House GOP Leadership Set to Hike Debt Limit

In a surprising shift of course, Republican House leaders said Wednesday they were ready to raise the nation’s debt limit in return for a modest, noncontroversial “down payment” of deficit reduction and a scaled-back tax cut.

House Speaker Newt Gingrich (R-Ga.) also warned that the national economy was at risk of falling into a recession and called for business-oriented tax cuts to stimulate jobs.

The decision to agree to raise the debt limit would remove a major bargaining chip Republicans had hoped to use to force President Clinton to agree to their terms on Medicare, Medicaid, welfare and other sensitive areas of their proposal to balance the budget in seven years. Instead, those issues would almost certainly be put off until after the fall elections.

Gingrich’s offer came a day after Clinton used his State of the Union address to call on political leaders to seek common ground. The offer was viewed by some as a striking retreat by GOP leaders who have previously pushed a harder line in budget negotiations.

White House Press Secretary Mike McCurry said Clinton was intrigued by Gingrich’s ideas for resolving the debt-ceiling dispute. Clinton spoke with Gingrich for 10 minutes from Air Force One as the president flew to Louisville for a political appearance.

At a press conference, Gingrich said that while the White House and Congress remain “tremendously far apart” on basic policy issues, Gingrich said, “we have agreed with the president on enough things that I think we can get to a down payment” toward cutting the deficit.

“I can’t imagine the president, having told the entire nation that we need to find common ground, we need to work together . . . would now announce that he’s not going to agree” to sign a debt-limit increase with the proposed provisions attached, he said.

Gingrich repeated his prediction that the House would pass a temporary spending measure to keep nine Cabinet departments operating to March 1. Much of their current spending authority runs out Friday.

He also went on to say that “barring a dramatic change of heart” he did not expect a legitimate balanced-budget plan to become law as long as Clinton occupied the White House.

Dozens of hard-line House freshmen and second-term members, who have an almost religious fervor for balancing the budget, were taken aback at Gingrich’s unexpected comments. For example, some would still like to attach stringent conditions to bills to raise the nation’s $4.9-trillion debt limit or on a bill that would prevent a third government shutdown.

“They’re not ready to throw in the towel quite yet,” explained freshman Rep. Joe Scarborough (R-Fla.), noting that some of his colleagues were quite surprised by the speaker’s televised comments.

At the same time, he said members are increasingly “worn down” by the protracted conflict and that some may see an advantage in letting voters decide the issues in their choices for Congress and president.

“We’ve got the facts on our side,” he added. “I think the speaker feels comfortable going to the American people saying we did all we can do. . . . Let’s take it to the voters.”

Administration officials long have called for a debt-ceiling increase with no strings attached, and Treasury Secretary Robert E. Rubin recently said that the nation would default on its bills at about the end of February unless the legal credit limit is boosted.

On Wall Street, a leading credit-rating service on Wednesday threatened to lower the rating on some U.S. bonds because of the rising risk of government default. Moody’s Investors Service said it placed $387 billion in Treasury bonds with interest payments due Feb. 29 and April 6 “on review for possible downgrade.”

Any lowering of the rating would deal a sharp blow to the government’s credit standing. U.S. Treasury bonds are regarded as the safest in the world.

McCurry said that White House and congressional staff members would meet today to follow up on the speaker’s proposals “and look for ways we might achieve additional budget savings that would move the country on track to a balanced budget by the year 2002.”

However, he said, there is “no likelihood” of a summit-level meeting or a meeting of principals.

McCurry said Clinton spoke in a conciliatory tone in the State of the Union address but that “significant philosophical differences remain and the overall tenor of those differences has not changed.”

A separate, looming budget issue is a Friday deadline for a temporary spending bill, needed to prevent another shutdown. Gingrich and others have suggested that the House would approve funding, albeit at reduced levels, while also requiring noncontroversial eliminations of perhaps a dozen programs. That measure is scheduled for floor consideration today.

However, the debt limit was the focal point of the budget debate Wednesday, and the legislative vehicle for a more modest GOP budget strategy.

Gingrich said he would seek to attach a tax credit for families with children that would be worth $125 per child in 1995 and $500 per child in 1996. The duration of the tax break--less than two years--is a significant retrenchment from the seven-year time frame that Republicans were advocating until Wednesday, however.

Similarly, the notion of a “down payment” on deficit reduction, which Gingrich predicted would add up to no more than $100 billion, is a major change from Republican demands for several times that amount. Savings in excess of $600 billion would be needed to balance the budget by 2002, the goal of the talks so far.

As a result, some analysts concluded that GOP leaders were responding defensively to Clinton’s speech, and striving to put much of the budget controversy behind them. Public opinion polls have shown that the White House has fared significantly better with the electorate than has Congress in the fight over budget priorities.

“I think the Republicans are walking away from the table with less than they could get,” said Robert D. Reischauer, former head of the Congressional Budget Office and a senior fellow at the Brookings Institution, a Washington policy and research organization.

For weeks, White House officials have been calling on the Republican Congress to accept an immediate budget compromise based on areas of agreement--which the administration contends add up to more than $700 billion--and leave the more divisive, ideological issues for the election campaign.

Gingrich responded Wednesday that he would cooperate with such an approach, although he maintained that the administration has exaggerated the dollar value of agreements to date.

According to a summary distributed by the House Budget Committee, the two sides had tentatively signed off on $83.1 billion in savings by Jan. 2. The noncontroversial issues involve banking, housing, telecommunications, energy transportation and veterans benefits.

Conspicuously not included on the list were such big-ticket items as welfare, Medicare and Medicaid, in which differences of policy may be bigger barriers to a deal than differences in spending projections.

“Are there some things we can agree on up front?” asked Rep. John R. Kasich (R-Ohio), chairman of the House Budget Committee. “We’ll look for what we can agree to. But in terms of major agreements we’re universes apart. We remain there.”

Later Wednesday, Senate Majority Leader Bob Dole (R-Kan.), House Majority Leader Dick Armey (R-Texas) and Gingrich sent Clinton a letter outlining substantial differences between the administration and Republicans on the budget, including welfare reform, shifting power to the states and cutting taxes.

Gingrich said his proposals for a down payment on deficit reduction and family tax relief jibe with Clinton’s priorities. But he took issue with the president’s upbeat description of the economy. Gingrich, who supports tax relief for small business and a cut in the capital gains levy, said that such policies were needed to offset growing signs of economic weakness.

“We think there’s a grave danger of the economy sliding into recession,” he said. “We believe that we need some tax reduction to stimulate investment and job creation, to keep us competitive in the world market.”

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