WASHINGTON -- Offering what he called a "middle-class bill of rights," President Clinton proposed $60 billion in new tax breaks last night, including a plan to make college tuition tax-deductible for the first time.
In what amounted to an inaugural address for the second half of his term, Mr. Clinton signaled that he had gotten the message of the midterm elections, which swept conservative Republicans to power in Congress on a pledge to reduce the size and intrusiveness of government.
"At this holiday season, everybody knows that all is not well with America, that millions of Americans are hurting, frustrated, disappointed, even angry," Mr. Clinton said in a 10-minute speech from the Oval Office. "It's almost as if some Americans are being punished for their productivity in this new economy.
We have got to change that. More jobs aren't enough. We have to raise incomes."
Making tuition tax-deductible -- the most novel idea in the Clinton package -- is the president's opening bid in an effort to regain the allegiance of middle-class voters, who rejected Democrats -- and by extension Mr. Clinton himself -- at the polls last month. The plan is likely to have great appeal to millions of Americans who must confront the rising cost of higher education.
The proposal is Mr. Clinton's answer to the Republicans' tax-cut promises. It would benefit families with incomes of up to $120,000. He also called for a new $500 tax credit for children 12 or younger in families earning up to $75,000 and expansion of the Individual Retirement Account (IRA) program.
"Just as we make mortgage interest tax-deductible because we want people to own their own homes, we should make college tuition deductible because we want people to go to college," he said.
All the tax-cut initiatives had carefully tailored limits, White House officials said, both to keep the deficit from growing and to draw a distinction with Republicans -- whose tax-cutting plans would help well-off Americans with incomes of up to $200,000.
Mr. Clinton would pay for his plan, which would not take effect until 1996, through a restructuring of five federal agencies and a two-year extension of a budget freeze on certain domestic spending programs that is due to expire in 1998.
"I know some people just want to cut the government blindly, and I know that's popular now, but I won't do it," he said. "I want a leaner, not a meaner, government that's back on the side of hard-working Americans."
Mr. Clinton promised to work with the new Republican majority and vowed: "My rule for the next two years will be country first and politics-as-usual dead last.
"I hope the new Congress will follow the same rule, and I hope you will, too," he told a national TV audience.
But he also took a swipe at the last two Republican administrations, noting that only 5 percent of federal income taxes goes to pay for welfare and foreign aid, while 28 percent goes for interest on the debt "run up between 1981 and the day I was inaugurated president."
And he drew a comparison between himself and Harry S. Truman, the feisty, against-all-odds winner of the 1948 election (and the last Democrat to govern under a Republican Congress) by likening his new plan for post-Cold War America to Truman's GI Bill of Rights after World War II.
Mr. Clinton said his initiative was designed to help middle-class Americans achieve four goals: attend college, rear children, save money, and retrain for new jobs.
In the Republicans' televised response last night, new Sen. Fred Thompson of Tennessee said that Mr. Clinton's "vision for the future now looks a lot like what Republicans just campaigned for -- at least until we start looking at the details."
Mr. Thompson added: "Your vote this election apparently got the president's attention. If the president's new position tonight represents a real change of heart, we say, 'Welcome aboard.' "
White House officials said that they were well-aware that some Republicans will see Mr. Clinton's speech as merely the opening point in negotiations over taxes -- and warned that this could have dire consequences for the budget deficit.
"What we need to do now is to make sure we don't get into a huge bidding war that breaks the bank," White House Chief of Staff Leon E. Panetta.
To pay for what White House aides described as $60 billion worth of tax breaks from 1996 to 2000, the president plans to slash some $76 billion from the budget starting next year. The cuts would come mainly in three Cabinet departments -- Energy, Housing and Urban Development, and Transportation -- and two agencies -- the General Services Administration and the Office of Personnel Management.
The savings would also come from consolidating and privatizing various government functions, from air traffic control to the nation's petroleum reserve.
The president also recommended consolidating some 60 job-retraining programs into a single grant, given in the form of a voucher, that would go directly to individuals who lose their jobs and need retraining.
All told, those steps would save about $24 billion, officials said.
Another $52 billion would come from extending a "hard freeze" on discretionary spending through 2000 -- a freeze that means, with inflation, annual cuts in the budget of nearly every federal program except entitlements.
The new deduction for college expenses would apply to tuition payments for college, community college, graduate school, professional school, vocational education and worker retraining after high school. According to White House officials, the deduction on college expenses, when fully phased in, would cover up to $10,000 in annual tuition -- and would begin to phase out when a family's adjusted gross income reached $100,000. Those with incomes of $120,000 or more would not be eligible.
Mr. Clinton's proposed $500-per-child tax credit begins to phase out for families with an adjusted gross income above $60,000 -- and is gone by the time a family income reaches $75,000. The credit does not apply to teen-age children.
To spur savings, the president is proposing to expand the flexibility of tax-deferred IRAs and raise the income level for eligibility. It would phase out between $80,000 to $100,000 per year.
HIGHLIGHTS
* Create a tax credit of up to $500 per child for families with children 12 or under.
* Allow deductibility of up to $10,000 a year in education expenses.
* Expand the flexibility of individual retirement accounts.
* Allow penalty-free withdrawals from IRAs for college education, buying a first home, catastrophic illness or care of an elderly parent.