Business Can Breathe Easier About Clinton's Budget

You'd never know it from all the drama and handwringing that preceded the high-stakes House vote on May 27, but President Clinton's tax-and-spending plan remained largely intact on the first half of its journey through Congress. That, however, was the easy part. Greater agonies lie ahead, when the Senate Finance Committee takes up the package on June 7.

The Administration already has resigned itself to further compromise by deleting up to $30 billion in tax hikes and adding as much in spending cuts. But White House officials are warning antitax senators that the trade-off will hurt. "Any reduction in the energy tax has to be paid for, and has to be paid for largely through Medicare," warns Deputy Treasury Secretary Roger C. Altman.

Yet when the tortuous legislative process is over, Clinton will have won enactment of a five-year fiscal plan that is strikingly similar to the program he laid out in February: a hodgepodge of tax increases, mainly on business and the rich; spending cuts focused on defense and entitlements; and "investments" in social programs, such as urban "empowerment zones." Even portions of Clinton's ill-fated stimulus plan will come back to life in smaller spending bills.

In all, the plan that leaves the Senate likely will propose reducing the budget deficit by $500 million--about what the President started with. The Administration, its optimism undimmed by recent setbacks, hopes Congress will finish up by early July, leaving time for lawmakers to consider the North American Free Trade Agreement and perhaps begin work on health-care reform before its summer recess.

ENERGY LOOPHOLES. The good news for business, which had been targeted for a wide variety of tax increases in the original Administration proposal, is that it actually managed to escape a good number of tax hikes, and will likely dodge more bullets in the Senate. During House consideration, for instance, corporations gave up the little-loved investment tax credit in return for a halving of the proposed increase in corporate income-tax rates. U. S. companies operating abroad ducked a Clinton proposal to hike taxes on royalty income. The House repealed some luxury taxes, while indexing the tax threshold for expensive cars to inflation. It also added a provision to allow for a 14-year write-off of intangible assets, such as customer lists. The limit on expensing equipment in one year was raised to $25,000, from $10,000. All these provisions are likely to survive the Senate.

The big Senate battle will come over the energy tax. The House, trying to satisfy farmers and energy-intensive manufacturers, riddled the measure with loopholes. Corporate lobbyists now hope to persuade senators that the tax isn't worth saving, seeking to scrap it in favor of, perhaps, a higher gasoline tax. "The notion that we are going to subsidize manufacturers with more exemptions to correct for a tax that we shouldn't even have makes no sense whatsoever," complains National Association of Manufacturers President Jerry Jasinowski.

Business will resist attempts in the Senate to push the top corporate rate back up to 36%. The White House, alarmed at the rapid erosion of support for Clinton in the business community, may even join them. But saving the marriage won't be easy after such a disappointing honeymoon. "The considerable goodwill that the President had, despite the skepticism that business normally shows toward a Democrat, is largely gone," says William T. Archey of the U. S. Chamber of Commerce.

The White House will still fight to save the "fairness" portions of the tax package--hikes in the top individual tax rate, to 39.6%, and limitations on write-offs for club dues and business entertainment. But the Senate is likely to delay the effective dates for the income-tax hikes from Jan. 1 to midyear or beyond, easing a potential crunch on high-income taxpayers. "If people suddenly have to come up with a lot of cash next April, it could cause some problems in the economy," notes Rudolph G. Penner of KPMG Peat Marwick.

With the April Senate defeat of the $16 billion stimulus package still fresh on their minds, White House strategists are anxious to win big on Capitol Hill. "The Senate discussions offer a very good opportunity to redefine and reestablish" the Clinton message, says Chief of Staff Thomas F. (Mack) McLarty III. If that happens, no one will remember how painful the process was.

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