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Clinton Budget to Offer Tax Breaks, No Trims on Social Security Hikes

Legislation: Spending plan to reflect campaign promises of child, education credits and more, sources say. But entitlement growth isn't scaled back.

December 25, 1996|From Associated Press

WASHINGTON — President Clinton's new budget will provide up to $130 billion in tax relief, fulfilling his campaign promises while sidestepping a controversial recommendation to trim Social Security cost-of-living increases as a way to balance the budget, administration officials said.

The budget, due to be unveiled Feb. 3, will include a $500-per-child tax credit, other tax credits and deductions to pay for college expenses and the elimination of capital gains taxes on the sale of all but the most expensive homes, said the officials, speaking on the condition of anonymity.

Clinton campaigned on all of these items, insisting his more modest package of middle-class tax relief would be better for the economy than rival Bob Dole's more generous 15% tax rate cut proposal. Clinton charged that Dole's proposal would make it impossible to balance the budget without deep cuts in Medicare and other popular benefit programs.

Administration officials said the tax cuts Clinton will include in his budget will carry a five-year price tag of up to $130 billion.

Clinton's budget, which in broad outlines will look very much like the one he sent Congress last March, will achieve balance by 2002.

The president has called a balanced budget the top priority of his second term, even though an attempt to accomplish that feat last winter ended in bitter deadlock with the Republican-controlled Congress.


But Clinton has rejected one idea that would have achieved up to $1 trillion in deficit savings over 12 years, the officials said. His budget will not propose trimming the annual cost-of-living increases received by 60 million Americans in Social Security and other government benefits.

An advisory panel headed by Stanford economist Michael Boskin two weeks ago said the government's consumer price index was overstating inflation by 1.1 percentage points annually. The panel recommended a series of steps to shrink the CPI by that amount in coming years.

Administration officials, however, said more expert review was needed before such changes could be adopted. Supporters of a balanced budget argue that restraining the growth in costly government benefit programs is essential, but Republicans have already said they will not go first in any effort to trim cost-of-living increases.

Clinton held three days of meetings last week reviewing various agency appeals to budget cuts being recommended by his Office of Management and Budget. While the administration had hoped to have all decisions wrapped up before Christmas, officials said Tuesday that timetable had slipped.

One of the issues still to be settled is how much the administration will try to restore some of the cuts made last summer in a welfare overhaul bill. Administration officials said Clinton was reviewing options that would restore between $13 billion and $16 billion, or about one-fourth of the $55 billion in projected savings.

One option under consideration would allow immigrant children to remain eligible for welfare benefits under Medicaid and the Supplemental Security Income programs.

To ensure that he can offer tax breaks and still bring the budget into balance by 2002, Clinton's plan will include a "trigger" to eliminate certain tax breaks in 2001 and 2002 if the deficit has not fallen enough.

The exact nature of this trigger was still being worked out, officials said, and might include reductions in military and non-defense government spending as well as the elimination of tax breaks, officials said.

Clinton's proposals will include the $500-per-child tax credit that he initially offered in his Middle Class Bill of Rights unveiled in December 1994 after Republicans had taken control of Congress.

In addition, the budget will include tax relief for education expenses either through a $1,500 tax credit to pay for the first two years of college or a $10,000 tax deduction for college tuition.

The home sale proposal would eliminate taxes on the first $500,000 in capital gains profits earned on the sale of a home.

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