BUDGET BALANCE PROJECTED IN 2002 UNDER CLINTON PLAN.

Byline: Alan Fram Associated Press 

President Clinton prepared Wednesday to send Congress a $1.69 trillion budget for fiscal 1998 that cuts taxes and claims enough savings from Medicare, defense and other programs to produce a $17 billion surplus in 2002.

Clinton planned to unveil his package today. The Associated Press obtained budget documents Wednesday.

The release of the plan is expected to trigger a months-long effort by Clinton and congressional Republicans to clinch a deal for eliminating federal deficits by 2002. Although both parties say they want to balance the budget by that year, sharp clashes loom because the GOP wants deeper tax cuts, less spending and more power shifted from Washington to the states than Clinton prefers.

Even with the budget-balancing plan, Clinton envisions last year's $107 billion deficit rising to $126 billion this year. It is not until 2000 that it would drop below last year's level to $87 billion. The bulk of the savings would not kick in until Clinton leaves office - a point that Republicans cite in describing them as illusory.

The president was on the road Wednesday selling one of his budget priorities: extra money for schools and students. He told an audience at Augusta State University in Georgia that it would make America's schools the world's best but warned: ``It won't be done overnight.''

Republicans said they applauded his goals but would oppose big-government solutions and budget gimmicks.

``The issue isn't whether he gives us a balanced budget; it'll be how rickety it is,'' Rep. John Kasich, R-Ohio, chairman of the House Budget Committee, said earlier. ``I fear it will be a very rickety budget that won't deal with the major issues of our time.'' He said such issues include long-term costs of Medicare.

Clinton had promised in his State of the Union address Tuesday to make balancing the budget and improving education his top priorities. His spending blueprint would carry that out.

The administration's budget proposal envisions savings of $388 billion over the next five years, mostly from Medicare, defense and other domestic programs. In addition, there would be $76 billion worth of tax increases, mostly on corporations and airline travelers.

Simultaneously, Clinton would cut taxes by $98 billion and spend $38 billion on initiatives like expanding health-care coverage for children and jobless workers and restoring many disabled Americans and young legal immigrants to welfare rolls. That brought his net deficit reduction over the five years to $252 billion.

Republicans were sure to criticize Clinton's deficit-reduction plan. They want it to shrink every year instead of ballooning this year and next.

Of the $388 billion in savings, nearly two-thirds - $246 billion - would occur in 2001 and 2002, after Clinton has left office. Republicans have warned against pushing savings into the distant future, saying they are unlikely to occur.

The Department of Education's budget would grow from $28 billion this year to $32 billion in fiscal 1998 and later level off at $36 billion.

Clinton also seeks billions of dollars more to grant annual tax credits of $1,500 and tax deductions of $10,000 for college students, to boost Pell grants for low-income college students by $300 to $3,000, and to increase funds for school construction, classroom computers and reading initiatives.

The two biggest pieces of Clinton's tax-cut package were the college tax breaks and a tax credit of up to $500 per child that would phase out for families with incomes exceeding $75,000. He also would allow penalty-free Individual Retirement Account withdrawals for post-high school education, first-time home purchases and unemployment expenses, and eliminate capital gains taxes on sales of homes worth up to $500,000.