Back to Budget Bargaining

October 10, 1990

In the end, whatever Congress produces in the way of a budget deal will have to be judged against the bipartisan leadership package it rejected. Right now, nothing of substance is on the table -- only a vague expression of intent that American voters should regard with great skepticism.

One of the ornaments of the original plan hammered out by President Bush and the combined congressional leadership was its adherence (with one major flaw in tax breaks for start-up companies) to the 1986 tax reform principle of treating all kinds of income equally. The ill-starred agreement rejected the Republican demand for a preferential tax rate on capital gains and the Democratic clamor to burst the "bubble" that gives the wealthy a lower marginal tax rate than the upper middle class so that effective tax rates come out evenly.

With the bipartisan package sidetracked, the 1986 reform statute is again in trouble. Democrats are back to bubble-bursting, all in the name of making the tax code more progressive (although some experts say the reverse might be true if capital gains rates are cut). Conversely, President Bush again sees a chance to revive capital gains tax cuts to encourage investment and growth, a concept as debatable as whether the Treasury would come out a long-term winner or loser.

Mr. Bush for the first time has conceded that higher income tax rates are negotiable, a stance resisted by his own party in the House. But he also says they must be "worked in proper balance" with capital gain taxes -- a potential sticking point in bargaining with liberal Democrats.

Problems could abound in finding substitutes for other features in the bipartisan package rejected by election-wary incumbents. New England is to be placated by scrapping a small tax on heating oil, if the gray-power lobby is to be assuaged on Medicare costs, if a proposed hike in gasoline taxes is to be reduced and farm subsidies pared down only modestly, Congress will have to compensate in other areas to reach the goal of a five-year, $500 billion reduction in projected deficits.

These problems are back in the laps of legislative committees that could not handle them in the first place. Can they reach an agreement by Oct. 20? Is it possible to concoct an agreement that is simultaneously palatable to Congress and substantive in reducing national indebtedness? Are the left and right fringes reconcilable? Could another federal shutdown threaten?

Washington's lack of courage, cohesiveness and conviction provide scant room for optimism. There remains the danger that all decisions will be put off until the post-election deliberations of a lame-duck Congress.

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