Citing Costly Side Effects, Clinton Warns About Perils of GOP Budget Proposal

President Clinton warned Friday that the new Republican budget blueprint would put the nation at risk of recession, force states to raise taxes and cut education and raise health costs for the privately insured.

In his first response to the GOP budget deal announced Thursday, Clinton declared that the proposal is “still too extreme” and warned of indirect effects that he said would make many of the budget’s benefits illusory.

The GOP plan announced by Senate and House leaders would cut $245 billion in taxes over seven years, while sharply curtailing the future growth of Medicare and Medicaid and carving deeply into welfare and discretionary federal spending. Republican leaders hailed the budget outline as a historic turning point in the effort to pare back government and scale back taxes.

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But Clinton, in a phone conversation with five Democratic governors, argued that the GOP budget creates a series of less-visible effects that he insisted would hit middle-income taxpayers, pupils and the privately insured.

He predicted that cost ceilings on Medicaid--the state-federal program of health care for the poor--would place a large number of the elderly and disabled at the door of state governments.

“The pressures to avoid severe human hardship will be enormous,” Clinton said. States would probably relieve the pressure by taking more money from already-declining education spending, he said.

“We’ll be cutting education at both the federal and the state level because of this budget,” said Clinton, whose own revised budget would, according to the White House, eliminate the deficit in 10 years and cut $111 billion in taxes.

Clinton said that federal cutbacks in spending for health care already have prompted medical providers to shift costs from patients insured under government programs to those who pay their health bills directly or are covered by employer-paid insurance. The shift would become even more profound under the GOP spending limits, which include $270 billion in cuts from projected Medicare spending and $180 billion from projected Medicaid spending.

In turn, that would “put more and more pressure on more and more employers to either drop health insurance coverage altogether, or to dramatically increase the cost of it,” Clinton said.

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The President said that federal tax cuts for individuals and companies would remove funding from services that states would feel compelled to replace. And to fund those activities, he said, they would be likely to raise property and sales taxes, which would hit the less well-off harder than income taxes.

He suggested that this shift was the pattern in the 1980s, when Reagan-era federal tax cuts shifted more of the tax burden to lower- and middle-income Americans. “The tax cuts mostly benefited upper-income people,” Clinton contended.

Clinton said that these indirect effects had received less attention than they deserve and that they threaten to cause major fiscal and social crises for governors and state legislatures.

On Capitol Hill, Democrats joined in the President’s criticism of the GOP budget.

“What they’ve done is left the middle class shortchanged,” said Senate Minority Leader Tom Daschle (D-S.D.).

Daschle contended that Senate Republicans, by agreeing to the $245-billion tax cut over seven years, had caved in to demands by House Republicans, led by Speaker Newt Gingrich (R-Ga.), for a far bigger tax cut than the Senate had approved.

“If I were Newt Gingrich, I’d be playing ‘Happy Days Are Here Again,’ ” Daschle said. “Newt Gingrich won and we’re going to live with the results.”

But Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) said he is confident that the tax cut would not be enacted without assurance that the budget will be on a path to balance, as Senate Republicans had insisted.

Sen. J. James Exon (D-Neb.), ranking Democrat on the Budget Committee, said that by making large cuts in agriculture programs, “Republicans are blowing taps on the rural heartland of America.”

Farm state Republicans also voiced concern about the agriculture reductions. House Agriculture Committee Chairman Pat Roberts (R-Kan.) reminded Republican leaders of an earlier promise that the budget cuts would be accompanied by regulatory and tax relief for farmers. If not, or if the farm economy goes sour by 1998, Roberts said, the budget agreement should be revisited.

Clinton told the governors that the GOP reductions are “so severe I’m afraid they’ll be difficult for you to manage.” Listening to the President were Democratic governors Roy Romer of Colorado, Howard Dean of Vermont, Evan Bayh of Indiana, Thomas R. Carper of Delaware and Robert Miller of Nevada.

Clinton warned, as he has before, that by slowing spending, the Republican plan “runs a significant risk of putting the economy into a recession and raising unemployment.”

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But even as he outlined how the GOP plans would damage essential services, Clinton again struck a conciliatory note. Now that the Republicans have resolved their differences, “we can proceed with what I hope will be an honest, open and civil discussion with the American people about the agreements and the differences” in the White House and Republican plans.

The governors, often Clinton’s allies, heartily agreed with his warnings. “We’ve got a lot of fears,” Dean said.