President First To Use Line-Item Veto Power Stage Set For High Court Review Of Unprecedented Executive Action

President Clinton set the stage Monday for a historic constitutional decision by the Supreme Court, exercising unprecedented executive power by rejecting three items from budget and tax legislation that he had recently negotiated with Congress.

Making his first use of the line-item veto approved by the Republican Congress last year, Clinton declared at a White House ceremony, “Washington rules have changed for good.”

He vetoed provisions that would have given New York special authority to raise Medicaid money by taxing hospitals, to allow a limited number of agribusinesses to avoid paying capital gains taxes and to let U.S.-based insurance companies, banks and investment firms defer taxes from some overseas income.

Though the provisions he vetoed were relatively minor, the political fallout promises to be considerable. A spokeswoman for House Speaker Newt Gingrich, R-Ga., called Clinton’s action “petty politics.”, And Sen. Daniel Patrick Moynihan, a New York Democrat whose state was a target of one of the vetoes, noted that New York could now appeal the action and challenge the line-item veto’s constitutionality.

Clinton took the long view.

“From now on, presidents will be able to say ‘no’ to wasteful spending or tax loopholes even as they say ‘yes’ to vital legislation,” he said. “Special interests will not be able to play the old game of slipping a provision into a massive bill in the hope that no one will notice.”

The red-penciled items were supported by Republican and Democratic lawmakers alike, opening Clinton to criticism from both parties.

Congress can override the action, though the president could force the House and Senate to muster a two-thirds majority to do so.

The bigger question is whether the Supreme Court will uphold the president’s ability to strike specific items when he doesn’t want to veto an entire bill.

The high court rejected a challenge to the line-item veto on technical grounds in June - it said the lawmakers who appealed had no legal standing - but the justices have yet to rule on the measure’s constitutionality. Opponents argue that Congress could not legally give line-item veto authority to presidents.

Moynihan, who opposed the line-item veto, said, “I would hope the matter will now be settled on its constitutional merits.”

There had been days of internal debate after Clinton approved the bipartisan balanced-budget agreement. One White House faction, led by chief of staff Erskine Bowles and Treasury Secretary Robert Rubin, feared line-item vetoes would upset the fragile bipartisan spirit. They had wanted Clinton to wait until Congress sent him spending bills for specific programs - the traditional place to pork-barrel spending.

Several aides with more political backgrounds, most notably adviser Rahm Emanuel and economic coordinator Gene Sperling, urged Clinton to seize the new power while Congress was in recess - making a symbolic show of frugality. Vice President Al Gore, with an eye on a presidential race in 2000, supported the vetoes and stood at Clinton’s side for the Oval Office announcement, which was kept under wraps until the end to build suspense.

In two separate bills, Clinton vetoed provisions that he said would:

Give the state of New York authority to unfairly tax some hospitals to raise money for its Medicaid program, something other states can’t do.

Allow a limited number of agribusinesses to avoid paying capital gains taxes, “possibly forever.” In a nod to the powerful farming lobby, Clinton called the provision “well-intended” and promised to help redraft a narrower version.

Allow U.S.-based insurance companies, banks and investment firms to defer taxes from some overseas income, such as interest from loans made abroad.

The three measures would cost more than $600 million over five years, a tiny fraction of the government spending incorporated in the bills. The political cost could be more significant.

Vetoing the New York Medicaid provision put Clinton at odds with longtime nemesis Sen. Alfonse D’Amato, R-N.Y., and with Moynihan, the New York Democrat who joined in the court challenge of the line-item veto.

“The president has interfered with our system of providing health care to the poor,” complained New York Democratic Rep. Charles Rangel.

The farm provision also enjoyed bipartisan support, from Rep. Kenny Hulshof, R-Mo., and Senate Minority Leader Tom Daschle, D-S.D.

“It’s unfortunate at a time when America’s farmers are battling the weather and battling the markets, they must battle their president,” Hulshof said.

The White House had planned to promote this veto by saying Republican lawmakers drafted it for the benefit of GOP campaign contributor Harold Simmons of Texas. But Clinton aides were forced to change their strategy after discovering that Simmons, who closed a deal to sell four sugar refineries to a cooperative, apparently will not benefit from the provision.

Senate Majority Leader Trent Lott, who supported the banking provision and fought for the line-item veto, withheld criticism of Clinton. “I’m a firm supporter of the process,” he said, noting that Congress had 30 days to review the cancellations.

Clinton, who used the line-item veto just nine times in 12 years as Arkansas’ governor, said the threat alone of a presidential rejection may curtail pork-barrel provisions and reduce the need for future line-item vetoes. Forty-three governors have line-item veto authority, he said.

MEMO: Cut in the Spokane edition.