Clinton Outlines Plan to Balance Budget by 2005

By MELISSA HEALY

June 14, 1995 12 AM PT

TIMES STAFF WRITER

WASHINGTON —

President Clinton, stung by Republican criticism and scrambling to carve out a role in Congress’ budget deliberations, unveiled a spending plan Tuesday night that embraces the Republican goal of a balanced budget but achieves it three years further into the future.

In a hastily planned five-minute address to the nation, Clinton outlined a plan to cut growth in projected spending by $1.1 trillion over 10 years, slow the growth of spending on Medicare and Medicaid, trim social and farm programs, close a number of corporate tax loopholes and retain the package of middle-class tax cuts he proposed in mid-December.

Speaking from the Oval Office, Clinton said that “it’s time to clean up this mess” by eliminating the federal government’s red ink.

Clinton specified programs that would be immune from cuts--Social Security and education and training. But he warned: “Make no mistake--in other areas, there will be big cuts, and they will hurt.”

Clinton’s gamble marked a new strategy for an Administration that until just weeks ago appeared content to sit out the budget-drafting process, choosing instead to simply criticize proposals by congressional Republicans. Clinton in February proposed a spending plan that did not balance the budget.

The White House proposal is vastly different from the budgets Capitol Hill Republicans have drawn up in recent months. Clinton’s plan would defer the goal of balancing the budget until 2005--three years later than congressional Republicans would.

Clinton also signaled that he would not accept Republican proposals for cuts in education and training, hikes in the cost of health care for senior citizens and reductions in veterans benefits.

In one of his most provocative challenges to House Republicans, he proposed to save $6 billion over 10 years by discontinuing corporate tax loopholes and subsidies. That is a move Republicans maintain is the equivalent of raising taxes--something they have vowed not to do. The White House did not specify which loopholes or subsidies they would eliminate, pledging instead to work with Republicans to identify them.

Administration officials hope their plan will moderate some of the Republican proposals to cut taxes and projected spending. If it fails to do that, they believe the President’s proposal will at least highlight the sharp contrasts between Democrats and Republicans on spending priorities--while putting the President on record as backing the politically popular goal of a balanced budget.

The President’s shift from the sidelines to the front line of the budget debate infuriated congressional Democrats and many Clinton aides, who complained that the strategy of criticizing GOP priorities had just begun to sway a public still skeptical of Republican motives. But White House aides said Clinton was convinced by warnings that the federal government could grind to a halt beginning with the new fiscal year on Oct. 1 if he simply sits back and vetoes budget proposals.

White House Chief of Staff Leon E. Panetta on Tuesday appealed to the President’s Democratic allies to “keep their powder dry and look at the priorities in this budget before they jump.”

Congressional leaders said they welcomed Clinton’s entry into the budget arena, yet few appeared ready to grant him a broad role.

In the Republican response to Clinton’s address, Senate Majority Leader Bob Dole (R-Kan.), considered Clinton’s most likely opponent in next year’s presidential campaign, said that while Republicans welcomed the President’s plan, they have “strong philosophical differences” with it.

With Clinton’s entry into the budget process, “a long-awaited national discussion finally begins in earnest,” Dole said.

House Speaker Newt Gingrich (R-Ga.), in a statement, cautioned that “we cannot stop the budget process,” although he did call for a meeting this week among House and Senate budget committee chairmen and White House officials.

Of the many differences between the White House proposal and those passed by the House and Senate, none appeared more significant than the timetable for balancing the budget.

Laura D’Andrea Tyson, chief of the President’s National Economic Council, said extending the time taken to balance the budget would ease the harm that reductions in government spending would do to the economy, while still providing the long-term benefits of lower interest rates. The Clinton plan would balance the budget over 10 years, while the House and Senate bills would accomplish it over seven years.

At the same time, however, the White House borrowed a controversial Republican method of calculation--claiming that a balanced budget would lower interest rates enough to save $110 billion over the next seven years. The Senate had projected savings of $170 billion during the same period.

Administration officials stressed other differences between Clinton’s balanced-budget plan and those of Republicans. Panetta said the White House proposal would “put people first,” and he detailed savings in Medicare and Medicaid amounting to one-half and one-third, respectively, of the savings in the congressional plans.

Congress’ budgets, Panetta said, would boost health care costs to individual seniors by $1,500 to $2,000 a year and create a “second-class” system of health care for the poor and the elderly.

Alice Rivlin, director of the Office of Management and Budget, said the federal government could save $86 billion over 10 years on health care, even while expanding some services, by making managed-care options more attractive to the elderly and allowing states to streamline their spending on health care for the poor.

The White House plan, like those proposed by the House, rules out significant changes in Social Security spending. The Senate has proposed minor reductions in the growth of Social Security payments.

Clinton’s budget also wades into a significant area of conflict between House and Senate negotiators by retaining his own “middle-class tax cut” package of $176 billion.

The House has proposed tax cuts that would increase the deficit by $630 billion over the next 10 years, but the Senate has said it would withhold tax cuts until further progress has been made in cutting the deficit.

In another proposal certain to divide House and Senate lawmakers, Clinton called for a $27-billion reduction in projected military spending over the next 10 years. The House has called for deeper cuts--$67.9 billion over seven years, while the Senate has proposed no reduction in military budgets.

While budgets for non-defense spending would be reduced by $65 billion over the next 10 years under Clinton’s plan, the President proposed a host of budget increases in areas he believes will “maintain investments” that will improve the long-term health of the economy.

Among them are some of his most cherished initiatives, including his national service program and funds to help schools fight drug abuse and reduce violence. House Republicans have vowed to kill funding for national service outright and to consolidate funding for “safe and drug-free schools and communities” with other programs and reduce their funding by 30%.

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3 Ways to a Balanced Budget

Clinton’s original budget, submitted in February to an unwelcoming Congress, called for deficits in the $200-billion a year range into the 21st century, with no prospects of a balanced budget. In reaction to prosals passed by the Senate and House, he has now offered his own balanced-budget plan.

Budget deficits by year (in billions)

‘96 ’02 ’05 SENATE -154 2 - HOUSE -157 28 - CLINTON -183 - 18

* surplus

****

The key categories

Clinton’s plan would eliminate the deficit in 10 years, the House and Senate plans in seven.

SENATE

Taxes: $170 billion, in cuts but only if balanced-budget measure passes.

Social Security: Annual increases in benefits may be smaller.

Medicare: Saves $256 billion, with details on how still to come.

Medicaid: Saves $175 billion by lowering growth, giving states more say.

Domestic Programs: Eliminates 181 programs and agencies and cuts others.