Clinton’s Deficit Plan Challenged in Senate : Congress: A bipartisan group seeks to scrap the proposed energy tax and cap spending on some benefits.

WASHINGTON —  In a potentially devastating blow to President Clinton’s economic program, a bipartisan group of four Senate moderates unveiled an alternative deficit reduction package Thursday that would scrap the Administration’s proposed energy tax and cap spending for mandatory benefit programs.

The leader of the group, Sen. David L. Boren (D-Okla.), who may cast the decisive vote on Clinton’s budget package in the Senate Finance Committee, declared that he would oppose the controversial energy tax, lowering its chances of Senate passage.

Clinton, reacting swiftly, stuck by his program and rejected Boren’s offer to negotiate major revisions to slash the amount of tax increases and expand the total spending reductions.

“It’s basically a $40-billion shift away from wealthy Americans right onto people just above the poverty line, the elderly and the working poor . . . . I don’t support that,” said Clinton, who found himself dealing with the disturbing Senate developments less than 24 hours after he appealed to House Democrats whose support of his budget package was wavering.

In a quick rebuttal, Boren shot back: “This plan simply gives the American people a choice between cutting the deficit mainly through tax increases or mainly through spending cuts. I hope that the President will join us in embracing the spending cut approach.”

The Boren plan also would take the politically risky step of reducing cost-of-living adjustments for Social Security recipients and retirees from the federal government and the armed services who receive more than $600 a month.

Boren’s announcement may cloud the outlook in the House for passage next week of a $340-billion budget reconciliation bill that contains much of Clinton’s plan. Conservative and moderate Democrats have voiced concern about voting for an energy tax or other politically painful provisions if the measures are going to be scuttled later by the Senate.

“Hopefully, the process of negotiation and improving the package will start before the House votes . . . to see if we can come up with a consensus plan,” Boren told reporters. House Speaker Thomas S. Foley (D-Wash.), however, reiterated his prediction that the House would approve the President’s program despite Boren’s carefully timed move.

“We are concentrating on moving the bill forward in the House, and I think we have the votes to do that,” Foley told reporters.

Rep. Howard L. Berman (D-Panorama City) said: “The President did a superb job of rallying the House Democratic caucus. If there was one note of concern . . . it came from some of the Democrats in energy-producing states saying, ‘If we walk the plank (by voting for the energy tax), will we have walked it in vain?’ ”

Even so, Boren’s all-out opposition to the energy tax led Sen. J. Bennett Johnston (D-La.), one of the three other senators behind the alternative plan, to declare that this part of Clinton’s program was dead and potentially a “poison pill” that would doom the entire package.

Democrats hold a narrow 11-9 margin on the Senate Finance Committee, which must handle parts of the Clinton program dealing with taxes, Social Security, Medicare and Medicaid. Without Boren’s vote, it appears likely that the committee would deadlock, 10 to 10, thus preventing passage of key parts of the President’s budget-cutting plan.

Finance Committee Chairman Sen. Daniel Patrick Moynihan (D-N.Y.) said no other Democrat on the committee would support the Boren compromise, thus preventing its approval. But he acknowledged that Boren’s opposition left him one vote short of the majority needed to approve the energy tax or Clinton’s other controversial tax proposals.

Treasury Secretary Lloyd Bentsen also said Boren’s proposal would die in committee, and Senate Majority Leader George J. Mitchell (D-Me.) predicted that Clinton’s program would pass the Senate largely intact.

Senate Minority Leader Bob Dole (R-Kan.), however, welcomed the alternative. “Today’s bipartisan effort to pull the plug on the energy tax is the latest indication just how unpopular the President’s big tax agenda really is,” Dole said. “We hope the White House gets the message.”

In addition to Boren and Johnston, Republican Sens. John C. Danforth of Missouri and William S. Cohen of Maine joined in sponsoring the alternative plan. “We’re trying to give the President a third option so he doesn’t step on the third rail” and lose his entire plan, Cohen said.

Johnston, like Boren an oil-state senator, said he was not trying to scuttle the energy tax to win favor back home. “I want this President to be successful and I think this is the way to do it,” he said.

Boren said other senators--from both parties--were sympathetic to his efforts and might endorse the plan.

But Bentsen said, “They’ll never get more than a handful of Republicans to vote for the tax increases on the upper brackets, and not more than a handful of Democrats will vote for their Social Security cuts.

“The choice is not between the President’s plan and a better one, but between cutting the deficit and not cutting it at all.”

Sen. John B. Breaux (D-La.), who once was considered likely to join in advancing an alternative, said that, after meeting with the President on Wednesday night, he favors a budget plan with more spending cuts and with changes affecting the energy industry to create more jobs and make it more competitive.

The alternative pushed by Boren contains $2 worth of spending cuts for every $1 of tax increase. It would raise taxes by $150 billion over five years, contrasted with a $272-billion increase in the plan backed by Clinton, while making net spending cuts of $337 billion, contrasted with $174 billion for the Administration’s program.

The alternative would retain proposals for big income tax increases on individuals making more than $115,000 a year and couples earning more than $140,000, as well as for raising the top corporate income tax rate to 35%.

Eliminating the energy tax would cut revenues to $71.5 billion less than those in Clinton’s program.

Of the additional spending cuts, $114 billion would be saved by capping spending for Medicare, Medicaid and other mandatory benefit programs, except Social Security. Another $15 billion would be cut from Clinton’s proposed expansion of the earned income tax credit, a benefit earmarked for families earning less than $30,000 a year.

The alternative also would limit annual cost-of-living adjustments for federal, military and Social Security pensioners to save $23 billion over five years. The first $600 of monthly benefits would get a full adjustment for inflation, but all amounts in excess of that would increase at a rate equal to inflation minus 2 percentage points.

Clinton said the proposed entitlement spending cap would affect only fast-rising government health care costs but would not limit costs of private health insurance.

“If we control the costs of Medicare and Medicaid, but we don’t reform the health insurance system, that will force the doctors and the hospitals and the health care providers of this country to explode your health insurance premiums even more in the years ahead than you’ve experienced in the last 12 years--and that’s wrong,” Clinton said.

Clinton’s tax package will get a much-needed boost early next week when about 50 major corporations are expected to endorse the bill approved by the House Ways and Means Committee.

Among those supporting the measure will be Walt Disney Co., General Electric Co., General Motors Corp. and International Business Machines Corp., congressional sources said.

Times staff writer Douglas Frantz contributed to this story.

Fewer Taxes, Bigger Cuts

The alternative deficit-reduction package proposed by Sen. David L. Boren (D-Okla.) would scrap President Clinton’s proposed energy tax, scale back other tax hikes and place caps on future benefits paid by federal entitlement programs such as Social Security. Here is a summary and its estimated effect over five years:

TAXES * Eliminate proposed broad-based tax on energy use. Cost: $71.5 billion. * Eliminate proposed increase in wages subject to Medicare payroll tax. Cost: $29 billion. * Delay increases in individual and corporate income taxes until June 30. Cost: $9 billion. * Index capital gains to eliminate tax on profits attributable to inflation. Cost: $12 billion. * Eliminate proposed increase in tax on barge and towboat operators. Cost: $0.5 billion.

KEY SPENDING CURBS * Cap future growth of Medicare, Medicaid and other entitlement programs other than Social Security. Savings: $114 billion. * Reduce cost-of-living increases for Social Security and government pension recipients above poverty level. Savings: $23 billion. * Eliminate proposed expansion of earned income tax credit. Savings: $15 billion. Source: Sen. David L. Boren (D-Okla.) * CLINTON CAUGHT IN MIDDLE: Party’s two wings leave President without a majority. A19