Clinton Plan Will Seek $98 Billion in Tax Help

Should America’s schoolrooms be wired to the Internet? The White House says yes and proposes to spend almost $2 billion during the next few years to get the job done. Hazardous waste cleanup, global-warming research and U.S. diplomacy also are slated for hundreds of millions of dollars in additional federal funds.

At the same time, the White House budget scheduled to be released this week will propose $98 billion in tax relief, administration officials said Sunday, along with a bid to plug $40 billion in loopholes derided as “corporate welfare.”

And in Washington’s zero-sum contest over limited resources, defense and aid to state and local governments face a possible squeeze.

“Balancing the budget is about making hard choices,” said Ann Lewis, the deputy White House communications director. “Let’s be clear that this is not easy. This is not rhetorical.”

In two pivotal days this week, President Clinton is to unveil the “hard choices” he has made for his second-term agenda in graphic detail, first in Tuesday night’s State of the Union address and again Thursday with the release of hundreds of pages of budget plans for fiscal 1998 and beyond.

It is an agenda, White House officials maintain, that will combine credible deficit reduction and relatively flat spending levels with selected funding boosts for education, the environment, welfare and other areas.

Yet the program also will underscore how profoundly Clinton’s presidency has been shaped by his balanced-budget goal, one that has had mammoth significance for his own political fate as well as for the types of national policies he champions. Where candidate Clinton once called for pouring $200 billion into a massive program of jobs and public works, today’s budget-balancing president must choose much more limited targets.

This week, “he’ll have to make small initiatives and dress them up as if they were big--and Clinton’s pretty good at that,” said Allen Schick, a professor of public policy at the University of Maryland. He added, however, that in the vast U.S. budget, there’s always “wiggle room” for new projects.

It was not until three years after his election to the White House that Clinton even committed himself to balancing the federal budget by the year 2002, a course he knew was anathema to the liberal wing of his party.

In his book “Behind the Oval Office,” former Clinton campaign advisor Dick Morris says a fateful decision was made in September 1995, when the president decided to mount a national advertising campaign to highlight the differences between his path to a balanced budget and that of the GOP. Republican presidential candidate Bob Dole never recovered.

“I believed then and still do that the entire fate of Clinton’s presidency hinged on this key decision,” Morris wrote.

‘Unfinished Business’ Remains on Agenda

But if the political wars of 1995 and 1996 are over, major “unfinished business” remains, according to Mike McCurry, the White House press secretary. In his State of the Union address, the president will point to balancing the budget and softening some of the edges of last year’s welfare reform legislation as among the “unfinished business.”

Clinton also may make cases for the boost in education spending that is in his budget, fuller health care protection for children and an expansion of the Family and Medical Leave Act to include a maximum of 24 hours of unpaid leave a year for such duties as attending parent-teacher conferences or taking a child or an elderly relative to a doctor’s appointment.

The agenda also will reflect a multitude of behind-the-scenes choices about what to pay for and what to squeeze in an austere fiscal climate.

The administration may propose scaling back defense spending, perhaps by a few billion dollars, even as it recommends $1 billion extra for various State Department activities and another $1 billion owed the United Nations.

It may not be very generous to certain forms of research, such as fossil-fuel programs, but it will call for hundreds of millions of dollars extra for Superfund waste cleanup, global warming research and other environmental programs. A lengthy menu of education initiatives will feature money to help communities pay for schools, a plan to upgrade reading skills and new tax breaks to help students attend college.

“The fact is that we’re going to balance the budget--but we’re going to demonstrate that you don’t just cut everything,” said one White House aide.

Partisan fighting over how to achieve that goal is expected to erupt on several fronts, from taxes to student loan programs to housing assistance for the needy. Even modest cuts in defense and hikes in foreign affairs programs, for instance, could prove jarring to conservatives. A struggle over financial-aid programs also is brewing because Clinton seeks big savings in the guaranteed student loan program that benefits many lenders and has advocates in the GOP.

As some see it, however, no item leaps forth as more critical to the outcome of budget negotiations than the size of a tax-cut package, and for one simple reason: the bigger the tax cut, the more severe the spending trims required to eliminate the federal budget deficit.

White House officials Sunday described their program of $98 billion in tax relief as “targeted” to help families pay for such expenses as education and the purchase of a first home.

“It’s going to be a very targeted tax-cut program that I think is going to make a meaningful difference for American families,” Franklin Raines, the White House budget director, said on NBC-TV’s “Meet the Press.”

The administration would offset some of the cost with $80 billion in miscellaneous, largely technical, tax increases, including a crackdown on “corporate welfare” that targets loopholes affecting certain interest and dividends.

Clinton also would provide a break that would shield most people from paying a capital gains tax on the sale of a house.

Invitation to Make a Deal

While major differences remain with Republicans who generally support a bigger tax cut and broader capital gains relief, one GOP official seemed to challenge Clinton to cooperate on a far-reaching budget deal.

Senate Majority Leader Trent Lott (R-Miss.) said on ABC-TV’s “This Week” that he plans to invite Clinton to Capitol Hill soon to explore resolving areas on which there is already significant agreement.

“This is [to] sort of sit down and say, ‘Mr. President, it’s time that we stopped the little pigeon steps around here and let’s begin to see what we can really do to move some things forward for the American people,’ ” Lott said.

Apart from emerging partisan pressures, the choices that Clinton has made for his second-term program are limited by large, historic forces.

“Eisenhower, Nixon and Bush got to spend peace dividends,” said C. Eugene Steuerle, a budget scholar at the Urban Institute in Washington, referring to the brisk jump in domestic spending that occurred after World War II, the Vietnam War and the Cold War. Clinton, by contrast, has had no such windfall to draw upon.

It has also been Clinton’s lot to inherit a vast national debt piled up during the 1980s and to govern in a time when the monumental expenses of the baby-boom generation’s retirement years are foreseeable early in the next century.

“Clinton is pinched” by both of those realities, said Robert Greenstein, head of the Center for Budget and Policy Priorities, a liberal think tank in Washington. “There aren’t going to be much in the way of significant new initiatives compared to past presidents.”

It is in this context that administration officials tout the increases contained in their fiscal agenda and argue that their plan shatters the orthodoxy that balancing the budget and boosting spending must be in conflict.

“Those used to be irreconcilable differences,” said Rahm Emanuel, senior advisor to the president. Clinton, he maintained, is staking out “a third way” that emphasizes giving Americans the “tools” they need to succeed in a competitive global economy, while eschewing big, bureaucratic initiatives.

The approach emphasizes an important role for citizen volunteers, private employers and local governments in solving problems that range from tutoring the needy to creating jobs for welfare recipients.

What is more, advocates maintain, it is a way that is uniquely appropriate to the needs of the future, a time of rapid change that will place an extreme premium on education for participation in the global economy. “The old system doesn’t work very well in the Information Age,” said Al From, president of the centrist Democratic Leadership Council.

Friction Seen on Both Sides

Not that everyone is cheering the “third way.” The program Clinton lays out this week will spark friction not only with conservative Republicans but with liberal activists in his own party who continue to believe in big-government solutions. Many Democrats are disappointed that Clinton isn’t moving more dramatically to increase social welfare spending, such as funds for Head Start, a program aimed at helping needy children succeed in school.

“I might be able to explain it if we had a Republican president,” said Sen. Paul Wellstone (D-Minn.). “I can’t explain it with a Democratic president. I don’t know why.”

Beyond the philosophical brouhaha, the White House approach will also spark various technical challenges from those who question whether it truly would erase the deficit or amounts to just another “rosy scenario.” Already, critics are saying that Clinton’s plan depends too heavily on delaying spending cuts to the year 2000 and beyond--cuts that ultimately would prove too draconian to implement.

“I haven’t seen anything yet that shows the sufficient leadership and courage that’s really needed to get to a balanced budget by the year 2002,” Lott said last week.

But if that view is widespread, it is not unanimous. The budget deficit has shrunk by more than 60% in recent years, helped enormously by a stronger economy but also by tight spending levels and a controversial 1993 tax hike, focused on the wealthy, that Clinton pushed through. Some say that he has earned at least some credibility on the issue and that a healthy economy is taking pressure off the future cuts needed to reach the elusive budget goal.

“Maybe he got pulled into it screaming and yelling, but at least he allowed himself to get pulled into it,” said Stanley E. Collender, a private-sector budget expert in Washington. “That’s something Ronald Reagan and George Bush didn’t do.”

Times staff writers Janet Hook and Tyler Marshall contributed to this story.