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Clinton Insists Economy Won't Eliminate Deficit

By Peter Baker and Eric Pianin
Washington Post Staff Writers
Wednesday, July 16 1997; Page A04

President Clinton resumed budget negotiations yesterday and insisted the deficit would not be eliminated without the plan he is crafting with Congress, despite new reports suggesting the booming economy may erase the red ink on its own.

Returning to the table after a week-long European mission, Clinton appeared annoyed that some financial analysts suggested the five-year spending blueprint is no longer necessary – and perhaps even counterproductive – because tax revenues are coming in so strongly that the deficit is falling far more sharply than expected.

"There are some I have heard since I've been gone who have argued that since the deficit has dropped dramatically it will somehow disappear just if we . . . don't do anything else," Clinton said. "I have to say that I emphatically disagree with that. . . . It is plainly wrong that . . . if we did nothing" it would balance by itself.

The issue is sensitive for Clinton, who raised it without prompting yesterday after fuming to aides last week that he was not receiving due credit for his 1993 deficit reduction plan. If the deficit continues to plummet without further action in Washington, it could diminish any luster of being the president who balanced the budget for the first time since 1969.

New Congressional Budget Office estimates circulating on Capitol Hill show the federal government ran a deficit of only $11 billion during the first nine months of the current fiscal year – less than a third of what it was during the same period a year ago. Under current trends and without any new deal, the fiscal 1997 deficit could fall below $30 billion, less than half of projections made as recently as May and barely a tenth of the $290 billion record set in 1992.

Clinton raised the issue at the beginning of a generally amicable White House meeting with congressional leaders from both parties. Both Clinton aides and Republican leaders emerged predicting they could narrow their differences and find a mutually acceptable budget plan by the end of the month.

"At every point, the focus was on how do we get to an agreement not whether we break down," said House Speaker Newt Gingrich (R-Ga.).

Clinton likewise eschewed confrontational talk. "It does not serve the American people well if we explicitly and publicly turn this into the gunfight at the O.K. Corral," he told reporters. "Now what we're trying to do is to find a way to work through our differences so we can get a bill that they can all vote for and I can sign."

Even with the public harmony, according to participants, Republicans delivered a clear and edgy warning to Clinton behind closed doors to drop his "class warfare" rhetoric and make good on his commitment to a tax package that includes a major reduction in capital gains taxes.

At one point, according to officials, House Budget Committee Chairman John R. Kasich (R-Ohio) flew out of his chair as he reminded the president of trade-offs made in a general budget accord in early May. "You got the $35 billion for education," he reportedly told Clinton, "and we got to write the tax cuts."

The frustration reflected GOP concerns that they have been outmaneuvered by Democrats who have portrayed Republican tax plans as weighted toward the rich and unfair to lower-income working families who would not receive a $500-a-child tax credit. Reading between the lines at the meeting, White House officials said they believe Republicans are looking for a way to concede on the child credit dispute if they can find a face-saving compromise.

The two sides also discussed a Senate proposal to charge wealthier Medicare recipients higher premiums. Clinton said he supports it in principle, but they disagreed on the mechanics of how it would be collected.

House Majority Leader Richard K. Armey (R-Tex.) said he left the meeting under the impression that "the whole question might be too complex to deal with at this time" and it might be left out of the budget agreement. However, other participants, including Senate Majority Leader Trent Lott (R-Miss.), disagreed with that interpretation.

Responding to polls, Republican Party leaders have grown alarmed that the Democrats are winning the public relations war over taxes.

"I think we're losing," Wisconsin Gov. Tommy G. Thompson told reporters in Washington yesterday. "There's no question the Democrats are much better at rumor-mongering and much better at getting their message out. . . . We have not done the best job of selling our story."

Republican National Committee Chairman Jim Nicholson complained the White House has engaged in "vintage class-warfare rhetoric," adding, "Our challenge is to get the word out to the people of America so they understand exactly how this is going to work and how the working-class people of America are going to benefit."

Gingrich and other GOP leaders tried to do just that yesterday as they summoned reporters to an outdoor news conference to trumpet the increased family purchasing power they want to deliver. The centerpiece of the event was a table loaded with consumer goods that could be purchased with the average tax cut, with examples that included a child's bike, garden tools and milk, which was curdling in the blistering noontime heat.

Republicans also introduced Debra Wilson of Dale City, Va., a divorced mother of three daughters who earns $60,000 a year and who said she would benefit more from the GOP plan than Clinton's.

Staff writers Clay Chandler, Ceci Connolly and John E. Yang contributed to this report.

© Copyright 1997 The Washington Post Company

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