CLINTON GOALS OUTLINED IN BUDGET PLAN.

Byline: James Bennet The New York Times

President Clinton proposed a $1.69 trillion budget Thursday for 1998 that he said would cut taxes on the middle class, increase spending on education and health care and lead to an end to deficits by 2002 - and for almost 20 years after that.

The administration said it would achieve its deficit-reduction goals over the next five years with a $350 billion bundle of program cuts and tax increases, including slowing the growth of Medicare and extending some taxes, such as on airline tickets, that are set to expire.

Indicating that he was ready to compromise even as he unveiled his proposal, Clinton argued that the progress of his administration and Congress in cutting the deficit so far, together with the politics of the hour, presented ``the best chance in a generation'' to balance the budget.

``Some of the differences we have are truly principled differences,'' the president said at a midday briefing with reporters, ``and we'll have to work hard to have an honorable compromise. But I believe that we can do it as long as the Republicans and the Democrats agree that we have to achieve this goal.''

The administration, citing its economic projections, held out the prospect of balanced budgets until 2020. ``We believe we can keep this budget in balance for a good, long time,'' Clinton said.

But there is no guarantee that today's deficit-cutting zeal will extend to future administrations or Congresses - or even endure the current ones. In a sign of how politically sensitive even small budget cuts can be, administration officials Thursday were at pains to avoid talking much about what Clinton called his budget's ``detailed, difficult cuts in hundreds of government programs.''

Republican congressional leaders reacted frostily to the proposal, the formal start of a months-long negotiating process. But they did not dismiss it out of hand, as in years past. ``I suppose that you could say it's alive, but it's definitely not kicking,'' said Trent Lott, R-Miss., who is Senate majority leader. Still, Lott said that negotiations could produce a balanced-budget agreement ``within six weeks or so.''

Sen. Pete Domenici, R-N.M., the chairman of the Senate Budget Committee, called the proposal ``a very good starting point.''

But some derided the proposal almost instantly. Rep. Tom DeLay, R-Texas, who is the House majority whip, said: ``The administration has embarked on a journey to Shangri-La, a mythical place where spending goes up, where the future is of no consequence, where the world is at peace and where budgets magically balance with a wave of the hand.''

In fact, the two sides already have taken significant steps toward each other. The stark differences between them of two years ago - such as whether the Departments of Education and Commerce should exist - boiled away after the two government shutdowns over budget negotiations in 1995 and 1996.

For his part, by declaring in December 1995 that he would seek a balanced budget by 2002, Clinton was able to inoculate himself against accusations of being a big spender. But he also committed himself to achieving what was originally a Republican goal.

Much distance remains between Clinton and the Republican Congress, however. For example, Republicans have long sought a deep cut in the capital gains rate, the tax on profits from investments. Clinton's budget proposal does contain such a cut - but one that is narrowly drawn, affecting only the profit from the sale of homes.

While the administration projected a $17 billion surplus in 2002 because of its plan, Republican legislators predicted a $50 billion deficit. In all, the budget proposal for 1998 amounts to a 3.5 percent increase over this year's projected federal spending of $1.63 trillion. The fiscal year ends Sept. 30.

The budget proposal assumes steady economic growth over the next five years. Franklin Raines, the president's budget director, acknowledged that a recession would force the administration, or its successor, to push back the deadline for balancing the budget.

But if deficits loom, the administration has incorporated a provision to automatically phase out $22 billion worth of tax cuts, and to apply an across-the-board reduction in spending of 2.25 percent, excepting only Social Security.

Administration officials repeatedly stressed Thursday that, as Raines put it, ``we have already done much of the hard work necessary to balance the budget by 2002,'' pointing to the drop in the deficit from $290 billion in 1992 to $107 billion in 1996.

Still, whoever succeeds Clinton, if his plan is enacted, would have to grapple with the effects of deep reductions in federal spending, compared with today. In California, Gov. Pete Wilson chided Clinton's spending plan for providing money for only half the 1,000 new Border Patrol agents authorized in a bill Clinton signed last fall.

He also criticized the president for setting aside only $500 million to reimburse states nationwide for the costs of keeping illegal immigrant felons in jail. Wilson's own budget assumes that California alone would get $299 million in federal reimbursements, but the small outlay Clinton proposed puts that in doubt.

``This is $150 million less than was authorized by Congress, and he has included no funding for the costs of emergency health care or education,'' Wilson said in a written statement. ``The President has stated in the past to send him the bill, but he continues to short California for the federal government's failure to control the border.''

Wilson also said that Clinton's budget calls for caps on Medicaid spending, but fails to explain how the caps would be developed or applied. He said that the spending cap Clinton proposed last year, along with cuts in hospital payments, ``would shift billions of dollars in health care costs onto California taxpayers and devastate the state's hospital safety net system.''

Wilson also criticized Clinton for failing to provide ``maintenance of effort'' relief that would allow California to reduce its Supplemental Security Payment grants. The state has assumed it would get such relief, generating savings of $277 million, a Wilson spokeswoman said.