WASHINGTON - President Clinton is insisting that the final budget plan being negotiated in Congress contain his urban empowerment zone proposal, but he may back off demands that it include all his other tax-exempt bond initiatives and tax incentives, a top White House official said yesterday.
Robert Rubin, chairman of Clinton's National Economic Council, made his comments in an interview in which he acknowledged that the White House is now prepared to accept an energy tax so small that it no longer will produce the revenues needed to finance many of the President's posed tax incentives.
The House version of the budget package, which contains Clinton's $72 billion broad-based energy tax, includes $47 billion of tax incentives that the President originally proposed such as the empowerment zone proposal, which would create an exempt facility bond for businesses within the zones.
Also included in the House version of the bill are Clinton's proposed high-speed rail bonds and permanent extensions for mortgage revenue bonds and small-issue industrial development bonds.
The empowerment zones and the high-speed rail bond proposals were excluded in the Senate version of the bill, while the extensions were made effective only through June 30, 1994, in large part because the Senate approved a much smaller, $23 billion energy tax that pays for such revenue-losing proposals.
Rubin and Office of Management and Budget Director Leon Panetta, in a separate television interview Sunday, said the administration is now prepared to accept something close to the energy tax in the Senate version, which is a 4.3 cent-a-gallon gasoline tax increase.
A senior White House official also said the President might be willing to accept no energy tax at all, as long as the budget conferees find another way to pay for "priority" tax incentives to be articulated by Clinton within the next few days.
In addition to the empowerment zone proposal, the list of priority tax incentives is likely to include a broader deduction for expenses incurred by small businesses and an expansion of the earned income tax credit, the official said.
All the other tax incentives proposed by the President, including his bond initiatives, are up in the air and may be included on the list the official said. The list will not include all the tax incentives in the House bill, however, he said.
The conferees may raise the gas tax above the level proposed by the Senate to as high as 7.5 cents a gallon to help pay for more of the Clinton incentives, the official said.
Rubin said the energy tax has evolved through the legislative process into "an exceedingly minor piece" of the $500 billion deficit reduction program. He said nevertheless it is difficult for him to conceive of a final budget plan that does not contain at least a small energy tax.
"The energy tax may well be the only realistic mechanism for providing the resources necessary to accomplish the President's deficit reduction goal [of $500 billion] and his other objectives," Rubin said.
Panetta said that in the budget negotiations continuing this week, "the focus is going to be largely on what the Senate has done with regard to a gas tax." Panetta and Rubin ruled out a proposed utility tax to supplement the gas tax, as well as returning to the President's original energy tax based on the energy content of fuels.
A growing number in Congress has been advocating the elimination of the energy tax entirely. Rep. Dave Obey, D-Wis., has proposed replacing the Senate energy tax with higher top corporate and personal income tax rates than those in the House and Senate plans. Obey's latest proposal would also include the empowerment zone initiative, but would cut back on other Clinton bond proposals in the same way as the Senate budget.
The senior White House official said the probability that House and Senate conferees would approve something like the Obey plan is "slight," but the President nevertheless would consider such a plan if it were approved by Congress.
The senior official disagreed with Martin Feldstein and some other economists who say that higher taxes on the rich will only drive them further into tax shelters, exemptions, and deductions, and will discourage them from working.
He said tax evasion might become more widespread if rates were raised back up to 70% where they were in the 1970s, but not as long as they are kept within the 36% to 40% range being discussed in Congress.