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Democrats' budget plan hits Medicare, has gas tax

Democrats on the Senate Finance Committee ended more than a week of closed-door negotiations Wednesday, emerging with a budget plan that cuts Medicare more and raises taxes on fewer affluent Social Security recipients than the plan passed by the House last month.

The deal, which still must be approved by the full Senate, doesn't include the complex tax on British Thermal Units of energy approved by the House, replacing it with deeper spending cuts and a 4.3-cents-a-gallon tax on gasoline, diesel fuel and other transportation fuels.

That was the compromise forced by oil-state Democrats whose votes were crucial to get the package through the Finance Committee, where Democrats hold an 11-9 margin. The oil-state Democrats want to kill the Btu tax, which would raise $72-billion over five years, and replace the revenue with greater spending cuts _ and their leader was pleased when he saw the committee's product.

"I think it's a great improvement over the House package," said Sen. David Boren, D-Okla. "I think this is a plan that can command support across a broad spectrum of the Democratic Party."

Under the agreement, Medicare beneficiaries would be shielded from a higher premium, but reimbursements to their doctors and hospitals would be cut by $19-billion more than the $48-billion in Medicare reductions approved by the House.

Social Security beneficiaries with adjusted incomes of $32,000 for individuals and $40,000 for couples would see up to 85 percent of income over those levels subject to income taxes. That change would affect about 15 percent of Social Security recipients, according to the American Association of Retired Persons, which Wednesday night said it had "grave concerns" about the Medicare cuts.

Currently, recipients face taxes on up to 50 percent of their adjusted income above $25,000 for individuals and $32,000 for couples. The House and President Clinton would keep those lower levels, but subject up to 85 percent of the income to taxation. That affects about 25 percent of beneficiaries.

The 4.3-cents-a-gallon gasoline tax, meanwhile, would mean paying about $32 a year more for a motorist who drives 15,000 miles a year and gets 20 miles to the gallon.

Reaching the agreement is a big step toward passing the $500-billion in deficit reduction that Clinton seeks, but the package most likely will be altered. It goes to the full committee today, then to the Senate floor, on to a House-Senate conference committee and back to both chambers for final approval.

Democrats who were briefed on the Finance Committee plan Wednesday evening came away grumbling about the Medicare cuts.

Florida Sen. Bob Graham said he did not like the deeper reductions, and said he was withholding judgment on whether he will vote for the plan.

He may get a chance to alter it, if Sen. Tom Harkin, D-Iowa, goes through with a proposal to bump the corporate income tax rate up to 36 percent in exchange for fewer cuts in Medicare spending.

Sen. Jay Rockefeller, D-W.Va., who fought against the Medicare reductions, predicted the cutbacks will be limited further in the House-Senate conference committee.

However, Senate Finance Committee Chairman Daniel Patrick Moynihan, D-N.Y., pointed out that although the Medicare reductions are commonly called "cuts," in fact they merely slow the increase in spending on the health program. Spending will grow by 65 percent over the next several years, he said.

Moynihan, in his first year as Finance Committee chairman, boasted that the plan is "the most progressive change in taxes since World War II." He told a news conference that 80 percent of the taxes will be borne by people with incomes greater than $100,000 a year and that families with income below $20,000 would see no net increase in taxes.

Highlights of House

and Senate plans

Like the House plan, the Senate Finance Committee deal repeals the luxury tax on expensive boats, furs and cars. The House plan would raise the tax on diesel fuel used by non-commercial boats by 20.1 cents a gallon; the Senate plan apparently does the same.

The House and the Senate Finance Committee plan both would repeal the $135,000 cap on wages that are subject to the 1.45 percent tax that helps pay for Medicare hospital coverage. Lifting the cap means that even the richest wage earner would pay the tax.

Both plans would increase the income tax rates paid by high-income individuals from 31 percent to 36 percent. This fourth income tax bracket is for joint filers with taxable income of more than $140,000 and single filers earning $115,000. Under the Senate plan the income tax rates would be effective July 1, whereas the House plan increases the rate retroactively to Jan. 1.

The Senate imposes a 10 percent surtax on taxable income greater than $250,000, including on capital gains income. The House has a similar surtax but leaves the capital gains tax rate at the current 28 percent. In all, these new taxes on the rich raise $107-billion.

Corporate income tax rates would go up to 35 percent under the Democratic senators' bill and the House bill. The rate currently is 34 percent.