Congress Passes Landmark GOP Plan to Balance Budget : Deficit: Measure backed by Senate, House cuts taxes by $245 billion and retains defense spending. Battles loom over the drafting of detailed legislation.

In a triumph for Republican lawmakers determined to reverse a decades-long trend toward bigger government, Congress on Thursday approved a landmark plan to balance the federal budget by 2002 even while cutting taxes by $245 billion and maintaining defense spending.

The Senate approved the budget on a straight party-line vote of 54 to 46. The House vote was 239 to 194, with only one Republican voting against the budget and eight Democrats supporting it. The budget resolution only sets overall targets for taxes and spending and does not require President Clinton’s signature to take effect.

Congress still must draft and approve detailed measures specifying tax and spending reductions and Clinton could veto specific measures that he finds unacceptable.

The seven-year fiscal plan imposes spending restraints on programs that have been at the heart of the federal government’s role in society for the last generation and more: Medicare for the elderly, welfare programs for the poor, student loans for the middle class and crop subsidies for farmers. The impact would be partly offset by tax cuts designed to put money back into the pockets of many families, investors and businesses.

“Balancing the budget and giving people some of their money back as we downsize government is what the American people are asking for,” said House Budget Committee Chairman John R. Kasich (R-Ohio). “We come here today not with rhetoric. We come here today with specifics.”

Adoption of the resolution, however, is only the beginning of a long, hot summer--and fall--during which Congress will draft the detailed legislation needed to meet the tax and spending goals mandated by the budget blueprint.

Even before the Senate and House had cast their votes, Clinton reminded Congress that he is prepared veto the follow-up legislation designed to implement the GOP budget. “Though I am determined to work with you to balance the budget, I cannot accept legislation that will threaten the living standards of American families,” the President said in a letter to GOP leaders.

In a separate development, the House voted Thursday night to adopt a measure that would cut more than $16 billion from current-year funding previously appropriated for an array of federal programs. The bill also would allocate almost $5 billion in emergency disaster aid for California.

The measure, which passed the House, 276 to 151, is a revised version of legislation Clinton vetoed June 7 because he thought it cut too much from social programs. Senate action on the bill is expected today. The revised version restores $772 million for education and other programs favored by Clinton but makes $794 million in offsetting cuts in government travel, housing and space programs, among others.

Clinton indicated Thursday night that he will accept the legislation.

“The new bill achieves the same amount of deficit reduction as the previous bill but it does so the right way by protecting investments in children, education, national service, job training and the environment,” Clinton said in a statement from Chicago where he was attending a political fund-raising dinner.

One of the final issues to be worked out was a provision in the bill that eases environmental rules so loggers can salvage timber from public lands. Clinton said he still opposed the measure but accepted it with assurances that federal agencies would maintain controls over salvage activities.

The new measure includes practically the same timber harvest language as the vetoed bill. It would waive the Endangered Species Act and other laws protecting wildlife and would insulate the logging from legal challenges.

Rep. Don Young (R-Alaska), chairman of the House Resources Committee, said the only difference was to move the salvage program expiration date to December, 1996, from September, 1997.

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Agriculture Secretary Dan Glickman signed a letter to House Speaker Newt Gingrich (R-Ga.) Thursday night outlining the Administration’s intention to accelerate the salvage logging program on the condition that enough Forest Service personnel be budgeted to do the job, said Rep. Norm Dicks (D-Wash.), who defended the agreement during House debate.

Despite weeks of intense bickering over the spending cut bill, the $16 billion in savings the legislation would provide is a drop in the bucket compared to the spending restraints needed to eliminate the deficit. The GOP budget-balancing plan, in contrast, would reduce the deficit by a total of $894 billion over seven years.

House debate on the budget resolution was marked by exhausted, testy partisanship. Democrats had kept the House in session all of the previous night with raucous debate, shouting matches and delaying tactics to protest a Republican move to give a choice committee assignment to Rep. Greg Laughlin of Texas, who had just switched his party affiliation from Democrat to Republican.

Despite the frayed nerves and relentless delaying tactics, House Republicans brought the budget to a final vote with only one GOP defection.

Rep. Michael Patrick Flanagan (R-Ill.) voted against the budget because he said he believes it would hit urban areas too hard. In the Senate, moderate Republicans swallowed their reservations about the bill’s tax cuts and curbs on education spending to give their support to the plan.

Attention has tended to focus on the budget’s effect on popular education and health programs but it also would reduce future spending growth in programs large and small throughout the federal government. It calls for abolishing the Office of the Surgeon General and the Department of Commerce. It would reduce future spending on energy programs by $10 billion over seven years, although it would leave the Energy Department intact. It calls for phasing out subsidies for mass transit and Amtrak. Even funding for biomedical research, a bipartisan favorite, would be trimmed by $2 billion over seven years.

By itself, the budget resolution does not carry out those spending restraints. Instead, it sets overarching spending and revenue targets that must be carried out with legislation.

Even so, the adoption of the budget blueprint is a remarkable milestone that many thought would never be reached.

“We are changing directions,” said a jubilant Senate Budget Committee Chairman Pete V. Domenici (R-N.M.). “It is the framework to change the fiscal policy of America and to change the way the federal government operates.”

It also is a giant leap into the unknown, because it foresees changes so vast that few politicians or economists can comprehend the full implications.

“You are dealing with such large figures, it’s hard to know what it means,” said Rep. Tony P. Hall (D-Ohio). “The whole country will have to change to adapt to what’s happening here.”

Irate Democrats portrayed the GOP budget as a heartless effort to take money from social programs for the poor and the elderly to pay for tax cuts for the wealthy.

Sen. Edward M. Kennedy (D-Mass.), a scion of the liberal tradition that Republicans are trying to uproot, said that the budget is a “direct attack on senior citizens, children, families and veterans, brought to us by the same party whose policies created the huge budget deficits of the 1980s.”

The biggest savings will come from restraining the growth of spending in Medicare, Medicaid and welfare programs. Although budget writers did not specify how Congress would make the required $270 billion in Medicare savings, the giant health care program for the elderly is likely to undergo the biggest changes since it began in 1965.

Many Republicans have advocated reforms that would shift more Medicare beneficiaries into health maintenance organizations and other forms of managed care by offering such incentives as making it more expensive for them to continue to receive traditional fee-for-service coverage.

Legislation specifying the tax and spending cuts mandated by the budget plan will be drafted by House and Senate committees by Sept. 22, then packaged into a single bill to be sent to the full House and Senate. But under the terms of the budget plan, the tax cuts cannot be drafted until the Congressional Budget Office certifies that the spending cuts in fact will put the government on a path toward a balanced budget.

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Although the details are up in the air, lawmakers said that it is near certain that the tax package will include two major elements: a capital gains tax cut and a tax credit for families.

Some Senate Republicans--including Finance Committee Chairman Bob Packwood of Oregon--are noticeably lukewarm about the family tax credit. Some want to restrict eligibility to families earning far less than the $200,000 income ceiling set under the original House tax plan, which would provide a $500-per-child tax credit to all families below that income level.

But the tax credit is strongly supported by conservative groups, such as the Christian Coalition, and a core group of House Republicans are virulently opposed to lowering the income limit.

Times staff writer Paul Richter contributed to this story from Chicago.

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Congress’ Austerity Plan

The budget adopted by Congress on Thursday does not, by itself, cut taxes or slash spending. Rather, it sets guidelines for congressional committees to follow as they prepare tax and spending legislation this summer and fall. Here are the major assumptions that the budget’s guidelines reflect.

Federal deficit: $170 billion in fiscal 1996, which begins on Oct. 1, gradually declining to a $6 billion surplus in 2002. Total deficit reduction is $894 billion over seven years, compared with projected deficits under current policies.

Tax cuts: $245 billion over seven years, enough to pay for a $500-per-child tax credit, a reduction in the capital gains tax, and a variety of other measures. Tax cuts may not be enacted until the Congressional Budget Office certifies that the spending cuts approved by Congress later this year leave sufficient room without unbalancing the budget in 2002.

Social Security: No changes.

Medicare savings: $270 billion over seven years, reducing the annual growth rate from 10% now to an average of about 6.4%.

Medicaid savings: $182 billion over seven years, by gradually reducing growth from about 10% a year now to 4%.

Welfare savings: $100 billion over seven years, from Aid to Families with Dependent Children, food stamps, child nutrition, and other programs included in House and Senate legislation that would convert welfare programs into block grants to states, and from new restrictions on the Earned Income Tax Credit for the working poor.

Defense spending: $33 billion more over seven years than the Clinton Administration requested, enough to allow defense spending to return in 2001 and 2002 to its present level of $270 billion after falling slightly to $264 billion in 1998.

Foreign aid: $23 billion less over seven years.

Student loans: $10 billion in savings over seven years, which could be achieved by eliminating the interest subsidies provided for graduate and professional students while they are in school.

Agriculture: $13.4 billion in savings over seven years from farm programs.

Source: Times Washington Bureau