House, Senate GOP Leaders OK Joint Balanced-Budget Plan : Congress: Compromise proposal calls for tax breaks and spending cuts. It will go back to each chamber for final approval.

Turning a corner in the Republican effort to transform federal spending and tax policies, GOP leaders announced agreement Thursday on a plan to balance the budget over seven years while allowing a cut in capital gains taxes, a family tax credit of $500 per child and other tax relief for businesses and individuals.

The joint House-Senate plan, which aims to balance the budget by the year 2002, would reduce the deficit by $983 billion by cutting spending on scores of government programs and restraining the growth of others, including Medicare, student loans and farm programs. The tax cuts would total $245 billion over the seven years.

“After decades of reckless spending, we are committed to making government leaner, more efficient and cost-effective,” House Speaker Newt Gingrich (R-Ga.) said in announcing the agreement reached by top House and Senate Republican leaders. “Republicans have been unified in fashioning a budget which keeps our promise to return money and power to the American people.”

The compromise, designed to resolve differences between the balanced-budget plans passed by the House and Senate in May, will go back to each chamber next week for final approval. Republican leaders voiced confidence that the plan would pass muster with their rank and file, even though many House Republicans had wanted substantially larger tax breaks and many GOP senators wanted none at all.

“I think they will be very, very happy,” Gingrich said of his fellow House Republicans. “You’re never totally confident but I’m as confident as you can be,” said Senate Majority Leader Bob Dole (R-Kan.).

Negotiations were carried out exclusively among House and Senate Republicans, who paid little attention to the 10-year balanced-budget plan unveiled last week by President Clinton. However, GOP leaders said Clinton’s move helped improve the political climate for their own plan.

The compromise assumes that Congress will abolish the Department of Commerce, as the House and Senate both favored, but not the departments of Energy and Education, as the House had proposed.

Adoption of the budget resolution is just the first step in a long legislative process that will drag through the summer and fall.

The budget sets spending ceilings and revenue targets for broad categories of government activities. Other committees will have to draft legislation actually making the cuts in spending and taxes to meet those targets.

Clinton Administration officials expect to have more influence in drafting that so-called budget “reconciliation” legislation, which--unlike the budget resolution--must be signed by the President before it can take effect.

“The Republicans cannot pass a reconciliation bill over a veto--probably,” said Alice Rivlin, director of the Office of Management and Budget. “Our largest weapon is the veto weapon.”

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After the House and Senate passed their differing versions of the budget in May, the biggest stumbling block to compromise had been a dispute within Republican ranks over tax cuts. The House budget made room for $354 billion in tax cuts over seven years. The Senate, where Republicans are generally less conservative and more deficit-conscious, called for only $170 billion in tax cuts--and that only after Congress had enacted a balanced-budget plan.

In deference to the Senate’s caution, the compromise struck by GOP leaders specifies that the tax-writing committees will not be authorized to approve tax cuts until the Congressional Budget Office certifies that the spending-cut legislation reported from House and Senate committees would indeed eliminate the deficit by 2002.

The compromise allows $245 billion in tax cuts, and possibly more if Congress’ tax-writing committees come up with offsetting tax increases in other areas. The budget does not specify what taxes would be cut. That decision would be left to the Senate Finance Committee and the House Ways and Means Committee.

Times staff writers Melissa Healy and Doyle McManus contributed to this story.