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President, GOP Agree on Balanced Budget Plan

By Eric Pianin and John F. Harris
Washington Post Staff Writers
Saturday, May 3 1997; Page A01

President Clinton and Republican congressional leaders yesterday announced agreement on a plan to balance the budget by 2002 and cut taxes, resolving a rancorous debate over federal spending that has dominated the nation's politics for more than two years.

The agreement makes good on one of the central promises that helped sweep Republicans to power on Capitol Hill in November 1994 by setting the federal government on a path to eliminate its annual deficit for the first time since 1969. Clinton emerged with commitments for funding on his domestic priorities – most important, he said, his plan to expand access to higher education.

"I wanted a balanced budget with balanced values," Clinton said. "I believe we have that today."

"Through this budget we will reach balance by cutting spending, not by raising taxes," Senate Majority Leader Trent Lott (R-Miss.) said.

The plan, which appears to have strong support in both the House and the Senate, emerged from more than a month of intense give and take by White House and congressional negotiators.

The final disputes over tax cuts and the president's spending initiatives were all but swept aside Thursday night with the Congressional Budget Office's disclosure that the government would reap $225 billion more in revenues over the next five years than previously projected because of the continued economic boom.

This sudden windfall allowed the White House to quell what looked to be an open revolt by House Democrats, who felt Clinton was abandoning their principles. With the new-found funds, there was more than enough for negotiators to pay for $34 billion of Clinton's proposals for expanded health care coverage for impoverished children, partial restoration of welfare and disability benefits for legal immigrants that were cut out in last year's welfare reform legislation, and educational tax credits and deductions.

Vice President Gore, according to people familiar with the talks, weighed in decisively on several points of the deal that he knew would be important to key Democratic constituencies. He repeatedly pressed to keep Medicare premium increases down; after the latest flush of money caused by the new CBO estimates, he urged dropping the spending caps on the Medicaid program for poor people that had irritated liberal Democrats.

Republicans, for their part, were assured of net tax cuts of $85 billion over five years, fulfilling a key pledge of their "Contract With America," won major cuts and reforms of Medicare and Medicaid, and dodged a political bullet by scrapping a proposal to pass legislation to reduce the cost-of-living adjustment for Social Security – a measure that would have been certain to draw the ire of senior citizens.

A key obstacle had been White House insistence that the GOP make specific commitments about taxes, including assurance that it would include $35 billion for Clinton's Hope Scholarship education tax credits and other education deductions to subsidize college. Ways and Means Committee Chairman Bill Archer (R-Tex.) balked, insisting that final decisions must be left up to the tax-writing committees.

Clinton and Treasury Secretary Robert E. Rubin finally relented after receiving GOP assurances that his proposals would be included. "The chairman will do as much as he can . . . cognizant of the fact we want the president to sign the tax bill," said an Archer aide.

Both sides had to soften once inflexible demands. While Clinton in his 1992 presidential campaign endorsed the idea of a balanced budget, he warned two years ago that eliminating the deficit by 2002 could wreck the economy. Republicans were so set on their tax-cutting priorities that they forced two shutdowns of the government rather than compromise with Clinton. But Clinton and the Republicans emerged from last fall's elections determined to reach across ideological divides.

"Everyone could find something that he or she wishes were in the budget," a subdued Clinton said in announcing the deal at a Senate Democratic retreat in Baltimore. "There is no perfect agreement. But as I said, we know America is more prosperous when we have fiscal discipline, when we invest in our future, and when we do it in the right way."

Lott, who along with House Speaker Newt Gingrich (R-Ga.) devised the GOP bargaining strategy, said Republicans and the White House had "listened to the American people" when they signaled in last fall's election that they wanted both sides "to work together to finish the job of balancing the budget."

Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) and House Budget Committee Chairman John R. Kasich (R-Ohio), who teamed up to carry the bulk of the talks with the White House, embraced during the announcement. Domenici, the senior partner who has championed anti-deficit efforts for a quarter century, declared that his Sisyphus-like task had come to an end. "The rock is to the top, the budget is balanced and the American people are going to be grateful."

But in fact, the budget deal marks only the first big step in a long journey toward a balanced budget. Congressional leaders and the White House still must muster majorities needed to fill in the hundreds of details to the compromise, including the specifics of the tax cuts and the fine print of the Medicare and Medicaid savings, and then pass the 13 individual spending bills for the coming fiscal year to begin implementing the master plan.

And while Republicans and Clinton addressed short-term problems with the Medicare program, most experts agree that exploding entitlement costs as baby boomers begin retiring during the next quarter century and possible reversals in the economic good fortune could send deficits soaring once again.

"This is not the end of the road," Kasich said, "but it's a giant step."

While both sides stressed that some details need to be clarified, GOP and Democratic officials said the five-year budget blueprint includes:

A total of $350 billion of deficit reduction with more than half taken from mandatory spending programs, such as Medicare and Medicaid.

Gross tax cuts totaling $135 billion over five years, partially offset by $50 billion of anticipated new revenues from extending the airline ticket tax and closing other tax loopholes. Although details will be left to the tax-writing committees, the package will include a $500-per-child family tax credit, a reduction in the capital gains and estate taxes, an expansion of the tax benefits of Individual Retirement Accounts and Clinton's education tax initiatives.

Medicare savings totaling $115 billion that would assure the financial stability of the seniors' health care program for the next decade. The reduction in Medicare would be achieved through cuts in reimbursements to hospitals and other health-care providers and a $5 billion boost in beneficiaries' premiums for physician care to cover home-care services. The monthly premium rises by a total of $4.50 by 2002.

Elimination of a controversial proposal to impose a per capita cap on the federal share of Medicaid payments for low-income and disabled Americans, under pressure from Gore as well as Democratic and GOP governors who feared they would be saddled with towering costs. Elimination of the cap reduces gross savings in Medicaid from $23 billion to about $16 billion over five years.

A slight rise in general government spending for domestic programs in the coming year – a cumulative total of $65 billion over this year's level of spending, but $15 billion less than Clinton requested. The White House said that the tax credits and deductions provide for the largest increases in education spending in 30 years and protects other priorities including environmental protection.

Defense spending will closely mirror Clinton's request, with roughly $45 billion more of cumulative spending authority over five years than the current spending level.

Congress will save about $12 billion by assuming that the Bureau of Labor Statistics will shave 0.15 percent off the consumer price index, the main gauge of inflation used by Congress in revising the cost-of-living adjustment for Social Security. Because of the revenue windfall, Republicans could drop a plan to seek through legislative mandate an additional 0.15 percent reduction in the CPI.

Democrats and Republicans alike stressed the "something for everything" nature of the agreement. Senate Minority Leader Thomas A. Daschle (D-S.D.) and House Minority Leader Richard A. Gephardt (D-Mo.), who earlier protested the emerging plan, yesterday endorsed the broad outlines of the agreement. Daschle pledged that a majority of Democrats would support the plan, while Gephardt signaled liberals' relief with the final terms.

"I am especially pleased to see that the agreement removed the potential threat to Social Security by eliminating a legislative change in the calculation of the consumer price index," Gephardt said.

In a conference call with House Republicans, many of whom had gone home by the time the deal was set, Gingrich hailed the agreement as "the completion of the Contract With America."

The drama and brinkmanship that have marked the talks for two years continued until literally minutes before it was announced.

Before leaving the White House for the dedication of the Franklin D. Roosevelt memorial, Clinton offered bluntly partisan remarks that aides said were intended to chasten Republicans and reassure Democrats. He cautioned against "the failed policies of trickle-down economics to a policy of invest and grow."

By the time, Clinton returned to the White House two hours later, prospects had improved. Gore, Chief of Staff Erskine B. Bowles and senior budget negotiators gathered with the president in the Oval Office. With a smile and thumbs up, the president signed off on the deal and flew to Baltimore.

Staff writers Helen Dewar, John E. Yang and Guy Gugliotta contributed to this report.

© Copyright 1997 The Washington Post Company

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