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Negotiators Agree On Budget The First Major Tax Relief Since 1981, The First Balanced Budget Since 1969

White House and Republican negotiators reached a tentative agreement Monday night on balancing the budget and cutting taxes, as both sides gave ground to reach a pact that had eluded previous presidents and Congresses.

Barring a last-minute snag, the agreement is expected to clear Congress and become law - giving Americans the first major tax cut since 1981 and balancing the budget for the first time since 1969.

In hammering out the deal, negotiators agreed to phase in a 15-cent increase in the tax on a pack of cigarettes, expand the number of families eligible for a $500-per-child tax credit, and provide another tax credit to help offset college expenses. The accord also calls for a substantial cut in the capital-gains tax on profits from stocks, real estate and other investments.

Although the finishing touches remained in the hands of legislative bill drafters, the negotiators expressed both delight and relief they had nailed down a compromise that served the political and philosophical purposes of both sides.

“We couldn’t be more pleased with the outcome,” said White House Chief of Staff Erskine Bowles as he and Treasury Secretary Robert Rubin emerged baggy-eyed but smiling after several days of bargaining with GOP leaders.

President Clinton received word of the agreement while he was golfing in Las Vegas with basketball star Michael Jordan and some state governors.

Senate Majority Leader Trent Lott, R-Miss., remarked: “We have an agreement here that is going to be good for the country.”

House Majority Leader Dick Armey, R-Texas, predicted the package would be widely embraced. “I expect that it will pass and be signed,” Armey said. Congressional leaders plan to move legislation through the House and Senate later this week.

The negotiations were boosted by a booming economy that has reduced the budget deficit and made the job of balancing the budget much easier than anyone would have predicted just a year ago. That enabled negotiators to keep controversial spending cuts to a minimum, while providing politically popular tax cuts for millions of Americans.

Like most complex deals, this one crept along as the bargainers grudgingly agreed to accept provisions that they had at first resisted ferociously.

As the two sides bargained through the day, they reached point-by-point agreements on several issues that had threatened over the last two weeks to bog them down in a partisan morass.

Clinton agreed to include higher-income families, those earning up to $110,000 a year, in the GOP’s plan to provide a $500-per-child income tax credit. Republicans agreed to expand the tax credit to low-income working families, those earning between about $17,000 and $28,000 a year. The compromise would benefit millions of families that would not have otherwise qualified.

The president also accepted a substantial cut in the tax rate on profits from stocks, real estate and other investments to 20 percent from 28 percent. The cut would be retroactive to May 7, 1997. The rate for taxpayers on the middle rung would drop to 10 percent from 15 percent. Investors who hold their assets for five years or more starting in 2002 would get a rate cut to 18 and 8 percent, respectively.

In return for Clinton’s concessions on capital gains, Republicans agreed to drop their demand that such profits stemming from inflation be tax-free.

Homeowners also will be big winners in the deal. The first $250,000 in profit from the sale of an unmarried homeowner’s house will be tax-free; for couples, the tax exemption will be $500,000.

Republicans agreed to include a tax credit to offset college costs - a idea pushed by Clinton. For the first two years of college, the maximum credit would be $1,500 annually. The maximum credit would gradually expand to $2,000 annually for the second two years of college.

In another major accord, the president won Republican backing for his aim of providing health insurance for up to 5 million of the nation’s 10 million uninsured children.

The child-care program would be financed by a phased-in boost in the current 24-cent-per-pack cigarette tax. In 2000 and 2001, the tax would increase to 34 cents a pack; after that it would rise to 39 cents a pack, producing about $8 billion over the next five years.

xxxx HIGHLIGHTS OF BUDGET DEAL A tax credit of $500-per-child age 16 and under would be phased in for families with incomes between about $17,000 and $110,000. The top capital-gains tax rate would drop from 28 percent to 20 percent and from 15 percent to 10 percent for lower-income taxpayers. Capital-gains taxes would not be adjusted for inflation. A tax credit to help offset college expenses would be provided. For the first two years of college, the maximum tax credit would be $1,500 annually. The tax credit would eventually be $2,000 annually for the second two years. Medicare premiums would increase slightly, but the eligibility age would remain at age 65. Upper-income beneficiaries would not have to pay more for services. Single homeowners could make up to $250,000 profit on a house without having to pay capital-gains tax, and couples could make up to $500,000 tax-free. - Knight-Ridder