Budget talks hit new snag over taxes Details are debated of rates for wealthy

October 22, 1990|By Peter Osterlund | Peter Osterlund,Washington Bureau of The Sun

WASHINGTON -- Long-running budget talks between key members of Congress and top Bush administration officials hit another roadblock last night as negotiations stumbled over a dispute between Republicans and Democrats about which taxes to raise on the wealthiest Americans.

The latest obstacle in the tortuous budget discussions arose after both parties had agreed in principle to increase the income taxes levied on top earners. That consensus led participants and observers yesterday to predict agreement on a comprehensive deficit-reduction agreement within hours, five months after the first budget talks got under way.

But as the day progressed, talks became entangled in a disagreement over the kind of tax increase to be imposed on individuals with taxable annual incomes above $1 million. Lawmakers and administration officials planned to meet again today to try to find a way out of the impasse.

"I am disappointed that these important negotiations have reached an impasse," Senate Minority Leader Bob Dole, R-Kan., said in a statement. "The president has gone more than halfway. I regret the House Democrats indicate they are unable to do the same."

Lawmakers are attempting to craft a compromise between two very different versions of a $250 billion deficit reduction bill passed last week by the House and Senate. The legislation, which would increase a variety of taxes and trim expenditures on Medicare, agriculture and other benefit programs, is to serve as the centerpiece of a planned 5-year, $500 billion reduction in the deficit.

As a result, the legislation includes almost all the most controversial provisions. Much of the rest of the deficit cuts would come from reductions in defense spending and lower interest payments on the national debt.

Mr. Dole's comments were echoed by White House Chief of Staff John H. Sununu, who, along with Treasury Secretary Nicholas F. Brady and Budget Director Richard G. Darman, conferred with senior Republicans yesterday.

Bursting out of Mr. Dole's office, a conspicuously agitated Mr. Sununu exclaimed, "There's no deal. . . . The Democrats are negotiating with themselves."

Despite these exclamations, Senate Majority Leader George J. Mitchell, D-Maine, and House Majority Leader Richard A. Gephardt, D-Mo., planned to meet late last night with Mr. Dole.

Some Democrats wondered whether the Republican outbursts were part of a coordinated effort to put public pressure on Democrats to accept the latest GOP budget offer, noting tartly that Mr. Sununu had stormed out of a meeting of Republicans.

"Talks have blown up? What does 'blown up' mean?" asked one Democratic staff aide. "I'm still here, and we're all going to be working past our bedtimes tonight. So what's changed?"

Indeed, it seemed improbable that the talks could break down at this stage, with the two sides so close to agreement.

On Saturday, Republicans offered to raise the top income tax rate from 28 percent to 31 percent, a significant reversal from the Bush administration's repeated opposition to any change in income tax rates.

Democrats, who had crafted the deficit-reduction bill passed last week by the House, had demanded a top rate of 33 percent. They, in turn, responded by accepting the 31 percent top rate, coupling it with a 7.5 percent surtax on taxable incomes in excess of $1 million, as compared to the 10 percent surtax called for in the House bill.

In another significant concession, Democrats said they would limit deductions paid by individuals with taxable incomes exceeding $1 million.

Such limits would especially affect individuals in high-tax states, such as California and New York, since state and local taxes can be deducted for federal income tax purposes and, therefore, any limit in federal deductions effectively increases the costs of the state and local levies. Those high-tax states have large congressional delegations, mostly Democrats, who might vote against the overall budget agreement if it includes proposals that individual lawmakers believe might adversely affect their states.

Democratic leaders, attempting to cobble together a tenuous coalition in support of the final agreement, are thus wary of provisions that might alienate substantial numbers of House members.

"We have to have a package that can pass on the House floor," said Mr. Gephardt. "Absent a majority of Republicans, it is going to have to be passed with a preponderance of Democratic votes."

Republicans, in turn, rejected the surtax, proposing instead to tighten deduction limits on millionaires.

According to a source present at yesterday afternoon's meeting of congressional negotiators, senior Democrats informed Republicans that an insufficient number of Democrats would support the budget agreement if it included the GOP limitation proposal. The choice before Republicans, they said, was to accept a 32 percent top rate or the 7.5 percent surtax.

After consulting with Mr. Bush by telephone, the source continued, Mr. Dole returned to the meeting to say that the president wouldn't agree to a surtax or a higher rate. It was then that the talks hit, in Mr. Dole's word, an "impasse."

It is estimated that the millionaires' surtax, affecting about 65,000 individuals, would raise $5.3 billion over five years.

Republicans say they oppose income tax rate increases and surtaxes because, they fear, such hikes will open the door to further increases in the future.

In yesterday's talks, the two sides narrowed differences over Medicare, an area where partisan differences are defined largely by dollars.

The House deficit bill had proposed a $43 billion trim in the Medicare program. Yesterday, Senate Republican negotiators offered to lower their proposed reduction from $49 billion to $47 billion.

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