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Congress Closes In on Budget Plan : Spending: The Republicans’ controversial deficit-reduction package needs only final House vote for approval. A presidential veto is all but certain.

TIMES STAFF WRITER

Moving on another front of a complex federal budget battle, both houses of Congress voted Friday to adopt a final compromise version of the Republican majority’s fundamental blueprint for eliminating the deficit, reducing taxes and overhauling domestic priorities.

The House approved the final conference committee version of the Republican budget-balancing plan by a vote of 237 to 189. The Senate followed suit several hours later, endorsing the measure by a vote of 52 to 47. The Senate made one minor change in the legislation, which will considered by the House today. Congressional leaders expect the House to give its blessing in short order and send the bill on to President Clinton, who has promised to veto it.

House approval followed n emotional debate in which partisans cheered and hissed speakers until their own leaders asked for restraint.

“For the first time in my lifetime, we’re trying to make sure the country realizes its destiny,” House Budget Committee Chairman John R. Kasich (R-Ohio) said shortly before the vote.

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The massive legislation, known as a budget reconciliation bill, faces an almost certain veto by President Clinton.

The bill embodies much of this year’s GOP campaign to cut taxes, contain health care costs, trim the scope of the federal government and shift social responsibilities to the states. If enacted, it would save more than $1 trillion in projected spending by the year 2002, according to calculations by the Congressional Budget Office.

The measure calls for $270 billion in Medicare savings, reductions in federal regulations and an array of spending cuts and limits aimed at gradually bringing the budget into balance over the next seven years.

But it would achieve such savings through policies that Democratic critics consider unfair to the less privileged, and it includes a tax cut that many view as excessive. Under the bill, welfare and health care for the poor largely would become state responsibilities, an existing tax break for the working poor would be scaled back and growth in student loans would be held down.

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“When we say we’ve balanced the budget for our children and our grandchildren, we have to ask ourselves another question: Are we balancing this in a way that’s good for our children and grandchildren?” asked House Minority Leader Richard A. Gephardt (D-Mo.).

The immediate fate of the legislation is in doubt because it contains a number of features that Clinton has said he cannot accept. Potential veto triggers include the size of the $245-billion tax cut, the treatment of the working poor and the economic assumptions made by Republican leaders.

Nonetheless, the measure is hugely significant as a current guidebook to GOP objectives--and the likely direction of a possible future compromise with the President. For example, while the White House and Congress disagree over the size of the tax cut, they appear to agree that there should be one.

Similarly, while the two sides continue to argue over the proper path to a balanced budget, they appear to accept the principle that deficits should be eliminated by sometime early in the next century and that moving in that direction would be healthy for the economy.

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The reconciliation bill, while not technically related to the short-term funding battle that caused this week’s government shutdown, is intimately tied up in the larger battle over the budget for the long haul.

“It’s truly a historic accomplishment,” said House Speaker Newt Gingrich (R-Ga.). “Today is as important a vote as any day since 1933,” referring to enactment of New Deal legislation.

‘Burden on President’

Once action is completed on the legislation, Gingrich said, “the burden will be on the President.” If he is unwilling to accept the congressional blueprint, the Speaker continued, “he would be morally required to send up an equally detailed alternative.”

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The bill would achieve projected Medicare savings of $270 billion, compared to current trends, by authorizing an array of changes that include new insurance options for beneficiaries and increased reliance on managed care. The new private alternatives, part of an approach Republicans have labeled “Medicare Plus,” would include at least the basic package of Medicare benefits.

In addition, affluent senior citizens would have to pay more for doctors’ services if they chose to get them through traditional Medicare. And health care providers would face tighter reimbursement guidelines.

Medicaid, the health care program for the poor, would lose its status as a federal entitlement and be shifted to state control. Like Medicare, it would continue to grow, but at a slower pace--yielding savings of $163 billion, according to CBO estimates.

The program would be renamed “MediGrant,” reflecting the new reality that states would be using grant funds from Washington to set up their own policies.

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The Medicaid overhaul, along with similar transfers affecting other programs, symbolizes the sharp ideological divisions that now separate Republicans and Democrats. GOP leaders emphatically support shifting key federal responsibilities to the states, while many Democrats fear that hard-won protections will wither outside the protective federal bureaucracy.

The budget plan “represents a one-sided attack on lower- and middle-income citizens who will see the doors of opportunity closed as chances to better themselves disappear,” said Rep. Martin Olav Sabo (D-Minn.). “Under this budget, millions of low-income families will see the safety net that ensures them adequate food, shelter and medial care shredded.”

Senate Majority Leader Bob Dole (R-Kan.) said congressional approval of the plan demonstrates that “we can balance the budget in seven years.

“There’s only one thing missing,” Dole said. “The White House can be a catalyst for change, but this White House is for the status quo.”

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While advocates for the poor fear that some states might opt to provide only bare-bones medical services to the needy, the bill retains at least some protections. For example, states would be required to provide coverage of pregnant women, young children and the disabled whose families are at or below the poverty line.

Republicans also followed through on plans to restrict the earned income tax credit for the working poor and to overhaul welfare.

The proposal to slow growth of the tax credit remains highly controversial, with Republicans maintaining that low-income families would be unharmed by the overall impact of their policies, which include other tax provisions.

The welfare reform proposal also remains a source of contention. Under the budget plan, states would gain control of most welfare responsibilities and impose new restrictions on minor mothers as well as families that have more children while receiving benefits. The welfare changes are projected to save $81.5 billion, compared to projected growth in the absence of new legislation, according to the House Ways and Means Committee.

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Republican leaders acknowledge that their budget blueprint will require significant changes before Clinton will sign it, particularly in such areas as health, education and the environment.

More Negotiations

The virtual certainty that the bill will not become law as written may have made it easier for many lawmakers to swallow reservations and vote for it, hoping that troublesome provisions would be changed in later negotiations.

“It clearly is a vote that no one will think is the last vote in the process,” said Rep. Jimmy Hayes (D-La.), who voted for the bill despite concerns about its effect on farmers in his district.

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And while many lawmakers expect serious budget negotiations to begin only after Clinton’s promised veto, it is not certain that a compromise can be reached with the White House--especially in light of the bitter personal tone that has accompanied the budget debate and government shutdown.

“It is impossible to predict,” said Senate Minority Leader Tom Daschle (D-S.D). “If the bickering over the shutdown is any indication, we’re in trouble.”

Daschle called the budget bill “the most dangerous document in America.” At issue, he said, is “whether or not we’re going to change dramatically the direction of the country.”

At the same time, the reconciliation bill--for all its long-term significance--does not pose the sort of dramatic immediate consequences that Congress wrestled with this week as a result of the government shutdown.

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The reconciliation bill would make cost-saving changes in entitlement programs--Medicare, welfare and other programs that provide benefits on an ongoing basis to anyone who qualifies. If the bill is not passed, those programs will remain in operation without change.

The reconciliation bill addresses federal programs in several key areas:

Medicare

In the reconciliation conference report, the Republicans did not back off on the one element that Clinton has found most objectionable: a $270-billion reduction in projected spending for Medicare over seven years.

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The President and congressional Democrats have asserted that a reduction of about $90 billion would be sufficient to keep Medicare’s Part A hospital trust fund solvent until beyond the turn of the century.

Republicans insist that they are not “cutting” Medicare, since per-capita spending would increase from about $4,800 a year to $7,100 a year--or from the current $178 billion to $289 billion--by the year 2002.

Still, the rate of growth under the GOP plan would be reduced from about 10% to 5.7%.

Under the Medicare reforms, seniors would be able to choose new insurance options, including a variety of managed-care arrangements as well as medical savings accounts, which are tax-exempt accounts patterned after IRAs.

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In another potentially controversial Medicare proposal, wealthy seniors for the first time would be asked to pay more if they want coverage for physician services, which is a voluntary program. Individuals with annual incomes of $60,000 or more and couples with incomes of $90,000 or more would have to pay more in Part B premiums.

The schedule currently affords everyone, regardless of means, a monthly premium subsidy of $117 for individuals and $235 for couples; but under the GOP plan, individuals with annual incomes of $110,000 or more and couples with annual incomes of $150,000 or more would have to pay the entire Part B premium.

The current formula, which the GOP budget retains, requires Part B participants to pay 31.5% of the cost of the program. Currently, that works out to $46.10 per month.

In addition, the annual deductible for Part B will be increased for everyone from $100 to $150. This represents a compromise. In the earlier House version, the deductible did not change; the Senate version would have raised the annual deductible immediately to $150, then by $10 a year to the year 2002.

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The Medicare provisions also contain a “lookback” provision imposing an absolute limit on Medicare spending if the GOP’s spending reduction targets are not met. The automatic sequester would further cut payments to Medicare providers in the fee-for-service sector.

Medicaid

Republicans would shift what has been the federal entitlement of health care for the poor to a grant program operated by the states, with a few federal guidelines remaining. At the same time, the new MediGrant program would remain a state-federal effort, as it is now, and federal spending would grow at an average annual rate of 5.2%.

States would have new freedom to determine eligibility standards, benefits and the role of managed care, although the GOP plan requires that states continue to cover disabled children and pregnant mothers in impoverished households. States also would be required to cover childhood immunizations and pre-pregnancy family planning services and supplies.

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Federal nursing home standards, which some lawmakers sought to toss out, would remain in effect.

House and Senate Republicans resolved a key dispute by agreeing on a $3.5 billion fund to help California and 14 other states provide emergency care for illegal immigrants. California would qualify for roughly half the money, with much of the rest going to New York, Florida and Texas.

Initially, budget-cutters had intended to squeeze another $7 billion in savings from Medicaid, but House-Senate negotiators put that amount back in, leading to the agreement.

Taxes

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The reconciliation bill reflects many tax compromises. House members, led by Gingrich and a core of freshmen and second-term members, considered a big tax cut the centerpiece of the GOP’s “contract with America.” But Senate members tended to view balancing the budget as a higher priority, a task that is made more difficult by cutting federal revenues.

In the end, members supported family tax relief, through such provisions as a $500-per-child tax credit and expanded individual retirement accounts, along with a reduction in the capital gains tax and corporate tax breaks.

The $500-per-child tax credit would take effect as of Oct. 1 of this year, creating a $125 benefit in 1995--in time for the 1996 elections. The benefit would phase out for individuals at $75,000 and married couples at $110,000.

A deduction for interest paid on student loans would be allowed, with the benefit phasing out for annual incomes above $45,000 for individuals and $65,000 for couples. Families who adopt and those who face custodial care expenses also would qualify for new tax deductions.

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Individual retirement accounts would be broadened in several ways: Homemakers would qualify for a $2,000 deduction, income limits would gradually rise and phase-outs would begin at $85,000 a year for singles and $100,000 for couples. Penalty-free withdrawals would be allowed for such expenses as first home purchases, medical expenses, bouts of unemployment and higher education expenses.

In addition, taxpayers could enjoy tax-free appreciation of income if they hold investments in a “back-loaded” IRA for at least five years and are 59 1/2 years old.

The legislation calls for a cut in the tax paid on capital gains, the profits realized on sales of stocks, bonds and other assets. Such a cut would be retroactive to Jan. 1, 1995. Individuals would get a 50% deduction on capital gains from assets held for at least one year, leading to an effective top rate of 19.8%.

Estate taxes would go down as well, with the existing exemption for the first $600,000 in estate assets gradually rising to $750,000

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For family-owned businesses and farms, the first $1 million in estate value would be exempt, and the tax on the next $1.5 million would be reduced by 50%, a provisions pushed by Dole.

Welfare

Like Medicaid, welfare is another federal responsibility that would be shifted to the states under the Republican plan. Welfare is also another reason that the legislation is likely to be vetoed.

In general, Senate members pushed for more moderate measures than their House counterparts, and several compromises took the form of giving discretion to the states.

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For example, House Republicans were ready to bar states from providing benefits to unwed teen-age mothers. Ultimately, negotiators agreed on a provision that would let states decide whether to provide such benefits. Similarly, legislators compromised on a provision that would have prohibited families that have more children while on welfare from getting increased benefits. The compromise gives states an out: They can hike benefits for such households, but only if their legislatures agree on such a policy.

A dispute over food stamps ended in a similar compromise. States would be able to stay in the federal food stamp program, as Senate members advocated, or they could launch their own food stamp programs.

The bill would impose new work requirements for welfare recipients, and provide states with financial incentives if they reduce rates of out-of-wedlock births. House-Senate negotiators also agreed on $17 billion in funding for child care over seven years, and $16 billion per year for cash welfare through 2000. As a bottom line, states would have to spend at least 75% of the amount they spent on cash welfare in 1994 for the next five years. And to promote a policy that welfare is temporary, the bill would restrict cash assistance to a limit of five years.

Other Provisions

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The voluminous reconciliation bill touches on everything from federal regulations that could have such far-reaching effects as providing doctors protection from antitrust laws--to help them compete in the changing health care industry--to authorizing mineral leases in the Arctic National Wildlife Refuge.

It would slow the growth in farm subsidies, but House-Senate negotiators discovered just how hard a task that was: A plan to cut back on dairy subsidies threatened to derail the entire reconciliation agreement before legislators abandoned the issue, at least for now.

Similarly, a proposal that would have given corporations broad latitude to divert money in their pension funds for other uses was scaled back significantly; the money would have to be used for certain health, disability, child care and education plans for the benefit of employees.

It would privatize the United States Enrichment Corp., which processes uranium into reactor fuel, but it dropped a proposal to abolish the Commerce Department (although that remains a symbolic goal of many Republicans).

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Federal helium storage facilities would be privatized, entrance fees to national parks would be hiked, the Energy Department would be ordered to unload 557,000 tons of scrap metal, and the General Services Administration would sell air rights over the train tracks in Washington, D.C.'s Union Station.

Federal employees would have to make slightly larger contributions toward their retirement benefits.

Lenders of student loans would face certain fee increases from the government, but Republicans maintained that the agreement would not have a direct impact on students.

And while downsizing government is an overarching theme of the legislation, at least some new commissions might be created: The bill would establish a commission to study income-sharing guidelines for child-support orders.

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Times staff writers Edwin Chen and Janet Hook contributed to this story.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Is the Check Coming?

Here is how some key services in the Southland are being affected by the government’s partial shutdown:

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Government Checks: In general, those who have been receiving checks are still getting them. But new applicants will have to wait until the dispute is settled. The uninterrupted checks include those for Social Security and veterans’ benefits. Applications, on hold for several days, will be taken again beginning Monday.

Medicare: Claims are being paid. The Health Care Financing Administration, which runs the program, expects the private contractors who handle claims to keep working.

Welfare: Welfare checks will continue, along with food stamps.

Transportation: Air traffic controllers, railroad inspectors and the Coast Guard, are staying on the job. Border Patrol workers are on the job.

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Justice: Federal Judiciary employees have been deemed “essential,” which means they stay on the job. Hence, the federal courthouse in Los Angeles is open. Probation officers on federal cases have not been furloughed.

Emergencies: About 80% of the Feral Emergency Management Agency’s workers have been sent home. Relief workers are on call in the event of a disaster.

Sources: Times wires, federal agencies

Compiled by CECILIA RASMUSSEN / Los Angeles Times

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Vote on Balanced-Budget Plan

Here is how members of the California delegation voted in the 237-189 roll call Friday by which the House adopted the Republican plan to balance the budget in seven years:

Republicans for--Baker, Bilbray, Bono, Calvert, Cox, Cunningham, Doolittle, Dornan, Dreier, Gallegly, Herger, Horn, Hunter, Kim, Lewis, McKeon, Moorhead, Packard, Pombo, Radanovich, Riggs, Rohrabacher, Royce, Seastrand, Thomas

Democrats for--none

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Republicans against--none

Democrats against--Becerra, Beilenson, Berman, Brown, Condit, Dellums, Dixon, Dooley, Eshoo, Farr, Fazio, Filner, Lantos, Lofgren, Martinez, Matsui, Miller, Pelosi, Roybal-Allard, Stark, Torres, Waters, Waxman, Woolsey

Democrats not voting--Harman, Tucker


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