Clinton Budget Faces Republican Ax

WASHINGTON -- U.S. President Bill Clinton on Tuesday proposed a $1.64 trillion election-year budget striking popular campaign themes of tax cuts and budget balancing goals, but unlikely to win support from a Republican-led Congress.

Clinton's plan for the fiscal year starting Oct. 1 projects a balanced budget by 2002. It also offers personal tax cuts of $107 billion, primarily for middle income earners, and business tax cuts of $12 billion.

The tax cuts would be partially paid for by $56.2 billion in higher business taxes and the closing of loopholes, including tighter capital gains tax rules.

For the most part, the plan merely provides details of proposals that Clinton has already made and Republican congressional leaders have rejected. The economic assumptions underlying the plan were announced last month.

The budget will be taken up by Congress Wednesday and is expected ultimately to be rejected.

Congress has not yet even agreed with Clinton on a 1996 budget because of disagreements over spending priorities, and disputes over long-term means of balancing the budget have shut down the federal government twice in recent months.

Clinton has invited Republican leaders, including his likely opponent in the Nov. 5 election, Senate Majority Leader Bob Dole, to come to the White House on Wednesday to talk about the 1997 budget and other spending priorities.

"I am committed to finishing the job that we began in 1993 and finally bringing the budget into balance," Clinton said in an introduction to his proposal.

He proposes to cut Medicare health insurance for the elderly by $124 billion and Medicaid assistance for the poor by $59 billion. Both are politically sensitive programs.

But his proposals are at odds with the determination of congressional Republicans to cede most responsibility for Medicaid to the 50 U.S. states and differs on a number of points with their plans on Medicare.

A tax credit of $300 would be allowed for children under the age of 13 in 1996, 1997 and 1998 for middle income earners. It would rise to $500 in 1999 and future years, but would automatically end in 2000 if the deficit fails to shrink as promised.

Clinton's child tax credit adopts the Republican approach, which would only return to people some money they already owe in income taxes. Democrats generally support an approach under which the government writes a check to the poor who make too little to gain from an income tax credit.

Clinton said his proposal also protects his spending priorities for education, job training, the environment, law enforcement and research. Hundreds of billions of dollars in cuts for other areas, set for later years, are not specified.

The Clinton proposal rejects Republican calls to cut the tax on capital gains from investments. On the contrary, he proposes tightening existing rules in a way that would raise some taxes on stock sales.

Investors would have to average the purchase price of their shares upon sale for tax purposes. At present, they can specify that they are selling the most expensive shares -- with the lowest taxable profit-margin -- first.