GOP Willing to Look at Smaller Tax Cut in Talks

With the entire U.S. government back in business, Republican leaders and the White House moved Monday to their most daunting budget challenge yet: bridging the huge chasm that separates them on taxes and spending while trying to carry out Sunday’s agreement to erase the deficit by the year 2002.

In a key development, GOP leaders signaled a willingness to talk about a smaller tax cut than they had earlier proposed and to add money for education and the environment when negotiations with the White House begin next week.

“It’s got to be on the table,” House Speaker Newt Gingrich (R-Ga.) said of the GOP tax package.

Reducing the tax cut would ease another obstacle to a long-term budget deal by allowing smaller reductions than the Republicans have proposed for Medicare. President Clinton has insisted that he would veto any legislation containing the Republicans’ cuts in Medicare spending growth.

Clinton, in a closed-door meeting with House Democrats on Monday night, promised to defend Democratic priorities, but he warned lawmakers that they should be prepared to make compromises of their own. He called on his party, whose liberal and conservative wings have often been at odds throughout this budget debate, to stand behind him as he heads into the tough budget negotiations.

“Everyone can’t have it their way,” Rep. Barbara B. Kennelly (D-Conn.) quoted the President as saying. “There’s going to have to be some very heavy lifting. A lot of people are going to have to swallow” compromises they dislike, she said.

The House on Monday voted, 421 to 4, to approve the short-term spending deal reached over the weekend that will fund the government through Dec. 15. Clinton signed the measure Monday night.

Although they are non-binding, provisos attached to the temporary spending accord--notably a vow to balance the budget in seven years--set the stage for the coming round of talks between Congress and the Administration over long-term spending priorities.

The House also gave final congressional approval Monday to a sweeping budget-balancing bill that would overhaul welfare and Medicaid, slash Medicare spending growth and provide a $500-per-child tax credit. The House passed the bill Friday but had to vote again to ratify minor changes made by the Senate.

Veto Threatened

Clinton has promised to veto the bill. His veto would trigger the next round of budget negotiations.

“They’ve cleared out the underbrush,” declared Stephen E. Bell, a managing director in the Washington office of investment banker Salomon Bros. “The parameters for the battle have been set.”

While a compromise may prove difficult to achieve, budget analysts said it likely would require Republicans to scale back their plans for curbing Medicare and Medicaid growth, welfare and student loans.

Extra money to spend on government programs would come from two sources: a smaller tax cut and technical adjustments to the economic forecast, which could unleash hundreds of billions of dollars.

Martha Phillips, executive director of the anti-deficit Concord Coalition, said that the language of Sunday night’s deal suggested that “the Republicans won on the big picture--’we want to balance the budget in seven years’--and the Democrats won on specifics--’we want to balance the budget but we still love these government programs.’ ”

It became immediately apparent Monday that the agreement had not eliminated the profound philosophical differences between the parties over the appropriate size of the federal government.

After White House Chief of Staff Leon E. Panetta said early Monday that a balanced budget could be reached “in seven years or eight years,” House Majority Leader Dick Armey (R-Tex.) expressed dismay and fired off a letter of protest.

Accusing Panetta of waffling on the seven-year commitment, Armey said: “If the President intends to break this commitment, he shouldn’t make it.”

Alternative Plan

An alternative budget that had been pushed several weeks ago by a group of centrist House Democrats appeared to offer some clues about where the White House-GOP negotiations could be headed.

The alternative plan, which provided for no tax cut, achieved a balanced budget with more moderate restrictions than favored by Republicans on Medicare, Medicaid, welfare and other government services. It received only 68 votes from Democrats and four from Republicans when it came up on the House floor.

“But the next time around, you’re going to see a lot of bipartisan support for the coalition budget,” Rep. Charles W. Stenholm (D-Tex.) said. “We have it from both sides of the aisle.”

Asked about whether his coalition would consider adding a tax cut to the package, Stenholm responded that “every aspect of everybody’s budget is on the table and must be looked at.”

As the potentially climactic round of the budget debate loomed, Republicans were ecstatic that they had won Clinton’s acquiescence in their most basic demand: committing himself to a balanced budget in seven years, relying on congressional economic forecasts.

“We didn’t blink; we didn’t compromise on the seven-year balanced budget,” Senate Majority Leader Bob Dole (R-Kan.) said Monday, speaking via satellite to the Republican Governors Assn. meeting in Nashua, N.H.

Republicans called on the President to spell out the changes he wanted to see in the budget-balancing bill that he is expected to veto. Rep. John A. Boehner of Ohio, chairman of the House Republican Conference, said that would allow the Republicans to know “the exact dimensions of the [negotiating] table.”

For their part, Democrats hoped that the weekend agreement would allow the debate to shift to terrain they believe is more hospitable to their political interests: not whether to balance the budget but how. They believe the focus on the tax cut, in particular, works to their advantage because they believe voters want to balance the budget more than they want their taxes cut.

“For the first time, the Republicans acknowledge that his [Clinton’s] priorities have to be reflected in the ultimate budget bill,” said White House senior adviser George Stephanopoulos.

“This is what we’ve been waiting for,” said Rep. George Miller (D-Martinez). “Last night, the issue was resolved once and for all whether we’re going to have a balanced budget. The public doesn’t support the way the Republicans want to balance the budget.”

Economic Projections

In fact, one of the most arcane--if far-reaching--aspects of the dispute remained unclear Monday: the precise economic growth projection that will be used in seven-year budget planning.

According to the weekend deal, Congress will rely on updated Congressional Budget Office numbers after CBO analysts consult with private economists.

The CBO now forecasts a cumulative deficit that is $475 billion greater than what the Administration foresees over the next seven years, dictating a much tougher regimen of cutbacks to achieve a balanced budget than would be required under White House economic growth estimates.

Despite the vast gulf, however, both sides’ calculations are relatively in line with the views of private economists, and the CBO is expected to lean toward the Administration position when it provides the negotiators with updated statistics.

Boehner said Republicans would ask the CBO to update its numbers promptly so that negotiators have a clear view of how much money they have to work with.

Indeed, some budget observers were surprised that Clinton agreed to use congressional numbers, even with the proviso that the CBO consult with outsiders and update its forecast.

“That moves the ball quite far in the direction that the Republicans would like it to go,” said Robert Reischauer, former head of the CBO and now a senior fellow at the Brookings Institution.

Yet for all that, some analysts felt that the task of balancing the budget was eminently doable with the help of a smaller tax cut and a larger pool of cash arising from more upbeat economic forecasts.

“I think it [an agreement] can be done in three or four weeks,” Bell of Salomon Bros. said. “I really do.”

Times staff writer John M. Broder contributed to this story.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Budget Glance

The federal budget battle Monday:

SHUTDOWN: Up to 800,000 furloughed workers returned to work following a temporary budget agreement between the president and Congress.

****

WHAT’S NEXT? Details of the agreement must be worked out and written into law by Dec. 15, or another, more protracted government shutdown could follow. Congress and President Clinton agreed in principle on Sunday that the budget should be balanced by 2002, while protecting future generations and the solvency of Medicare, assuring adequate money for education, defense and other priority programs, and providing tax policies that help working families and stimulate the economy.

****

WHO WON? Clinton said: “The American people have won in two ways. The government will go back to work ... (and) we can have an open, honest, straightforward discussion about how best to balance the budget.”

“It’s seven years,” said Senate Majority Leader Bob Dole, R-Kan., and House Speaker Newt Gingrich, R-Ga., noting the agreement includes the seven-year timetable the GOP has demanded.

Source: Associated Press