GOP drops goal of deal with Clinton Leaders abandon drive for balanced budget agreement this year; Both sides turn to voters; No more shutdowns or risk of default, Gingrich announces hTC


WASHINGTON -- Ending their pursuit of a hugely ambitious goal, the Republican leaders of Congress yesterday formally abandoned their quest to strike a deal this year with President Clinton to balance the budget.

Conceding defeat on the heart of the Republican drive to shrink government, House Speaker Newt Gingrich said he would instead propose a small package of spending and tax cuts that could pass by next month -- what he called a "down payment" on a balanced budget.

The debate over restructuring the most expensive programs -- Medicare and Medicaid, in particular -- would be played out in the November elections, with each side hoping it can win over the voters.

"Barring a dramatic change of heart on President Clinton's part, I don't expect us to get a seven-year balanced budget while President Clinton is in office," Mr. Gingrich said.

"But I do think you can take steps. We gave up on the big budget; now we're looking for some very practical building blocks."

Under the plan, threats of another government shutdown or a default on government debts -- which seemed to have cost the Republicans mightily in public opinion polls -- would be eliminated, the speaker said.

Mr. Clinton, savoring a political and public relations victory over the once-heady Republicans, signaled that he was "intrigued" by the new proposal.

He called the speaker from Air Force One after Mr. Gingrich unveiled the plan, and the two discussed it.

"It's not a big deal, but it's a start," said Mr. Gingrich, who acknowledged that he wanted to salvage as much as he could from the Republican legislative agenda this year.

Under the plan, Congress would pass a stop-gap spending bill this week to temporarily finance the departments and agencies that are still without spending authority for the year.

That bill would also eliminate about 12 small agencies, such as the Bureau of Mines.

Within the next few weeks, Congress would enact a larger

measure to raise the ceiling on the national debt and cut up to $100 billion in future spending -- possibly in programs affecting, among others, federal employees, veterans and food-stamp recipients.

The larger measure would also provide for family tax cuts of $125 per child for 1995 and $500 per child for 1996.

Business tax breaks might also be included, if Mr. Clinton agrees to them, Mr. Gingrich said.

But all the details are tentative and still subject to change, congressional leaders say.

A budget-balancing deal, by contrast, would have required more than $600 billion in projected savings, and Republicans had wanted to cut taxes by more than $200 billion.

Although the House speaker once used the threat of a government default as a pressure tactic against Mr. Clinton, he said yesterday that he was determined to give the president a debt-ceiling bill he could sign. His change in attitude reflects new Republican sensitivity to perceptions that they are playing chicken with the nation's credit.

In fact, one of Wall Street's chief credit-rating agencies threatened yesterday to lower the credit rating on some U.S. bonds to reflect the risk of Republican tactics.

"The positions being taken in the current debate over the budget and the debt ceiling have significantly increased the risk of a default," said Moody's Investors' Service.

The speaker's conciliatory approach was at odds with the bellicose tone taken Tuesday night by Senate Majority Leader Bob Dole, who warned in his response to Mr. Clinton's State of the Union address that Congress would continue to send balanced budget proposals to the White House and dare Mr. Clinton to veto them.

But Mr. Dole, campaigning in Iowa yesterday for the Republican presidential nomination, endorsed the notion of a deficit "down payment" in a letter to Mr. Clinton later in the day.

All that seemed to remain was working out the details of the proposal with the White House and selling them to the embittered Republican rank and file.

The House speaker met last night with representatives of the huge class of 73 Republican freshmen. The freshmen have been the most unyielding in their insistence on a plan to balance the budget over seven years. But they have also reached the point of frustration with the impasse.

The end of the Republicans' ambitious plan to balance the budget within seven years and reverse six decades of activist social policy came quietly and with little surprise.

After nearly a year of internal Republican bickering over how to fashion a balanced budget proposal and more than 50 hours of direct negotiations among Republican and Democratic congressional leaders and Mr. Clinton, the talks had been stalled for weeks.

Republicans said they had gradually become convinced that Mr. Clinton would never agree to make the fundamental policy changes in costly benefit programs, such as Medicare and Medicaid, that they believe are critical to achieving enough savings to balance the budget.

Mr. Clinton, who has opposed the Republican spending proposals as too harmful to the poor, the elderly, the environment and students, argues that it is not necessary to make the policy changes right away. He has proposed that he and the Republicans agree now on how much money to squeeze from each program and decide later -- after the November elections -- exactly how those savings might be achieved.

Republicans call that an impractical approach that seeks to preserve the status quo. But they suspect that Mr. Clinton can't do any more without losing his liberal base in the Democratic Party.

"But you don't just stop for a year and say, 'Let's wait for the election,' " Mr. Gingrich said. "You say, 'All right, what's the best we can do for America?' "

Senate Democratic leader Thomas A. Daschle said that if the Republicans "really are sincere," they would separate the spending and tax-cut legislation from the debt-ceiling bill.

But the House speaker believes he can't get a majority of his Republicans to vote for increasing the national debt without taking some steps toward reducing the deficit, a Gingrich spokesman said.

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