TIME: Almanac 1993/TIME Almanac 1993.iso/time/052190/0521108.000

Text File | 1992-08-28 | 12.3 KB | 281 lines

                                                                                NATION, Page 18

COVER STORIES

Ignore My Lips


And forget Sununu too, Bush tells Congress, as he calls a budget
summit and hints that it may even talk about -- shhh! --
raising t---

By GEORGE J. CHURCH -- Reported by Michael Duffy and Nancy
Traver/Washington


    "The Congress will push me to raise taxes, and I'll say no,
and they'll push, and I'll say no, and they'll push again, and
I'll say to them, "Read my lips: no new taxes."

    -- George Bush, accepting his nomination at the 1988
Republican Convention


    "Read my lips: I was lying."

    -- Update suggested by NBC-TV's David Letterman last week



    A comic overstatement, of course -- but the President was
suddenly playing mysteriously coy. After hundreds if not
thousands of repetitions that made "read my lips" the most
memorable line of the 1988 campaign, Bush last week practically
invited Congress to start pushing, with a hint that his lips
might now frame something other than a flat no. The President
asked congressional leaders to join Administration officials
in a "summit" meeting to plan, at long last, a real whack at
the runaway budget deficit. His spokesman, Marlin Fitzwater,
said Bush wanted the talks to start with "no preconditions" and
proceed "unfettered with conclusions about positions taken in
the past." Meaning, everyone assumed, that a tax increase could
at least be seriously discussed, and Bush just might let
himself be talked into one.

    Or was that what the President meant? Edward Rollins,
co-chairman of the Republican Congressional Campaign Committee,
estimated that a tax hike might cost the G.O.P. ten of its 176
seats in the House; 19 of the 45 Republican Senators signed a
letter begging Bush in effect to "say it ain't so, Mr.
President." The White House and its allies almost did. After
a meeting with Bush, Alan Simpson of Wyoming, the assistant
Senate Republican leader, insisted that the President was not
talking about income taxes, for heaven's sake. Maybe excise
taxes, or energy taxes, or a kind of national sales tax, or
something or other, but never income taxes. Bush's chief of
staff, John Sununu, speaking as "a senior White House official"
-- a transparent disguise -- then gave a novel definition of
what "no preconditions" meant. The Democrats, he said, were
free to propose a tax boost, but "it's our prerogative to say
no. And I emphasize the no."

    Sununu, whose task was to keep the Republican right quiet
until the summit concluded, apparently did his job with far
greater zeal than Bush intended. Sununu's efforts almost
torpedoed the summit before it started. Democrats immediately
took them as confirmation of their darkest suspicions -- that
Bush is again trying to portray the Democrats as the high-tax
party, by euchring them into proposing an increase that he
could either virtuously reject or pretend had been rammed down
his throat as the price for shrinking the deficit. "Now I wonder
if this [summit invitation] is a good-faith effort or whether
political traps are being set," said House Budget Committee
chairman Leon Panetta.

    Fitzwater disavowed the comments by Sununu. Speaking before
the chief of staff was officially identified as the source, he
even called the tone of the remarks "crazy." Bush himself
apologized to House Speaker Thomas Foley by telephone and
reassured him that "no preconditions" meant . . . well, no
preconditions. So the week ended with negotiations still
scheduled to start Tuesday but no one willing to predict
success. "It very well could be that the budget summit will
putter into nothing," said New York Democratic Congressman
Charles Schumer. Similar meetings in 1987 and last year yielded
mostly a collection of one-shot gimmicks and minor moves that
served less to slash the deficit than to put off the day when
something real and painful would have to be done.

    On the other hand, Budget Director Richard Darman and, of
all people, Sununu, in a less theatrical configuration, appear
to have convinced Bush that the day of reckoning can no longer
be postponed. To begin with, the economic projections that the
Administration used when it drew up Bush's $1.2 trillion budget
proposals last winter have turned out to be far too optimistic.
(Democrats, who think the phrase  "too clever by half" might
have been invented to describe Darman, grumble that he should
have known that when he made those projections.) Corporate
profits have dropped, reducing the federal tax take. Interest
rates have gone up, rather than down as predicted, raising the
amount the Government must pay on its borrowings. And the
rescue of ailing savings and loan associations is running up
greater than expected expenses practically by the hour, an
estimated $45 billion this year.

    To meet the Gramm-Rudman-Hollings Act requirement of a
deficit no greater than $74 billion in fiscal 1991, which
starts Oct. 1, it had been thought that a cut of $36 billion,
in itself a tall order, would be needed. But Darman publicly
recalculated last week that a reduction of $60 billion to $100
billion was necessary (depending on whether S&L bailout costs
were treated as part of the official budget). If the White
House and Congress cannot agree on such a reduction,
Gramm-Rudman would force an automatic cut in spending (called
a sequester) of that magnitude, divided roughly half and half
between military and civilian expenditures but exempting Social
Security and many other entitlement programs.

    Darman and Sununu had earlier convinced Bush that the nation
-- and the Republicans -- could not stand a sequester of $60
billion or more. Says one official: "It would be so draconian
that you would be closing VA hospitals, free [school] lunches,
education assistance, food stamps, as well as a lot of the
military. The Democrats would be all over us for shutting down
the Government." Darman and Sununu also persuaded Bush that
negotiations to avoid such a sequester had to start now. They
could not wait until September, the traditional time, because
that would be only two months before the congressional
elections, and campaigns would be in full swing. As one official
put it, "The political flak we've seen develop here in the
past 24 hours would be ten times worse in September."

    A common assumption is that the summiteers will remove the
cost of the S&L bailout from the budget. But there will be
strong resistance to cutting the remaining $60 billion off the
deficit. There is a legitimate concern that so huge a whack
would put too great a strain on the economy, which, though it
has so far avoided recession, is growing at a snail's pace,
2.1% in this year's first quarter.

    Whatever deficit reduction might be agreed on would probably
be divided about equally between spending cuts and tax
increases. But which taxes? The most obvious target is the
least likely. The White House in practice has already revised
the "read my lips" pledge to mean no new income taxes. Bush has
gone along with increases in other levies, such as the Social
Security payroll tax, and has actually proposed hikes in excise
taxes and so-called user fees, a term to which the White House
has given an extraordinarily broad definition. But all signs
are that the President will hang tough against any increase in
income taxes, lest he make a total mockery of his campaign
rhetoric.

    Higher "sin" taxes on such goods as liquor and cigarettes
are relatively uncontroversial but would raise only about $10
billion next year, well short of what is needed. Energy taxes
would pull in serious money, $20 billion next year with a $5
per bbl. tax on imported and domestic oil, but in the past they
have ignited sectional conflicts. Higher gasoline taxes would
disproportionately hurt Westerners, some of whom virtually live
in their cars, while an oil-import tax penalizes
Northeasterners, who heat their homes largely with petroleum
from overseas. There is much talk about sliding around these
difficulties by imposing a single tax on all forms of energy
production and consumption -- oil, coal, hydroelectric, natural
gas, domestic, imported, what-have-you. Besides treating
sections of the country more or less equally, such a tax would
promote conservation and possibly help the trade balance by
discouraging imports. But there are also objections. Since it
would have to be based on the BTU (British thermal unit)
content of various fuels, it would be hideously complex to
calculate and collect, and it would harm some American
industries that remain competitive in world trade largely
because of their access to fairly cheap energy.

    Even if sufficiently heavy tax increases can be agreed on,
there remains the difficult task of slashing spending on the
scale required. It might force some reductions in Social
Security, which Democrats have resisted about as feverishly as
Republicans have damned higher taxes. So it is not surprising
that Washington and the financial community abound with cynics
who think the summit will end with nothing more than a few
minor tax boosts and spending cuts and another rewrite of
Gramm-Rudman to stretch its deficit-reduction targets. Bruce
Thompson, a former Assistant Treasury Secretary and now a
Merrill Lynch vice president, predicts that "the Gramm-Rudman
targets will be recalculated to get to a balanced budget in,
say, the year 2000," not 1993, as required under current law.
In any case, the nation will need some luck to escape paying
a stiff price for its politicians' unconscionable delay in
cutting deficits. If big tax increases and sharp spending cuts
do not tip the economy into recession quickly, continuing high
interest rates, almost inevitable if deficits remain huge,
might do so eventually. The decline could come around 1992 --
when Bush is running for re-election.


____________________________________________________________
Cutting Muscle . . .


    While many vital programs are starving for funds . . .

    Low-Income Housing. Since 1980 federal outlays for rent
subsidies and home-building programs for the poor and elderly
have dropped from $41 million to $10 million. Though record
numbers of homeless people are living on the streets, only
80,000 new units will be built this year, in contrast to
187,000 a decade ago.

    Infant and Child Immunization. With an alarming outbreak of
measles sweeping inner-city neighborhoods, a $10 million
inoculation program ran out of money this month. Support for
infant- and child-vaccination programs has been increased from
$31 million in 1981 to $156 million.  But there is not enough
money to provide low-income youngsters with all the shots that
they need.

    Refugee Assistance. While the number of political refugees
from all countries is expected to swell from 50,000 to 125,000
this year, funds set aside to resettle them in the U.S. have
been slashed from the 1980 level of $517 million to $369
million. The health and resettlement needs of new arrivals will
be covered for only four months instead of for two years, as
in the past.


____________________________________________________________ .
. . and Protecting Fat


    . . . pork-barrel projects and dubious perks abound in the
federal budget.

    Space Research. NASA has yet to clarify what it expects from
$500  billion worth of manned missions to the moon and Mars. Nor
has it satisfied critics that its $20 billion space station is
necessary. Most objectives could be attained through less
costly unmanned programs or by sharing the price of space
exploration with other nations, including the Soviet Union.

    Tax Deductions for Second Homes. Though many couples are
priced out of the housing market, the Government still allows
deductions for mortgage-interest payments on vacation homes.
Closing this loophole would raise $1.3 billion during the next
five years.

    Home Porting. The Navy wants to station its warships at 13
bases around the U.S. Though dispersing the ships makes them
less vulnerable, it also boosts the economies in the districts
of influential members of Congress. With the Soviet threat
receding, the Administration has cut back to six bases.
Eliminating these would save $852 million.