A Balanced Budget? Don't Worry, A Deal Is On The Way

This year's strange-but-true budget talks between the Clinton White House and the Republican Congress have resembled a rollercoaster, careening from despair to hope. The outlook for a balanced-budget deal plummeted in mid-March when President Clinton rejected a plan to fix the consumer price index. But prospects soared when House Speaker Newt Gingrich (R-Ga.) made a stunning offer to postpone cherished GOP tax cuts for an agreement. That prompted a buoyant Clinton to invite GOP budgeteers to a make-nice session at the White House on Mar. 19.

What's going on here? Despite political posturing, both sides are barreling toward an accord. It won't be easy, and agreement may come later rather than sooner. But Clinton and GOP leaders on Capitol Hill are united by a mutual fear of failure. Clinton wants history to portray him as the President who finally licked the deficit. And Republicans worry that if they're blamed for wrecking the talks, voters will seek revenge in '98. As Clinton noted after his budget confab, "we have to do it this year."

POLITICAL BUZZ SAW. Still, there are huge obstacles to overcome. For starters, there's deep distrust between the White House and Hill conservatives, who believe they were outmaneuvered by Clinton during the contentious 1995 budget talks. A bigger problem may be growing feuds within each party that threat-

en to alienate the rank and file from their leaders.

Liberal Democrats won't accept a budget deal that cuts too deeply into Social Security or Medicare. Clinton's challenge is to convince the Democrats to accept modest Medicare spending curbs and a reduction in the cost-of-living formula for retirement programs. Most economists believe the CPI overstates the rate of inflation--at a cost of tens of billions annually to the Treasury. But White House Chief of Staff Erskine B. Bowles ran into a political buzz saw when he broached Senate Majority Leader Trent Lott's idea of creating a commission to fix the COLAs. Liberal Dems blasted the proposal as a backdoor way to finance GOP tax cuts for the wealthy. The result: Clinton pulled the plug on it.

Republicans are tied in knots over taxes. Despite Gingrich's cut-taxes-later overture, GOP supply siders are balking. "To contemplate a Republican budget without tax cuts is shameful," says Representative David M. McIntosh (R-Ind.). In the Senate, Lott vows to fight for tax cuts. Some party strategists see un-civil war ahead. "It's a briar patch," concedes one senior GOP House staffer.

Still, negotiators on both sides find positive signs in the bipartisan discomfort. "What you're seeing is people grappling with the realities of the budget," says Gene Sperling, director of the President's National Economic Council. "We're searching for common ground." A Lott adviser says Newt's entreaty "clears away the underbrush" and gives Clinton a path to compromise. "Republicans are giving everything they can to allow Clinton to cut a deal."

The likely contours of a final pact would contain most of the cuts Clinton has proposed for domestic programs, some GOP spending reductions, a compromise on curbing Medicare growth, and a handful of Clinton initiatives--primarily new education programs. The clincher: a reduction in Social Security COLAs of up to 0.4 percentage points, based on a technical recalibration by the nonpartisan Bureau of Labor Statistics. That will provide enough extra cash to buy off conservative Republicans with a small middle-class tax cut and possibly a targeted capital-gains reduction. "Both sides may come to the table dripping with blood to cut the final deal," concedes a senior Administration official.

Indeed, there's brutal combat ahead. But Clinton and GOP leaders believe they've come too far to turn back now.

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