Negotiators settle deal to lower deficit Agreement made to raise taxes, cut U.S. spending

October 01, 1990|By Peter Osterlund | Peter Osterlund,Washington Bureau of The Sun Karen Hosler of The Sun's Washington Bureau contributed to this article.

WASHINGTON -- The tortuous, months-long quest for a bipartisan budget deal came to a conclusion yesterday, when congressional leaders shook hands with the Bush administration on a five-year plan to raise taxes, cut spending and slash $500 billion from the federal government's swollen deficit.

After 12 days of intensive, almost round-the-clock closed-door talks, key Democrats and Republicans put the long-awaited finishing touches on the five-year budget plan yesterday afternoon. Now, however, that plan is to be put before the Congress, where rank-and-file lawmakers have already expressed dissatisfaction with many elements in the pact.

The package is supposed to shave $40 billion off the deficit in the new fiscal year, which began this morning. Without action, the deficit was projected to hit $294 billion, $73 billion higher than the previous federal record and almost three times the shortfall the Bush administration had predicted in January.

"It is balanced, it is fair, and in my view it is what the United States of America needs at this point in its history," President Bush said of the agreement at a Rose Garden announcement ceremony with congressional leaders. "This is not a phony smoke-and-mirrors deficit-cutting program, and I will do everything in my power to help the leadership, Republican and Democrat, get this passed in the United States Congress."

The agreement, representing a fragile balance between the often conflicting political and ideological agendas of the two parties, defers automatic budget cuts that were to slash $85 billion out of the federal budget today. It did not, however, eliminate the possibility that those cuts might ultimately take effect, disrupting government operations and resulting in the furloughs of as many as 1 million federal employees.

In fact, the agreement has yet to be approved by Congress, something that appeared less than fully certain as lawmakers began to read the pact's fine print.

A number of Republican lawmakers, especially in the House of Representatives, wasted little time voicing opposition to the plan's contemplated tax increases -- $134 billion worth of new taxes and fees, including increases in federal levies on gasoline, cigarettes and alcohol, a new tax on luxury items and a limitation on itemized deductions for the well-to-do.

Some conservatives, too, expressed disappointment that the deal proposed to trim more than $182 billion from projected future spending on defense and domestic programs, leaving open the possibility that the Pentagon would absorb that cut in its entirety.

"I'm bitterly disappointed in this package," said Representative Dick Armey, R-Texas, as he emerged from a meeting of House Republicans after the announcement. "It's all user fees and taxes and defense cuts."

Many Democrats, meanwhile, are expected to balk at an increase in taxes -- such as those on alcohol and cigarettes -- that would disproportionately burden the less-well-off. Others have already signaled dismay over the package's suggested $119 billion cut in the budgets of agricultural, pension and Medicare programs.

Indeed, rank-and-file members from both parties, recalling the uproar triggered two years ago when Medicare premiums were increased to pay for catastrophic health insurance, were being expected to raise warning flags about these latest proposed adjustments to Medicare.

The nation's 33 million elderly and disabled, who now pay $28.60 a month for Medicare coverage of doctors' expenses, would find their premiums increased to about $34.30. Overall, half the savings in the benefit programs -- roughly $60 billion -- would come from Medicare, split evenly between recipients and providers, such as doctors and hospitals.

In addition, upper-income taxpayers would pay more to support the Medicare program. The government now takes 1.45 percent from paychecks to finance Medicare up to an annual limit of $51,300. That ceiling would be increased to $73,000.

"It's not going to be an easy sell," said House Majority Leader Richard A. Gephardt, D-Mo. "We all made compromises in the national interest."

The package does include a few economic goodies, however -- tax breaks, for example, Republicans argued were needed to help the economy. For instance, companies that explore for gas and oil, conduct research or do business in depressed urban and rural areas will qualify for tax advantages.

Overall, $134 billion of the savings would come from new taxes and fees, $182 billion from defense and domestic cuts and $119 billion from reductions in benefit programs like Medicare. The rest of the $500 billion total would come from reduced debt payments.

Democratic and Republican leaders have agreed that a majority of lawmakers of both parties must support legislation implementing the deal, raising the specter of more Perils of Pauline-style brinkmanship as key lawmakers attempt to persuade reluctant colleagues to support legislation against renewed threats of a shutdown in government operations.

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