Senate panel OKs 'bare-bones' plan for deficit

October 13, 1990|By Peter Osterlund | Peter Osterlund,Washington Bureau of The Sun Richard H. P. Sia of The Sun's Washington Bureau contributed to this article.

WASHINGTON -- The end of Washington's months-long budget standoff flashed into sight yesterday, when Democrats and Republicans on the tax-writing Senate Finance Committee lined up behind a five-year, $500 billion deficit-reduction package that avoids the controversial capital gains tax issue altogether.

The plan was analogous to a "bare-bones" proposal offered Wednesday by the finance panel's counterpart, the House Ways and Means Committee, which met yesterday with the administration's blessing.

The Finance Committee formally approved the proposal early this morning, 15-5, shortly after it was endorsed by leaders of both parties.

"I believe it is a fair compromise," said Senate Majority Leader George J. Mitchell, D-Maine.

Earlier, White House spokesman Marlin Fitzwater said, "We continue to believe that a bare-bones deficit-reduction plan is the one that will finally get passed and the correct way to go."

The Senate panel's action came as the political tug-of-war over the budget intensified between the two parties on the other side of the Capitol. House Democrats closed ranks behind a deficit-reduction plan that would hit the financially well-off while granting a capital gains tax break to middle-income families. House Republicans, meanwhile, bickered among themselves over whether they should introduce an alternative of their own.

If the plan proffered by the House Democrats were to pass, it would almost certainly meet with a veto from President Bush, who has said he would back an increase in taxes levied on the highest-income earners only if that increase were less and the accompanying capital gains tax cut were greater than the combination suggested by the Democrats.

"I think it's a progressive piece that Democrats will rally to," contended Ways and Means Chairman Dan Rostenkowski, D-Ill. "I'm hoping that, when debate is concluded, sound-minded Republicans will see the value of this package."

But it appeared unlikely that many Republicans in the House would pass Mr. Rostenkowski's test of sound-mindedness. Instead of introducing a plan of their own, let alone supporting the Democrats' document, many -- perhaps most -- of them prefer to oppose any tax increase, although some said they would like to support the president in his quest for a plan that would raise taxes while cutting spending and reducing the ever-bulging deficit.

"We're working on our position," said Representative Mickey Edwards, R-Okla. "It will be our own -- not the president's, not the Democrats'."

Next Friday, the government is scheduled to run out of money again, unless President Bush signs a stopgap spending bill tiding things over until the nation's elected leaders can work out their differences over the budget. But Mr. Bush has suggested that he would let federal services grind to a halt unless Congress

adopts a package of spending cuts and tax increases that he can support and that will reduce the federal deficit by $500 billion over the next five years.

As tempers flared on Capitol Hill yesterday, the president expressed confidence that a "sound budget agreement" could be found. "Just stay calm; it will all work out," he said.

The Senate Finance Committee's plan raised hopes that the president might be right.

It would not, for example, provide a special break for income from the sale of investments, or capital gains. At the same time, it would not raise the top income tax rate, a political concomitant of the capital gains cut.

Sources close to the committee's deliberations said that the plan would raise almost $171 billion in new taxes over five years and give away almost $29 billion through a variety of tax incentives designed to stimulate the economy -- including breaks intended to spur investment in research, alternative energy and exploratory drilling.

It would increase the gasoline tax from 9 cents to 18.5 cents a gallon -- a half-cent less than the tax proposed in the now-defunct budget summit compromise -- while doing

away with a proposed 2-cent-a-gallon levy on refined petroleum products. The Medicare program, meanwhile, would be docked almost $50 billion, of which more than $17 billion would come from increased Medicare premiums.

If some variant of the finance panel's plan were to be adopted by the Senate, it would probably face the House Democrats' plan, currently given the best chance of passage in that chamber.

But the House Democrats' plan, decried by Mr. Fitzwater as "just another tax-and-spend to raise taxes by every way imaginable," differs sharply from the emerging Senate plan.

For one thing, it would raise tax revenues by $160 billion over the next five years and bring in an additional $43 billion from savings in the Medicare program, $10 billion of that from an increase in premiums.

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