Party division dominates crawling budget talks

September 18, 1990|By Peter Osterlund | Peter Osterlund,Washington Bureau of The Sun

WASHINGTON -- Congressional leaders and White House officials, holed up in a cocktail lounge at the Andrews Air Force Base Officers Club, struggled anew yesterday to come up with a deal to slash $50 billion from next year's budget deficit.

But after 10 days of such talks, budget negotiators seem mostly to have rediscovered the magnitude of the differences that divide them.

[No more talks are scheduled at Andrews, according to a report from Knight-Ridder News Service, although the bipartisan congressional leadership and top administration officials were to meet today at the Capitol to see if there is a way to salvage the negotiations.]

"We've got a very, very long way to go," one Democratic budget specialist said. "It's very depressing."

Both sides agree that the budget package should help reduce next year's deficit by imposing about $25 billion in new taxes and fees, including increased levies on alcoholic beverages, luxury items, energy and, perhaps, cigarettes.

But Republicans also insist that the package include a cut in the tax rate imposed on investment income from the sale of such capital assets as stocks and real estate. They say that such a cut would increase government revenues, at least in the short run, by encouraging investors to take profits promptly on capital investments.

Democratic leaders have steadfastly resisted the capital gains proposal, arguing that it would disproportionately benefit the well-to-do. They have sought several trade-offs as the price of their support for a capital gains tax reduction -- among them, an increase in the tax rate paid by those in the highest income tax bracket and a 20 percent surtax on all income over $500,000 a year.

Republicans have preferred several alternatives -- including a plan to eliminate certain deductions for individuals with adjusted gross annual incomes above $200,000 -- that have been rejected by Democrats.

As the dickering continues over tax issues, the delicate consensus constructed around other issues has begun to collapse, in part as lawmakers outside the negotiating room bring pressure on those seated at the bargaining table.

In the quest for a package that would pare $500 billion off the nation's accumulating debt over five years, for example, Democrats had expressed a willingness to cut Medicare, agriculture and other benefit programs by $125 billion.

But on Sunday, Democratic negotiators said they could only accept a cut of about $90 billion. After howls of protests from rank-and-file Democrats, they had decided to abandon a Republican plan to save $27 billion over the next five years by raising the monthly premium that more affluent Medicare participants pay.

That decision frustrated GOP negotiators, since such programs are among the fastest-growing parts of the federal budget. More the point, perhaps, such government initiatives are at the top of the GOP's list of savings targets.

"We're just talking past each other," said one Republican. "It makes some wonder if they even want an agreement."

The alternative to an agreement is the fiscal devastation that could be wreaked by the Gramm-Rudman law, which mandates automatic budget cuts of about $105 billion if a budget deal is not reached before the Oct. 1 start of the new fiscal year.

Ostensibly, the cuts will bring the fiscal 1991 deficit down to the Gramm-Rudman target of $64 billion -- a target budget negotiators have said they will ease if they can come up with a deficit reduction agreement worth $50 billion. But the cost of those cuts in the government's $1.2 trillion budget -- widespread furloughs and interruptions in government services -- are so draconian that Republicans and Democrats alike say the effect could be disastrous for the economy.

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