Clinton’s Budget Defers Pain, Leaves Deep Cuts to GOP : Economy: The $1.6-trillion plan projects a deficit under $200 billion. But it relies on optimistic forecasts and gives Republicans the task of cutting popular programs.

WASHINGTON — President Clinton unveiled a $1.6-trillion budget Monday that largely defers painful choices and counts heavily on optimistic forecasts for economic growth, inflation and health care costs to do the dirty work of deficit reduction in the coming decade.

With one eye fixed on next year’s presidential campaign, Clinton presented a budget in which political caution is the watchword. It is a spending plan designed to force the Republican majorities in both houses of Congress to come out in the open and take the initiative to rein in costly programs that are popular with the broad middle class.

In particular, the Administration’s blueprint for the 1996 fiscal year, which begins in October, does not address the soaring costs of entitlement programs.

Similarly, Clinton’s approach to containing the federal deficit appears designed to minimize political exposure rather than confront underlying problems head-on.

The new budget projects a relatively moderate deficit for 1996 of $196.7 billion, and Alice Rivlin, director of the White House Office of Management and Budget, forecast Monday that the red ink will remain “under control” until well after the turn of the century.

But while that new forecast represents a dramatic improvement over earlier, nightmarish scenarios presented by the Clinton White House, the President’s specific budgetary proposals contribute relatively little to that improvement. Instead, the lower deficit figures are achieved largely through new estimates of the performance of the economy--especially a much rosier outlook for the health care sector.

In the process, the White House has abandoned the dire warnings it issued during last year’s bitter health care debate that the federal deficit would grow at an uncontrollable rate over the next decade without comprehensive health care reform.

At the level of political strategy, Clinton is clearly going on the defensive on economic policy, all but daring the new Republican leadership in Congress to live up to its bold rhetoric--and risk the ire of voters--by making the tough spending cuts needed to pay for their agenda.

Tactically as well, the White House now seems convinced that the best way to bring congressional Republicans to the bargaining table on a wide range of tax and budget issues is to force them to confront the political hailstorm that in the past had pelted down on politicians who tried to tamper with Medicare, agriculture subsidies, veterans’ benefits and a host of other sacred cows that Clinton’s budget has left unscathed.

With Republican leaders facing mounting problems in putting together their own spending cut plans to pay for their “contract with America,” Administration officials suggested that such a strategy of letting the GOP make the first move could be successful.

“So far, we have not seen any Republican proposals, and so we have nothing to respond to on entitlements yet,” Rivlin said.

The decision to do nothing on entitlements follows weeks of internal study and debate within the Administration and represents a defeat for deficit hawks on Clinton’s economic team. A joint White House task force set up by the National Economic Council and Domestic Policy Council has been studying ways for Clinton to address the problem of soaring Medicare and Medicaid costs. But White House officials acknowledged that the task force’s work will not result in any new initiatives to deal with the problem this year.

“We did some work internally on the issue, but that is not going to lead to any new proposals now,” said one White House official. “The President has offered to work with the Congress on entitlements, but we want to see what the Republicans are willing to do.”

Ignoring entitlements this year only means that the problem will get much worse, critics said. Today, entitlements account for an estimated 64% of all government spending; unchecked, they will eat up at least 70% of government spending by the end of Clinton’s five-year budget plan.

What’s more, critics said that the Administration’s decision to avoid pain on the entitlement front has prompted it to indulge in the kind of budgetary sleight of hand that Clinton railed against as a candidate.

The President has insisted that he will be able to keep the deficit within the range of $200 billion each year for the next decade even without going after entitlements. But the Administration’s forecast of entitlement spending, the country’s economic health and future government revenues is far more optimistic than the latest estimates from the Congressional Budget Office, which warned in January that the deficit could balloon to as high as $421 billion in 2005 without tougher action on Medicare, Medicaid and Social Security.

Administration officials acknowledged Monday that their rosier numbers come because they are basing their budget on more optimistic assumptions than the CBO is using.

The White House said that it can shave more than $200 billion a year off the deficit by 2005 by using a higher estimate for the annual rate of economic growth and a lower rate of health care cost increases, along with a downward revision in the consumer price index to bring about a lower rate of inflation.

Officials said that the government plans to revise the index in 1998, which will lead to lower inflation adjustments on a wide range of federal programs after the turn of the century.

“Each of those changes are small, but cumulatively over 10 years, they can make a huge difference in your deficit forecasts,” noted Joseph Minerich, chief economist of the Office of Management and Budget.

To be sure, the Administration has called for some cuts in “discretionary spending”--a category that covers virtually all major military and civilian government operations except entitlements.

The White House has proposed spending reductions of $144 billion over the next five years, with $101 billion of those coming in discretionary spending. But $63 billion of that total would go to pay for Clinton’s package of middle-class tax cuts and only $81 billion to deficit reduction.

The Pentagon would bear the brunt in budget cuts this year, taking a $9.9-billion reduction despite Clinton’s pledge to increase military spending by $25 billion over the next six years. International programs, led by foreign aid, would take a modest $1.1-billion cut.

Some of the biggest savings on the domestic side would come as a result of overhauling five agencies as part of the Administration’s “reinventing government” initiative. The White House said that it can gain $26 billion in savings from program consolidations and job cutbacks in the departments of Energy, Transportation and Housing and Urban Development, the Office of Personnel Management and the General Services Administration. Transportation would endure some of the biggest hits, with cuts totaling $7 billion.

But in spite of Clinton’s proposal to eliminate 130 programs and consolidate more than 270 others over the coming five years, overall domestic spending would actually rise by $6 billion in 1996.

That’s because some of the savings would go to a $9.7-billion jump in funding for Clinton’s long-cherished “investment agenda,” including Head Start, education, job training and technology programs.

In addition, the Justice Department’s budget would grow by 14.4%, providing funds to build more prisons and give the Drug Enforcement Administration more resources.

Rivlin conceded Monday that the programs and agencies slated for elimination are all small and would not generate large savings.

Indeed, a list of the programs slated for elimination or consolidation reads like a catalogue of petty government obsolescence: the Interstate Commerce Commission; the helium reserve, which dates back to the days of dirigibles; the rural telephone bank; the Agriculture Department’s cattle tick program; the Interior Department’s rural abandoned mine program, the Trust Territory office for Palau.

Yet the Administration shied away from taking a bolder approach to cost-cutting and refused to propose the elimination of any major Cabinet departments, leaving that to the Republicans.

As a result, there will be plenty of room for more radical action by the Republican leaders--if they are willing to follow through on their promises. Clinton even refused to touch the National Endowment for the Arts, one of the favorite targets of Republicans. His budget would give the agency a slight $1-million increase in 1996.

The Clinton budget was unveiled as the Senate entered its third week of debate on the proposed balanced-budget amendment to the Constitution, and so congressional Republicans seized on the White House refusal to impose stiffer cuts to prove that without a constitutional measure to force their hands, Democratic leaders never will balance the books.

But along with routine attacks from Republicans, Clinton found his budget being savaged by leaders of his own party Monday. In a sign of just how far the President’s political fortunes have fallen, Democrats in Congress felt free to criticize him for failing to tackle entitlements or to use his budget to make a strong political statement of any kind.

Sen. Bob Kerrey (D-Neb.), co-chairman of the Bipartisan Commission on Entitlement and Tax Reform, faulted the President for failing to call for an overhaul in Social Security and other entitlement programs that are driving current deficits and will push them dramatically upward at the end of the century.

“The President’s budget message and the likely congressional response continues to ignore our biggest and most dangerous fiscal problem,” said Kerrey.

House Budget Committee Chairman John R. Kasich (R-Ohio) called the budget outlined by Clinton “a great disappointment” that would leave future generations saddled with debt. “The President came eyeball-to-eyeball with change and he blinked.”

But as the Republicans were attacking Clinton, they found themselves responding to mounting criticism for delaying their own plans for spending cuts to pay for their sweeping agenda. Kasich, who had promised to present an alternative Republican budget by the end of January has delayed his plans for at least two months.

Clearly annoyed by reports that his promised spending cut plan has met with strong resistance within Republican ranks, Kasich promised the blueprint by “this spring sometime.”

Times staff writer Melissa Healy contributed to this story.

* LOOPHOLE FOR THE RICH: President proposes to stop the wealthy from avoiding taxes by renouncing citizenship. A17

* RELATED BUDGET GRAPHICS, STORIES: A16, D1

* ECONOMIC IMPACT: How budget plan affects business, investors, consumers and California’s economy. D1.

* MONEY FOR SANTA MONICAS (San Fernando Valley Edition): The $3-million request in the Clinton budget is one of lowest ever for the recreation area. B4

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

THE FEDERAL BUDGET: Where the Money Comes From . . .

Federal receipts by source, as a percent of total budget.

1986 1996 Individual income tax 45% 44% Corporate income tax 8% 10% Payroll taxes 37% 36% Excise taxes 4% 4% Other 5% 5%

*

And Where it Goes . . .

Federal outlay by category, as a percent of total budget.

1986 1996 Defense and international 29% 16% Interest payments 15% 16% Payments for individuals 41% 48% Grants to state, local governments 10% 15% Other 5% 5%

Source: Office of Management and Budget