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Showdown over deficit, tax cuts looms when Congress reconvenes Senate finance panel expects a close vote


WASHINGTON -- Congress returns Tuesday to plunge into a final and potentially decisive struggle with the White House for control of the national fiscal destiny, led by a test of Republican muscle on a central issue: tax cuts.

That test comes this week in the Senate Finance Committee, which just the week before last approved a contentious plan to reduce projected Medicare spending by $270 billion over seven years.

Now, it is scheduled to take up a Republican proposal to cut taxes by $245 billion over the same period as part of a sweeping bill that covers health, welfare and other spending totaling a third of the entire federal budget.

In his radio address yesterday, President Clinton called on Congress to defeat the Republican measures, saying: "They may call it a tax cut, but if you are a working American, it will feel like a tax increase to you."

The tax cut will die unless it gets the votes of all 11 Republicans on the panel; the Finance Committee's nine Democrats are united against it. This weekend at least one of the Republicans, Sen. Frank H. Murkowski of Alaska, indicated he was still undecided.

In an interview, Mr. Murkowski said he would propose this week that much of the money now earmarked for a tax cut be used instead to start paying down the national debt, which stands at $4.9 trillion. The money he proposed to tap, about $170 billion of the $245 billion, is a so-called dividend that some experts say the economy would generate from the healthy effects of balancing the federal budget.

The Republicans in the Senate have always said that dividend should be set aside to help pay for a tax cut.

happen to think that when you're packing a deficit of $165 billion a year and an accumulated debt of $4.9 trillion, and you're paying about 14 percent of your budget for interest on the debt, that you'd better do something about it," Mr. Murkowski said.

"Fiscally responsible economics dictates that you put this economic dividend into reduction of our accumulated debt."

Mr. Murkowski said he was "obviously outnumbered" by his fellow Republicans, and he predicted that some legislative package that includes a tax cut would work its way out of the committee and onto the Senate floor.

But if he holds fast, the Republicans could face a standoff because another of their ranks on the panel, Sen. Phil Gramm of Texas, has vowed to oppose any seven-year tax cut below $245 billion.

The tax issue is but one headache in what promises to be a season of political migraines for the Republicans and their revolutionary budget-cutting proposal.

Despite Republican predictions that their spending plans will be complete before Thanksgiving, few experts expect the budget wars to end before the December holiday season, and some say they could spill into next year.

Many say part of the government will grind to a standstill, halted by the lack of a legal budget or authority to borrow, before the fight ends.

The Democrats, who have mounted feeble opposition to the Republican plans so far, spent their one-week recess on a publicity blitz, charging repeatedly that Republicans are plundering Medicare to finance a vast shift of tax money to the rich.

Mr. Clinton stepped up his criticism of the Republican tax package yesterday, claiming that it would add up to "$148 billion worth of direct and indirect hidden taxes which will hit working Americans hard."

"Most unbelievably of all," he said, "17 million working families who seek to share in the American dream will have to pay $42 billion in income taxes through reductions in the Earned Income Tax Credits for working families."

Some Republicans acknowledged the week before last that the Democratic attacks were finally drawing blood, but said they knew that spending reductions in popular programs would not be met with wild enthusiasm.

"Frankly, we expected it would be at this level a month ago," said one Republican aide on the House Ways and Means Committee, the Senate Finance panel's counterpart.

Sen. Orrin G. Hatch of Utah, another Republican on the Finance Committee, said he believed the panel would produce a spending bill with the full $245 billion tax cut and that Mr. Clinton would veto it. But he predicted that the two sides would eventually strike a deal.

"Deep down, he has pretty good instincts on this stuff," Mr. Hatch said of the president. But as long as Mr. Clinton and the Democrats "keep demagoguing the tax issue, Republicans are going to stick it to them, frankly," he added.

A showdown with Mr. Clinton is at least weeks away. The Republicans' most immediate concern is to keep their narrow House and Senate majorities intact and to push their budget through Congress.

While the party has proved unified so far, some annoying splits developed in recent weeks and the biggest trials lie ahead.

The House and Senate have passed most of the 13 bills, totaling about half the budget, that will pay to run the federal bureaucracy and some programs in the fiscal year that began Oct. 1. But their versions often differ markedly, and so far lawmakers have approved three compromises and rejected three others.

Congressional leaders hope to get the spending bills to Mr. Clinton's desk by Nov. 13, the day the government's temporary spending authority expires. Others believe that no more than eight or nine bills will be finished by then and that Congress and the White House will clash again, inevitably, over how to finance the government while they dicker.

Delays will not matter a great deal: Medicare and other benefit programs would merely keep running at their current paces until the government's legal authority to borrow money -- that is, to engage in deficit spending -- is scheduled to run out Nov. 15. Unless it can rack up higher deficits, the government cannot pay its debts and will go into default.

House Speaker Newt Gingrich has expressed a willingness to raise the debt ceiling during negotiations in Congress and, later, with the White House. But with each extension, it will become less certain that the right-wing populists in his party will fall into line.

"Once Congress has produced a bill and sent it to the president, and he has vetoed that bill, you would think you would have a season for compromise," Robert D. Reischauer, a past director of the Congressional Budget Office who is now a scholar at the Brookings Institution, said in an interview. "But some of the participants here seem to be in no mood for compromise."

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