The State Of The Union? It's Flush

With a balanced budget, Clinton will push for new social spending

When Bill Clinton steps up to the podium on Jan. 27 to deliver his State of the Union address, the mist of scandal will hang over him. The President hopes to dispel some of the gloom by bearing good news--and more good news. Surging federal receipts will slice more than $100 billion off this year's deficit. The gusher permits Clinton to submit a balanced budget for 1999--three years ahead of schedule. With the era of austerity behind him, he'll emerge as a newly activist President, unveiling a raft of social programs.

Clinton's domestic agenda, majestically described by a top White House official as "a new social compact for the New Economy," entails at least $72 billion in new spending over five years. Plans range from child-care tax credits to expanded Medicare benefits for early retirees. Much of the cost, Clintonites insist, will be offset by user fees, premiums, and up to $60 billion from a hoped-for tobacco industry settlement. "All our ideas are paid for," says Budget Director Franklin D. Raines.

Still, business would feel the sting from many of the Administration's proposals. New protections for workers in managed-care health plans could boost employers' costs. Clinton will also jawbone CEOs to provide more day care for employees. And while the President may not decide to back a minimum-wage hike before the Jan. 27 speech, White House economists are giving that measure serious consideration.

Liberal Democrats, who bristled at Clinton's balanced-budget dealmaking and killed his fast-track trade bill last year, are heartened by the emphasis on liberal party values. "If we can't do these things now, in the face of this kind of prosperity, when can we do them?" asks Senator Edward M. Kennedy (D-Mass.).

Naturally, Republicans and their business allies are irked by the leftward drift. So far, though, their opposition consists mainly of generalized sputtering. "Clinton's trying to have it both ways," says Representative Jennifer B. Dunn (R-Wash.), who chairs the House GOP conference. "He's acting like he's God's gift with his balanced budget while he's unveiling a new government program every day."

That may be, but Republicans are leery of attacking the President's domestic priorities head-on in an election year. The fear: GOP candidates who plan to campaign on tax cuts could wind up being labeled insensitive to the needs of seniors, kids, and working women.

GOP leaders hope to pay lip service to Clinton's agenda--while quietly burying it. The strategy, says Senator Mitch McConnell (R-Ky.), chair of the National Republican Senatorial Committee: "Benign neglect." Former White House guru Dick Morris says that is a mistake. "Republicans forget that the public likes these little micro-hit programs--as long as the budget is balanced."

TOUGH SLEDDING. Case in point: Clinton's $22 billion package of tax breaks and subsidies for child care. The GOP will have a hard time deep-sixing that plan. Instead, Republicans hope to co-opt the issue by boosting current tax credits, giving states money with fewer federal restrictions, and adding tax relief for stay-at-home moms.

Corporate America can live with some new day-care programs. But business vows all-out opposition to Clinton's patients' "bill of rights," which would help consumers fight HMOs that refuse to pay for treatments. Employers--who kept the rise in health-care costs to just 0.2% last year--fear that the plan will force them to pay more. "Business can't pass along the cost of mandates in today's zero-inflation environment," warns Jerry Jasinowski, president of the National Association of Manufacturers.

Another Administration health initiative that faces tough sledding: a plan to let early retirees and displaced workers buy into Medicare. The White House insists the new enrollees' premiums will cover the costs, but some health experts warn the measure will undermine Medicare's shaky finances.

The proposal infuriates Hill Republicans, who have taken their lumps from Clinton over Medicare for three years running. They thought the issue would be off the table until after the 1998 election, when a bipartisan panel investigating long-term reform is scheduled to report. "Even before he appointed the commission, the President was undercutting it," gripes a Senate GOP aide.

Can GOP foes capitalize on Clinton's sudden political vulnerability to shred the White House's new safety-net ideas? Probably. But if they try, the GOP risks giving the opposition fodder for the coming elections. "Republicans will lose about 40% of their support if they start attacking this program," says strategist Morris. That's why Clinton is confident he has covered all the angles. He wins if his programs get enacted. And he wins even bigger if the GOP stonewalls.

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