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Senate poised to raise taxes, cut spending Democrats hold, despite Perot, defections to GOP

WASHINGTON — WASHINGTON -- Driven by growing public fears of an economy increasingly burdened by debt, the Senate prepared last night to approve the second attempt in three years to attack the federal budget deficit with major tax increases and new curbs on spending.

In accord with the plan offered in February by President Clinton, the deficit reduction plan is all but certain to have these features: higher taxes on the rich, a motor fuel tax that will hit the middle class hardest, and cuts in automatic benefit programs, such as Medicare.

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"I'm hopeful, that's all I can tell you," Mr. Clinton said in the midst of a frantic round of last-minute deal-making with Democratic senators.

Probably the most expensive deal was an agreement by the president to restore nearly half of a $19 billion cut the Senate Finance Committee made in Medicare. The deal, made to appease liberals, did not include a source of revenue to pay for it, which meant the deficit reduction would not be as large.

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"I think it has been a victory to reduce by $9 billion the . . . sabotaging, swashbuckling cuts that had been done to Medicare," said Sen. Barbara A. Mikulski, the Baltimore Democrat who was active in the negotiations with Mr. Clifton.

According to congressional estimates, more than three-quarters of the bill's tax burden would hit Americans earning more than $200,000 annually. But Republicans argue that small businesses, which they say are the major potential source of new jobs, would also fall into this group.

The legislation's greatest impact on the middle class would come from its 4.3-cents-per-gallon increase in the tax on gasoline and other motor fuels. Families earning between $50,000 and $75,000 a year would see their federal taxes rise by an average $216 a year, the Congressional Budget Office said.

The party-line vote that was expected to come late last night on the $503.5 billion deficit reduction measure doesn't end the process.

A joint conference committee will spend much of the summer ironing out differences between House and Senate versions of the legislation, then each house must vote again to approve the final measure.

Major differences

Most striking of the differences between the two versions are the size and nature of the energy tax, the level of Medicare cuts and the virtual elimination from the Senate bill of Mr. Clinton's "investment" proposals.

As Vice President Al Gore presided over much of the Senate proceedings, the Republicans continued to pound away at the impact of $249 billion in tax increases over five years, and many of the Democrats said they also feared the outcome of $267 billion in spending cuts.

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Broad skepticism was expressed by members of both parties about whether this painful effort would result in any greater success than the ill-fated 1990 budget agreement, which was overcome by runaway health care costs.

Ross Perot applied further pressure by showing up outside the Capitol yesterday afternoon bearing what he said were two truckloads of petitions calling for more spending cuts before any tax increases.

"The bill being rushed through Congress right now does not balance the budget ever," the Texas billionaire-populist told a gathering that attracted House and Senate Republican leaders. "We gotta get it right this time."

But the majority of Democrats apparently concluded that the $4 trillion debt is having such a depressing effect on economic growth that they have little choice but to give deficit reduction another try.

"People come to my office and tell me, no matter what you do . . . the best thing you can do is reduce the deficit," said Sen. John B. Breaux, the Louisiana Democrat who helped mediate a Senate dispute over the energy tax.

Even so, just as with the House vote on the measure last month, President Clinton had to keep frantically negotiating until the last moment to insure nearly all 56 Democratic senators stayed with him.

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Straw votes on amendments earlier in the day indicated the president would win only by the slimmest of margins, as several Democrats facing re-election challenges next year deserted him.

Survive tough test

The Democrats' toughest test came on an amendment by Sen. Don Nickles, R-Okla., to eliminate the 4.3-cents-a-gallon tax increase on motor fuels, which was defeated 50 to 48.

As the votes were being cast, Sen. Daniel P. Moynihan, D.-N.Y., the Senate Finance Committee chairman, "was screaming," said Sen. Herbert H. Kohl of Wisconsin, a Democrat who co-sponsored the Nickles amendment. "They thought they were going to lose it."

The so-called transportation tax was substituted by the Senate for Mr. Clinton's much broader, but more controversial tax on the heat content of fuel.

In addition to Mr. Kohl, four other Democrats defected on that vote: Sen. Frank R. Lautenberg of New Jersey, Sen. Joe Lieberman of Connecticut, Sen. Dennis DeConcini of Arizona and Sen. Richard C. Shelby of Alabama. All but Mr. Shelby are up for re-election next year.

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Another close vote came on a Republican attempt to eliminate a tax increase on Social Security recipients, which was narrowly defeated by 51 to 46.

Five Democrats left the fold on that proposal, but one Republican, Sen. John C. Danforth of Missouri, who is retiring from the Senate next year, voted to support the president.

The Social Security tax increase, which now also seems certain to be included in the final bill, affects individuals earning at least $32,000 a year or couples earning at least $40,000. It would raise the level of benefits subject to taxes to 85 percent from the current 50 percent.

Medicare cut restored

One of the president's final bargains cost him $9 billion in deficit reductions to grant a concession to Senate liberals eager to soften the blow of a $19 billion cut in Medicare that had been added by the Senate Finance Committee.

After two days of negotiations failed to produce an acceptable plan to offset that cut with some other source of revenue, Mr. Clinton agreed to back an amendment to restore $9 billion of the cuts without any offsetting revenues.

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Thus, a measure that started the day with $516 billion of deficit reduction over five years was pared down to $507 billion.

An earlier amendment offered by Sen. George J. Mitchell, D-Maine, the Senate majority leader, with Mr. Clinton's approval reduced the total still further -- to $503.5 billion -- to provide a tax break for small businesses, who many senators argue are carrying most of the weight of the new taxes.

WHAT'S NEXT

No. 1Senate votes on bill passed earlier by House.

No. 2 Bill goes to conference committee made up of members of House and Senate to work out differences between the two versions.

No. 3 Once approved by conference committee, bill goes back to Senate and House. Congressional leaders decide which house considers it first.

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No. 4 After approval by both houses, bill goes to president for signature.



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