Clinton Vetoes GOP Budget Bill, Pushes Own Plan

President Clinton, vetoing the omnibus Republican budget bill for its “wrongheaded cuts and misplaced priorities,” set out Wednesday to line up support for his new substitute spending plan, despite many Democrats’ reservations about its tax-cut provisions.

One day before the new plan’s expected unveiling, White House officials visited Capitol Hill to find moderate and conservative Democrats arguing that the tax cuts would set back the deficit reduction goal, and their liberal brethren worried that the tax cuts would drain funds for needed domestic spending.

“There is widespread sentiment among congressional Democrats that you don’t start balancing a budget with a tax cut,” said Rep. Martin Olav Sabo (D-Minn.). Other Democrats argued that the new Clinton plan, which aims to balance the budget in seven years, should pare less than the planned $124 billion from Medicare’s growth, because the health plan for the aged is the party’s strongest issue.

While no details were provided by the administration, the tax-cut proposal was not believed to contain major changes from a plan first outlined in December 1994 as part of Clinton’s “middle-class bill of rights” and included in his June 1995 budget proposal. Those plans called for $500-per-child tax credits for families who have incomes of up to $65,000 and children younger than 13. They also included a deduction of up to $10,000 for college and graduate school tuition and expanded individual retirement accounts.

The new administration spending blueprint would keep Medicare and Medicaid spending at the levels proposed earlier by Clinton but would cut an additional $64 billion from non-defense discretionary spending over the seven years. It would preserve Clinton’s priority programs for education and the environment.

The plan assumes that optimistic reassessments of economic conditions will make it easier to reach a balanced budget in seven years.

The tax cut would decline slightly from $105 billion in the earlier plans to about $98 billion, officials said.

That tax-cut issue remained by far the greatest source of friction between the White House and the Democrats it hopes will back the plan. Many said they fear that, with the White House at $98 billion and the Republicans dug in at $245 billion, negotiations will produce a tax cut of nearly $200 billion.

Rep. Gary Condit (D-Ceres), who heads the conservative “Blue Dog” Democratic coalition that is considered key to White House prospects, said the president’s proposal makes it virtually certain that opponents of a tax cut have lost the fight.

“If you’ve got a Democratic president saying he wants a tax cut and Republicans saying they want a tax cut, that makes it a virtual certainty,” Condit said.

White House aides said that Clinton needed to include a substantial tax cut in his plan lest he be accused of again flip-flopping on the issue. But some administration aides hinted that the tax cut is a lower priority that could end up sharply reduced in the course of negotiations.

The White House appeal for support came as Clinton carried through with a flourish on his long-standing pledge to veto the Republicans’ omnibus budget bill.

Surrounded in the Oval Office by a group of elderly Americans, minorities and women--reflecting the traditional Democratic coalition--Clinton declared again that the Republican bill would dismantle hard-won social protections for the sick and elderly, as well as education and the environment.

“With this veto the extreme Republican effort to balance the budget through wrong-headed cuts and misplaced priorities is over,” he said.

Clinton did not spare the harsh language, claiming that the GOP bill, which aimed to pare $270 billion from expected Medicare spending, “would turn Medicare into a second-class system. The Medicare system has served all senior citizens well for 30 years. It would be over.”

To heighten the effect, the White House arranged for express delivery from Austin, Texas, of the pen that President Lyndon B. Johnson used in 1965 when he signed the Social Security Act amendments creating the Medicare and Medicaid programs.

But this theatrical touch nearly backfired when the ink did not flow through the 30-year-old fountain pen and Clinton had to ask attendants for a new inkwell. “It’s a small well,” Clinton joked.

Republican leaders quickly denounced Clinton’s comments as a setback to the two parties’ recent efforts to find a middle ground on this biggest domestic issue of the year.

House Speaker Newt Gingrich (R-Ga.), called Clinton’s ceremony a “nice gimmick” but said that the president “has to realize that the Great Society has failed. . . . Instead of leading, instead of governing, he played a game with the American people.”

But a senior White House aide portrayed the hard-edged rhetoric of the televised event as a political necessity if Clinton is to bring his Democratic core along on the kind of compromise budget that may disappoint liberals.

At a time when Clinton is facing questions from the left, “it helps to have a strong veto message today so that he can put forward a centrist seven-year plan to balance the budget tomorrow,” a senior aide said.

Clinton is to lay out all the new details of the plan today. But more of them surfaced on Wednesday amid discussion of the plan.

The blueprint, long demanded by Republicans as a starting point for negotiations, would add another $4 billion to the $25 billion in revenues provided by closing corporate tax loopholes over seven years. It would pare $46 billion from welfare programs, up by $10 billion from the earlier Clinton plan.

Non-defense discretionary cuts would rise to $250 billion during the seven years, up $64 billion from an earlier $186 billion.

And while it would cut $124 billion from Medicare growth, it would include about $23 billion in new health benefits for the elderly, bringing the new spending reduction close to $100 billion.

The administration’s Medicaid proposal would reduce the growth in spending by $54 billion over the next seven years, far less than the $162 billion in the GOP budget plan.

A cap on spending per person would be imposed, beginning next year, a major change from the current system, which has no restrictions on spending.

The cap, which would yield a savings of $28 billion, would be applied to each of the major categories under Medicaid: the indigent elderly in nursing homes, the disabled, poor children and poor pregnant women.

The plan would assure that states get additional funds in recession years when the Medicaid population increases. But the newly imposed cap on the increase would assure that total spending can be restrained, according to sources.

“If you have a block grant you just write a check and say goodbye,” said a source familiar with the plan. “The president believes the states should be protected in times of economic downturn.”

The administration document detailing the plan says that “a per capita cap limits federal spending without risking the loss of health coverage.” Medicaid is an income-linked program, available to help the poor with their medical bills.

The administration plan offers a major concession to governors’ demands for more flexibility. States would be allowed to require Medicaid beneficiaries to enroll in managed-care programs, such as health maintenance organizations. Currently, states cannot do this without a waiver of federal rules.

An additional $26 billion in savings over seven years would come from reductions in payments to hospitals that treat large numbers of poor and uninsured patients.

The payments to these “disproportionate share” hospitals would be reduced 35% by 1998, and then held steady.

Despite willingness to make some spending reductions, the administration is refusing to compromise with the GOP on a basic philosophical issue: keeping Medicaid as an entitlement. The GOP plan would give the states the money in a block grant and let each state decide who should be eligible. Rep. Vic Fazio (D-West Sacramento), a member of the House Democratic leadership, said that other Democrats are concerned that the president is seeking to cut too much from Medicare’s projected spending.

Meeting with Democrats, White House Chief of Staff Leon E. Panetta heard arguments that the White House should try to make an increase in the minimum wage and the long-stalled line-item veto conditions of the Democratic plan.

Also discussed was a proposal to incorporate safeguards that would guarantee spending would be cut in future years if optimistic economic assumptions that may be built into the plan do not pan out. Such safeguards might be a way to encourage deficit-minded Republicans that they can accept more optimistic economic projections.

Congress paved the way for another presidential veto Wednesday when the House approved and sent to the White House a bill to appropriate $27.3 billion for the departments of Commerce, Justice and State. Clinton has threatened to veto the bill because it provides almost $4 billion less than he requested and makes deep cuts in programs he favors, including U.N. peacekeeping missions and Commerce Department technology programs. It would replace Clinton’s crime-fighting program, designed to put more cops on the beat, with a block grant to states.

Times staff writer Robert A. Rosenblatt contributed to this story.