Real Work Now Begins On Budget Senate Approves Outline Of Nation’s Spending Plan

Don’t spend that extra money just yet.

The Senate joined the House on Friday by ratifying a five-year balanced budget and tax cut compromise that promises something for millions of Americans - from parents with young children to investors in the stock market.

The budget resolution sets spending and revenue targets aimed at eliminating the deficit by 2002, which would be the first time since 1969 that the budget was balanced. It calls for a tax cut of $85 billion and $115 billion in Medicare savings over five years.

But it isn’t a done deal.

What’s happened so far is like a family sitting down on New Year’s Day and budgeting $100 a week for food for the coming year, $105 a week for the next year and $110 a week for the following three years.

The family still has to go to the store every week and choose between milk and soda, between bananas and banana splits. And there’s no guarantee that after a while, the grocery bill won’t creep up to $120 on some weeks and $140 on others.

The budget, which the Senate voted 78 to 22 to approve Friday, creates the framework for laws that must be passed later this year. The House, which approved its versions of the budget early Wednesday by a vote of 333 to 99, quit work Thursday before the two chambers could iron out differences. Congress will have to wait until after its Memorial Day recess to finish the job.

“There’s some frustration that we haven’t had that defining moment yet,” said Rep. Jim Kolbe, R-Ariz., a member of the House Budget Committee.

But the plan, worked out between President Clinton and Republican congressional leaders, includes enough details and priorities to give an idea of how it would affect interest rates and make loans cheaper for homes, cars, college and everything else. A stronger economy also would likely boost corporate profits and help create more jobs, and could help push up take-home pay.

Other effects are more direct. Here are some of them:

Families with children

Some families are going to get a tax credit of $500 for each child. But which families and which children?

Republicans want to give the credit to families with children under the age of 18. They would give the credit to families with incomes up to $110,000, gradually reduce it for those with incomes up to $150,000, and then cut it off. Their proposal would cost $109 billion over five years.

Clinton wants to give the tax credit to families with children under age 13. He would give it to families making less than $60,000 a year, then gradually reduce the credit for those with incomes up to $75,000, and then cut it off completely. His plan would cost $46 billion.

As with other promised tax cuts, there probably isn’t enough money available to fully accomplish either Clinton’s plan or the Republican proposal. So a slimmed-down compromise appears likely.

Children’s health

The budget provides $16 billion over five years to provide health insurance coverage for as many as half of the 10 million children of working poor families. Most of the children come from families who make too much money to be eligible for the government Medicaid program, but not enough money to buy their own insurance.

Special education

The plan provides a $5 billion increase, working toward the goal of having the federal government pay 40 percent of the costs of educating disabled children.

College students

The budget allocates enough money to fully finance Clinton’s proposed tax breaks for families with college students, namely a tax credit of up to $1,500 for the first two years of college and a $10,000-a-year deduction for other tuition expenses. (Credits are reductions from taxes, while deductions reduce taxable income.) Also, the budget would allow an increase in the maximum Pell Grant for low-income college students to $3,000, from the current maximum of $2,700.

Capital gains

People who make money from investments like stocks, businesses or their homes will probably pay less tax on the profits.

The budget calls for a “broad-based” cut in the capital-gains tax; it’s up to Congress and the president to work out the details. Republicans want to cut the tax rate in half, and then index it to inflation starting in 2001. But that would cost $33 billion over the five years, and would have to be curtailed.

Clinton wants a $1.4 billion cut that would allow anyone who sells a home and makes a profit of less than $500,000 to escape the capital-gains tax.

Travelers

The budget assumes that the 10 percent airline ticket tax that expired earlier this year will be extended to raise a total of $30 billion over five years.

Corporations

The budget calls for unspecified tax increases totaling $20 billion over five years. That could mean cuts in tax subsidies for corporations.

Public housing tenants

The budget calls for $35 billion in spending to renew all contracts for Section 8 subsidized housing that would expire in the next five years. More than half the tenants are elderly or disabled people.

Head Start

The budget would add $2.7 billion, fully funding the program that provides breakfast and preschool programs for poor children.

Community police

The budget grants Clinton’s request to continue providing seed money to help local police departments hire beat cops. It keeps the program on track to finance a total of 100,000 new police.

Immigrants

The budget restores Supplemental Security Income checks and Medicaid benefits for disabled, legal immigrants who were disabled and in the United States by Aug. 23, 1996.

Saving for retirement

Families who make more than $50,000 a year and have other retirement plans at work can’t deduct contributions to tax-sheltered Individual Retirement Accounts to save for retirement. The budget would allow an expansion of IRAs.

One proposal would enable more people to contribute to IRAs. They would not be allowed to deduct the contributions from their current income for tax purposes, but could withdraw the money in retirement without paying any tax, as they now would have to pay.

Estate tax

Republicans want to double the size of an inherited estate that is exempt from taxes, from $600,000 to $1.2 million.

Medicare

Senior citizens would pay higher premiums for Medicare health insurance. They already were projected to see their premiums rise from the current $43.80 a month to $52.80 a month by 2002.

Under the budget, the premiums would rise to about $67.50 a month, according to a preliminary estimate by the American Association of Retired Persons. Premiums will go up for two reasons: more home health-care costs are being shifted to beneficiaries, and a scheduled decrease in premiums is being eliminated.

They also would be given choices of different, competing health care plans.

And they would be given new coverage for annual mammograms, diabetes self-management, immunizations, and colo-rectal cancer screening. The House Ways and Means Committee will work out the details.

Overall, the plan would curb the growth of spending on Medicare to 6 percent a year, down from the projected growth of 8.6 percent a year.

Federal retirees

The budget would phase in a 0.5 percent increase in employee contributions starting in 1999.

MEMO: Here’s how Northwest senators voted on the outline of the bipartisan budget-balancing plan. A “yes” vote was a vote to approve the budget. Washington - Patty Murray, yes; Slade Gorton, yes. Idaho - Larry Craig, yes; Dirk Kempthorne, yes.

This sidebar appeared with the story: HIGHLIGHTS OF THE BUDGET AGREEMENT Projected federal deficits: $67 billion this year, $90 billion in 1998, $90 billion in 1999, $83 billion in 2000, $53 billion in 2001, $1 billion surplus in 2002. Despite cuts in projected taxes and spending, federal revenues would rise from $1.55 trillion this year to $1.89 trillion in 2002. Overall spending would rise from $1.622 trillion this year to $1.89 trillion in 2002. Domestic programs: Rise from $281 billion this year to $286 billion next year, peak at $295 billion in 2000, fall to $288 billion in 2002. Over five years, that is $61 billion less than would be needed to stay even with inflation. Money is to be set aside for a dozen specific programs, including Job Corps, Head Start, Environmental Protection Agency operations, national parks, bilingual and immigrant education and increasing maximum Pell Grant for low-income college students by $300 to $3,000. Defense: $268 billion this year, $267 billion in 1998 and 1999, then rises gradually to $273 billion in 2002. That is $77 billion less than necessary to stay abreast of inflation. Benefit programs: $115 billion in savings from Medicare health-care for the elderly, a 12 percent spending reduction from current law; expanded coverage for mammograms, colo-rectal screening and other procedures; $14 billion in savings from Medicaid health-insurance for the poor, or 2 percent below current law; $31 billion extra spending to restore welfare benefits to some legal immigrants, provide health insurance for up to 5 million low-income children and pay for other initiatives. Taxes: $85 billion in net tax cuts, with about $135 billion in overall tax cuts partly offset by about $50 billion in new revenue. The agreement promises roughly $35 billion in education tax breaks proposed by Clinton. Republicans want to include a broad reduction in the capital gains tax, a cut in the estate tax, a $500-per-child tax credit, expanded Individual Retirement Accounts and other cuts. Most new revenue is expected from renewing the airline ticket tax, due to expire Sept. 30.