Clinton challenge on budget cuts

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President Bill Clinton yesterday presented a draft 1996 budget projecting spending of $1,610bn (£1,032bn) and a virtually unchanged deficit of $197bn - and then challenged his Republican opponents to spell out the far deeper cuts they have promised, to meet their goal of a balanced budget by 2002. The centrepiece of the proposals launched at an elaborate White House press conference is a $63bn package of tax credits aimed at the middle class, coupled with $144bn of spending cuts over the same five-year period, geared to Mr Clinton's pledge of a "leaner but not meaner" federal government.

The budget is, however, merely the opening gambit of what may turn into a bidding war between the administration and Congress, where the Republican majority is committed to much the larger reductions in both taxes and spending contained in the "Contract with America" manifesto on which it so success- fully fought last November's mid-term elections.

Hardly had the President finished speaking than Senator Pete Domenici of New Mexico, chairman of the Senate Budget Committee, served notice that his plan would at best be only an ingredient in the budget which Congress finally sends to the White House for signature (or more probably, veto) later this year. It was "not dead on arrival but already on life support", Mr Domenici said.

The bulk of Mr Clinton's spending cuts - $101bn - are generated by reducing and re-organising more than 270 federal programmes. In addition, the President wants to scrap 131 smaller schemes, saving just under $2bn. The brunt will be borne by second-tiercabinet departments such as Housing, Transport and Energy.

But in some areas spending is going up, most notably to fight illegal immigration (to be partly financed by a small fee on border crossings.) An extra $3bn will go to fight crime, and an additional $25bn to improve military readiness. Overall defence expenditure is $258bn, less than 3 per cent down on fiscal 1995.

The budget is most notable for what it does not touch, in particular the huge "entitlement" programmes of social security and Medicare, providing health care for the elderly.

Taking aim at the balanced budget lobby, the documents foresee annual deficits of around $200bn until the end of the century. By then, Mr Clinton boasted, he would have cut the deficit by a total of $600bn, more than any other administration in US history.

"All my proposals are paid for by specific cuts," Mr Clinton said in a dig at the Republicans' promise of a $200bn middle-class tax cut - more than three times greater than he is offering. "Anyone can pass a tax cut; the hard part is paying for them. Americans are entitled to know what's going to be facing them."

The White House calculates that to achieve a balanced budget, as stipulated by the constitutional amendment which sailed through the House but faces a far tougher battle in the Senate, no less than $1,200bn of cuts will be needed over seven years. This, it argues, is vir- tually impossible if social security, defence and Medicare spending are to be left intact, as Republicans say they will be.

Yesterday's budget therefore is a deliberate attempt by Mr Clinton to place the political onus on the Republicans themselves. Newt Gingrich, the Speaker, has indicated the House and Senate majorities will produce their own more ambitious proposals withintwo months. But already the party's once monolithic ranks are fraying, as pragmatists and ideologues argue over how quickly change should be implemented.

In line with most government and independent forecasts, the budget predicts a decline in GDP growth this year to 2.4 per cent from 4 per cent in 1994, and a small rise in inflation from 2.6 to 3.2 per cent.