Clinton Unveils Budget Proposal : Spending: Plan would eliminate deficit in seven years by slashing lower-priority domestic programs. Republicans attack the initiative.

In a new bid to crack the budget stalemate, President Clinton on Thursday formally offered his third omnibus spending plan of the year, a 1,000-page document that would eliminate the deficit in seven years by squeezing a whopping 20% from lower-priority domestic programs.

Responding to GOP demands for specific spending cuts, Clinton laid out a $465-billion savings inventory that would leave almost untouched the administration’s top-priority programs for education and the environment, Medicare and Medicaid, as well as a $98-billion tax-cut package.

But it would pare an additional $15 billion from welfare spending and save another $36 billion from lower cost-of-living increases for Social Security recipients and others. The revised budget would carve deeply into hundreds of low-priority domestic spending programs, probably including highways and mass transit, housing, energy and arts funding, some budget experts predicted.

“We presented on behalf of the Democrats a seven-year proposal to achieve balance and protect the priorities the president is concerned about,” declared White House Chief of Staff Leon E. Panetta.

But the Republicans lost no time in rejecting the plan. “This is a tremendous disappointment and, frankly, they have got to come back to the table,” said House Budget Committee Chairman John R. Kasich (R-Ohio).

The Clinton plan basically would squeeze the essentials of the president’s previous 10-year deficit-cutting program into seven years, to match the deficit-cutting in the plan the Republicans shepherded through Congress last month.

The president’s new budget also would cut taxes much as the “middle class bill of rights” proposal he made in his June 1995 budget plan.

The plan he presented Thursday has three major elements:

* A tax credit ranging from $300 to $500 per child under the age of 13 for families making as much as $65,000 to $75,000.

* A tax deduction of as much as $10,000 a year by 1999 for post-secondary tuition and fees. The deduction is phased out at incomes between $100,000 and $120,000 per year for married couples and $70,000 and $90,000 for others.

* An expansion of individual retirement accounts. Couples with incomes of as much as $80,000 and single taxpayers earning as much as $50,000 could make fully deductible contributions. Money could be withdrawn without any penalty for the purchase of a first home, catastrophic medical expenses, unemployment and higher education. Also proposed is a new type of IRA, where contributions are not tax deductible but withdrawals after five years are tax free.

Clinton’s budget and the Republican version, which carves more deeply into future entitlement spending, now will be the basis for face-to-face negotiations to complete the year-end spending legislation that is already 2 1/2 months behind schedule.

The key question about Clinton’s plan is how much credibility it will have with the public, especially considering that it is based on assumptions about future economic conditions that are slightly more optimistic than those in the GOP proposal. Clinton’s plan would trim only $465 billion from federal spending over seven years, compared to the GOP’s $812 billion, because it assumes higher future government revenues and lower expenses.

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To fend off anticipated Republican attacks on the plan’s credibility, White House officials said that they will attempt to negotiate a special “enforcement mechanism” that would require more cuts, or higher revenues, if the government does not reach its deficit-cutting targets.

Some outside analysts have grave doubts about whether future Congresses would find a way to circumvent such safeguards. But administration officials argued passionately that such a mechanism could ensure elimination of the $150-billion deficit and thus make moot the raging debate over economic assumptions.

Republican reaction was also cool to a White House proposal for a new bill to extend the government’s temporary spending and borrowing authority from Dec. 15 until Jan. 26. Without such an extension, the government may be faced with another partial shutdown on Dec. 15.

The new Clinton plan adds $141 billion in savings from a budget that the president offered in June.

The largest single chunk of savings would come from non-defense “discretionary” spending--that is, spending that does not increase automatically by law. The new Clinton plan would cut $64 billion in the non-defense discretionary realm, meaning that the average program would be trimmed 20% after inflation is taken into account.

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Still, the Clinton cuts in domestic discretionary programs, totaling $250 billion, would be far less than the GOP’s $440 billion.

The new Clinton plan would draw another $8 billion in savings from additional trims in welfare programs, raising total welfare savings to $46 billion over seven years.

Another big chunk of savings, $32 billion, would come through scaling back cost-of-living benefits by 0.2% because of a new Labor Department calculation that the consumer price index has overstated inflation. That change, if in effect today, would reduce Social Security recipients’ checks by about $1 a month.

Most important to the White House was what the Clinton budget would not touch: Medicare savings would remain at $98 billion over the seven-year period, compared to the $270 billion that Republicans would slice from future spending on the health program.

In separate developments Thursday, Congress moved to finish work on two appropriations bills that Clinton has threatened to veto. The House passed a bill providing $80.6 billion for the Environmental Protection Agency, veterans, housing and other domestic programs. Clinton has threatened to veto it because, among other things, it abolishes his national service program and cuts the EPA budget by about one-fifth. The bill still has to be approved by the Senate.

Also Thursday, the Senate cleared and sent to the White House a $27.3-billion appropriation for the departments of Justice, Commerce and State. Clinton has threatened to veto that bill because it would cut programs he favors.