Political sparring begins as Darman, Democrats disagree on fundamentals

January 31, 1992|By Stephen E. Nordlinger | Stephen E. Nordlinger,Washington Bureau of The Sun

WASHINGTON -- House Democratic leaders and White House budget Director Richard G. Darman clashed yesterday on some of the basic elements of President Bush's budget package, indicating a long battle over spending and tax policy before the ++ November election.

At the outset of a House Budget Committee hearing on the $1.52 trillion Bush budget, Rep. Leon E. Panetta, D-Calif., accused the administration of reviving the "same smoke and mirrors, the kind of budget gimmicks we saw in the 1980s" to try to minimize mammoth deficits.

Mr. Darman, though he tried to control his acerbic tongue, shot back that "partisan cliches, smoke and mirrors will not help" pass a budget. He called Mr. Panetta's charge unfair.

At least part of the Bush package to stimulate the economy, including tax breaks for first-time home buyers and for business investment, is expected to be approved by Congress close to the March 20 deadline urged by the president.

The $5,000 tax credit for first-time home buyers would apply to any new or existing home purchased between Feb. 1, 1992, and Jan. 1, 1993. Home buyers can take half the credit on their 1992 tax return and the other half on their 1993 return.

Democrats staked out a firm position that funds from military cutbacks must be diverted to domestic spending to bolster the flagging economy and to make the United States more competitive internationally.

But Mr. Darman, speaking for the administration, stated flatly that the $50 billion in proposed military cutbacks over five years must be devoted to reducing the record deficits -- which are expected to reach $400 billion this year.

Asked about beefing up domestic spending with defense savings, the budget director replied: "No. That is the short

answer."

In one possible concession to the Democrats, he said the White House "might consider" using military savings to raise the personal exemption, but he asserted that the president would only agree to this change if Congress kept military cuts to the

administration's $50 billion target.

Should it be reduced by the White House's proposed amounts, military spending will decline by 30 percent from 1989 -- when Mr. Bush took office -- by 1997, Mr. Darman said, and "we are at the limit of prudent risk."

House Majority Leader Rep. Richard A. Gephardt, D-Mo., who went to the hearing to lay out the House leadership's position, told Mr. Darman that the Democrats "feel strongly" that the 1990 budget agreement that kept domestic and military spending on separate tracks must be changed in order to raise domestic spending while keeping untouched the budget's overall spending.

"Democrats will fight as Republicans will fight for what we believe in," he said. "Democrats will cooperate, but we will not fold."

These hearings opening the budget season on Capitol Hill usually offer more theater than substance, but this year's round in the midst of an unexpectedly long recession and with the election approaching seemed more partisan than usual.

Neither side gave an inch in the give-and-take, with Democrats reserving some of their most pointed criticism for the renewed effort by President Bush to cut the capital gains tax rate, a centerpiece of his effort to revive the economy.

This tax break, which mainly would benefit upper-income

taxpayers, would far exceed the benefits from the president's plan to add $500 per child to the $2,300 personal exemption, Mr. Panetta said. With that proposal not taking effect until October, most families with two children would get a $37.50 savings this year, he said.

Mr. Darman maintained that a capital gains cut already enjoys wide support on Capitol Hill, where it has passed the House with Democratic support and enjoys the backing of 64 senators. Two years ago, it was blocked from a Senate vote largely by Majority Leader George J. Mitchell, D-Maine.

In accusing the administration of resorting to "smoke and mirrors" to lower the deficit, Mr. Panetta took exception to Mr. Bush's plan to make an accounting change that would sharply reduce the apparent cost of federal insurance for banks and savings and loan associations.

He warned that this change, which would lower the deficit by $30 billion this year, would lead Democrats in Congress into a "bidding war" with the White House to cut taxes, similar to the escalating tax cuts in 1981 that contributed to the subsequent deficit explosion.

Mr. Darman asserted that this accounting change was not reflected in the deficit figures. But he agreed that a "potential problem" exists for a "complete breakout of a bidding war" to lower taxes.

For this reason, he said, it was "essential" to keep intact the budget ceilings adopted in 1990.

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