Budget Bill Vote: The Wooing Goes Down to the Wire

AT the crux of the battle for hearts and minds on the Clinton budget lies the fate of - what else? Subchapter S corporations.

In the last-ditch campaigns to tilt public sympathies over taxes and jobs, much argument was over small business - the economy's chief job-generator and the icon of American enterprise.

From the "war room" next to the White House, not a shot was left unanswered in the frenetic countdown to today's Senate vote on President Clinton's budget.

In a Senate conference room Wednesday, the National Federation of Independent Businesses held an anti-Clinton-plan press conference, involving executives from a half-dozen industries.

The White House commandos held their own conference in the room immediately afterward, with executives in tow from at least a dozen industries.

Dueling media appearances like these showed that the battle was never just one of bartering over the vote of one or two senators. Each side needs public opinion flowing in its direction.

Some rhetorical excesses were apparent on all sides.

Senate minority leader Robert Dole called Mr. Clinton's plan the "largest tax increase in the history of the world." Canceling out the exaggerations of inflation, however, this tax hike will not surpass the one drafted largely by Mr. Dole in 1982.

The Clinton team promises 8 million jobs over the next five years.

But one forecasting firm the team cites downplays the plan's role in creating jobs. If anything, cutting the deficit will slow job-creation slightly in four to five years. "Those 8 million jobs are going to be created by the economy no matter what," says Joel Prakken, vice president of L.H. Meyer and Associates.

Clinton has argued, with little impact on public opinion, that 80 percent of the tax burden in his plan will be carried by households earning more than $200,000.

A Cable News Network poll released this week found that 68 percent of those surveyed believed that middle-income Americans would pay the most taxes under the plan, and only 22 percent believed that the rich would pay the most. The stubbornness of this view is a frustration for the Clinton team. GOP argues on tax rates

Republicans have countered that higher tax rates on the wealthy, beginning with those having household taxable in-comes of more than $140,000, will hit many small businesses that pay taxes at personal-income rates.

These are proprietorships, partnerships, and other businesses that fall under subchapter S of the tax code. Their top marginal tax will rise from 31 percent to 36 percent under the plan. And since small businesses have increasingly become the greatest source of new jobs, these higher taxes will hurt job growth. Clinton officials respond that only 4 percent of small businesses earn enough to be affected by the tax.

Sure, Dole says, but 4 percent of firms create 70 percent of jobs, a figure supported by a recent study by economic consultant David Birch. But, Dr. Birch points out, that is not the same 4 percent that would be affected by tax hikes. He says the fastest-growing companies are too busy plowing earnings back into plant and equipment to take taxable profits. Tax hike retroactive

"It's probably true that rapidly growing businesses do tend to have less taxable income," says David Bradford, a member of the Bush administration's Council of Economic Advisers who is now a visiting scholar at the American Enterprise Institute.

Opponents of the Clinton budget are especially galled that tax hikes are retroactive to Jan. 1. Martin Regalia, chief economist of the United States Chamber of Commerce, says retroactive taxes are particularly damaging to economic growth, because they are paid out of savings and investment funds.

Holding up a book the White House distributed Wednesday that lists business executives endorsing Clinton's plan, one small-business advocate averred: "These people are not going to have to go out and borrow money to pay their taxes at the end of the year."

Clinton officials countered that the US Treasury would stretch out payment of the retroactive taxes over two years, to ease any cash crunches they caused. Besides, 90 percent of small businesses will get tax breaks under the Clinton plan - also retroactive, argues White House economic adviser Gene Sperling.

The share of new jobs created by small business is difficult to ascertain. Small-business employers hire faster in periods of economic recovery and fire sooner in downturns. But over the years, "more and more Americans are working for smaller and smaller companies," says Brookings Institution senior fellow Gary Burtless.