Budget Trial Balloons Fly in Mass Formation

THIS YEAR WE'LL PUMP $15 BILLION INTO THE ECONomy. On second thought, make it $31 billion.

Maybe we'll raise the gasoline tax. Hold it -- a new tax on all forms of energy might be better.

Freeze Social Security pensions for a year? The old folks' lobby is going to kill us. Could we maybe get Congress to buy a higher tax on the better-off pensioners instead?

Those are just some of the trial balloons floating around Washington. Bill Clinton vows that in his State of the Union speech next Wednesday, he will finally unveil the economic policy he once promised to have ready by Inauguration Day. In the interim, the task of combining a boost to the economy with a cutting of the budget deficit has become no easier; the second goal obviously will require tax increases and spending cuts painful enough to rouse fierce opposition. And so, though the White House piously denies knowing where some of them are coming from, an intense search is on for ways to do the job that stand a chance of being salable politically.

Some ideas have gone through two or three mutations. In December, Clinton's aides considered an immediate $60 billion stimulus to the economy. Later, as deficit forecasts worsened, that was scaled back to $15 billion to $20 billion. Now, with unemployment still stubbornly high, the White House is putting out a new figure of $31 billion, divided about equally between new spending and tax credits for business investment. Clinton also renewed a pledge to raise taxes on the rich before hitting the middle class; the leading idea is to tax incomes above $200,000 a year for joint returns at 38%, vs. 31% at present. Advisers caution, however, that with Clinton, no decision is ever final until it is officially proclaimed.

The President drummed up support by visiting Capitol Hill rather than by summoning congressional leaders to the White House, and by schmoozing with members of the National Governors' Association. He pleased them by giving states more freedom to use federal Medicaid funds as they wish. The Governors still opposed overall limits on health-care spending, though that could be a key part of Clinton's eventual proposals for health-care reform. (See related stories beginning on page 22.)