (D-Mo.), who will be House minority leader in the next Congress.

As a result, Clinton unveiled a plan that was slightly different from one his aides had discussed as recently as Wednesday night.

Hours before Clinton spoke on national television, Sen. Phil Gramm (R-Tex.) offered his own proposal for a tax cut, calling for an immediate doubling of the income tax exemption for children from $2,500 to $5,000 per child.

Gramm, an all-but-declared candidate for the 1996 Republican presidential nomination, said that he would compensate for the $124-billion tax cut with a like amount of spending cuts over five years. The reductions would come from the discretionary budgets of the departments of Health and Human Services, Energy, Education, Labor, Transportation and Housing and Urban Development, amounting to a 16%-budget reduction across the board.

If enacted, he said, the tax cut would “dramatically” reverse what he called a 40-year trend in which the federal government “has spent more and more of the income of working American families.”

Gramm said dismissively of the President: “I am glad that the President is beginning to at least hum along as we sing our song of less government and more freedom. . . . (But) the President is more than a day late and more than a dollar short.”

Amid the stampede to enact tax cuts came a lonely voice of dissent.

Sen. Russell D. Feingold (D-Wis.) deplored the “bidding war” that seemed to have developed at the White House and on Capitol Hill. “This rush . . . to put new tax cut proposals on the table is going to take the focus off of deficit reduction and the result is going to be that we will be heading, again, in the wrong direction on getting the federal budget back into balance,” Feingold said.

Times staff writer Edwin Chen contributed to this story.