GOP, Democrats inching toward a budget deal Compromise will likely leave major changes in entitlements intact


WASHINGTON -- Beneath the din of partisan rhetoric, the outline of a budget deal between the White House and Republican-led Congress is starting to take shape.

Like bargainers at a Middle Eastern bazaar, the two sides are still issuing categorical declarations -- like "must have" and "can't do" -- that seem to place them poles apart. A final agreement may come only after threats of government shutdowns and defaults on U.S. debt.

But as the House and Senate begin hammering out the details of the GOP plans to shrink Medicare and Medicaid, cut taxes and balance the budget, there has been enough movement by Democrats on key elements of the package to suggest that much of it will survive as part of a compromise.

That would mean major changes in the health care programs, probably leading to increased costs and fewer benefits for poor and elderly Americans; tax breaks for middle-class and upper-income individuals and businesses; and tax increases for the working poor -- along with the overhaul of welfare programs already approved in both houses.

"I think the Republicans will get 90 percent of what they want and Bill Clinton will declare victory," said Stephen Moore of the Cato Institute, a conservative think tank.

Not everyone predicts a GOP success rate quite that high.

Reductions in Medicare

House and Senate Democrats have already agreed to shave at least $89 billion from the Medicare program over seven years. President Clinton has proposed to trim the program by $124 billion. The Republican proposal would shrink Medicare by $270 billion. So, the question is not whether the program will be cut but by how much.

Medicaid is in a similar situation. Republicans propose to slow its growth by $182 billion over seven years and turn the program over to the states to run. Republican governors have agreed. Mr. Clinton and Senate Democrats have offered a counter-proposal that would ensure that all eligible people get benefits, but those benefits would be capped.

"The smell of a deal is definitely in the air," said David B. Kendall of the Progressive Policy Institute, a moderate Democratic think tank.

Democrats are still resisting GOP plans to scale back the Earned Income Tax Credit, which provides cash benefits to the working poor. But they could not even get support in the Senate Finance Committee last week from GOP moderates who supported the program when it was a pet cause of Republican Presidents Ronald Reagan and George Bush.

A House bill would take $23 billion from the tax credit program; the Senate is seeking $42 billion. Unless Mr. Clinton chooses this place to make a strong stand, the likelihood is that the final total will be somewhere in the middle.

Minimizing opposition

So far, Republicans have been skillful at minimizing opposition to their budget cuts. They have achieved this partly by waiting until the last minute to unveil the details that would be most meaningful to people -- such as premium increases for Medicare.

Also, GOP leaders have kept a lid on protests by bringing lobbyists and leaders of grass-roots organizations into the room where their proposals were being drafted.

Not even the American Association for Retired Persons, with its 33 million members, is working to defeat the GOP Medicare and Medicaid proposals outright, just to soften their impact.

"We're not opposed to making any change, we just think they go too far," John Rother, chief lobbyist for the AARP, said of the GOP plans.

Of the nearly $1 trillion in savings needed to balance the budget by 2002, the Republicans would take more than half -- $530 billion -- from just four automatic benefit programs called entitlements: Medicare, Medicaid, welfare and the Earned Income Tax Credit.

A much smaller amount -- $22 billion this year -- would come from trimming spending on nearly all the other functions and programs of government.

There is not a lot of room to bargain on the entitlements unless Republicans yield significantly on their goal of reaching a balanced budget by 2002 while providing a $245 billion tax cut. And the 73 House GOP freshmen, in particular, are not inclined to compromise on what they see as key elements of their "Contract with America" campaign platform.

"These are people who vowed to come here and change the government," said Frederick C. Graefe, a lobbyist representing health care providers who would have payments reduced under the GOP proposals. "They don't care if they get re-elected or not."

A reduction in the GOP tax cut is likely. Senate Majority Leader Bob Dole has expressed doubts about whether the $245 billion figure would even make it through the Finance Committee, where it comes up for a vote next week.

But House Republicans will surely insist on retaining the 2002 target date for balancing the budget -- as well as their $500 per child tax credit and a cut in the capital gains tax rate, which are the largest parts of the tax package.

There is a wild card, however, that congressional and White House negotiators are considered likely to play at the final stage of negotiations in November or December.

They could save billions -- and possibly cement a final compromise -- by adjusting the formula used to calculate the impact of inflation -- known as the Consumer Price Index -- which many economists believe is too high.

Dropping the CPI -- currently just under 3 percent -- by one percentage point would save as much as the entire proposal to revamp Medicare. Reducing it half a percentage point would produce enough savings to give both Medicare and Medicaid more breathing room.

This is a politically dicey maneuver, however, because lowering the CPI saves money by raising taxes and reducing Social Security benefits that are tied to the inflation index.

The Republicans say they will not propose such a change unless Mr. Clinton joins them. "If we're going to do this, it's got to be totally bipartisan, nonpartisan," Senator Dole said this week.

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