TIME: Almanac 1993/TIME Almanac 1993.iso/time/091090/0910106.000

Text File | 1992-08-28 | 5.6 KB | 122 lines

                                                                                NATION, Page 42

Back to the Other War


The gulf crisis complicates a last-ditch budget summit


    Amid the fears of a U.S. war with Iraq, America's struggle
against a no less threatening enemy has been all but forgotten.
That foe is the soaring federal deficit. In the four months
since President Bush and congressional leaders convened their
budget summit, Administration estimates of this year's deficit
have exploded from $100 billion to $149 billion, not counting
the $100 billion bailout of bankrupt savings and loans. The gap
could grow even larger if the economy, already on the brink,
is pushed into a recession by surging oil prices from the
Persian Gulf crisis.

    That prospect makes coming to grips with the deficit all the
more urgent. But throughout the blame game that has passed for
negotiations, both sides have been more interested in scoring
political points than in solving the problem. So the prospect
is that both the Administration and its Democratic opposition
will use the confrontation with Saddam Hussein as an excuse for
delaying action to break the impasse.

    The White House has been smarting because it has been
outmaneuvered by Democrats. First the President outraged many
Republicans by backing away from his "no new taxes" pledge.
Then, after both sides agreed to submit budget proposals
simultaneously in late July, the Administration plan leaked and
Republicans, seeing that it was studded with new taxes, bolted.
The Democrats, relishing Bush's discomfort, withheld their
ideas, and the summit collapsed without discussion of specific
new revenues or spending cuts.

    White House chief of staff John Sununu has been trying to
avenge that hardball act. He had planned to have Bush go on the
offensive, blaming Democrats for the breakdown. But that plan
was shelved as inappropriate after Iraq invaded Kuwait. Not
until Budget Director Richard Darman and Treasury Secretary
Nicholas Brady were out of town three weeks ago did Sununu get
his way. He persuaded the President to interrupt his vacation
-- and his direction of the U.S. response to Saddam's
aggression -- to blast the Democrats for the impasse. That
awkwardly timed sally appeared to embarrass Bush. He concluded
his finger-pointing speech by promising to become "more
statesmanlike and try to resolve this national problem."

    The time for statesmanship has come. This week the talks
will resume in the less than luxurious setting of Andrews Air
Force Base, outside Washington. Away from the press and
lobbyists, White House and congressional leaders will attempt
to fashion an agreement before the Oct. 1 deadline set by the
Gramm-Rudman-Hollings Act. If they fail, $100 billion in
across-the-board spending cuts -- the so-called sequester --
will go into effect, with $25 billion coming out of military
spending and the rest from such activities as prosecuting drug
kingpins, closing veterans' hospitals and suspending student
loans.

    The summiteers' only significant achievement so far was to
agree in July on a deficit-reduction target of $50 billion. But
the fallout from the Middle East conflict has made that goal
obsolete. It will be more difficult to make large cuts in
defense spending (the Persian Gulf buildup alone is costing $46
million a day), and rising fuel costs have rendered one new
source of revenue, an energy tax, politically unpalatable. As
a result, both sides agree, the most that the deficit can be
cut is $30 billion to $40 billion. They are thus more likely to
reach for stopgap solutions, deferring hard choices until after
the November elections. Among the possibilities they will
consider:

    -- Amending the Gramm-Rudman-Hollings targets. Cutting the
deficit to $64 billion as the law mandates would require either
the sequester or a combination of spending cuts and new taxes
equal to 2% of the gross national product. Since the economy
is faltering, either choice would deepen a recession. Now that
American troops are in harm's way, the slash in Pentagon
spending that the sequester would bring is unthinkable. Both
sides are thus likely to postpone the deadline by several
months.

    -- Cutting the tax on capital gains from 28% to 19%. As
investors rush to collect their gains at lower tax rates, this
measure would yield as much as $5 billion in new revenues next
year. (There would be a tax loss later.)

    Such short-term measures may be all that can be
accomplished, but they are not the comprehensive attack on the
deficit that is necessary. The President, according to a White
House official, "doesn't want to spend his political capital
on some budget-balancing crusade when he might need it" to
rally support for a prolonged American military presence in the
gulf. Democrats too may have found the crisis atmosphere an
excuse for postponing action on the deficit, which would require
sharp reductions in popular domestic entitlement programs like
Medicaid and farm subsidies.

    Such a failure need not and should not occur. Both Bush and
the Democrats still insist that the Middle East confrontation
poses a danger to the economy so dire that a national emergency
exists. The normal political concerns, including the pressure
from special interest groups that so intimidates lawmakers,
could be set aside in a spirit of national sacrifice. Last week
Bush declared that action on the deficit was needed "now more
than ever." But are those stirring words a call to action or
mere rhetoric?


By Ed Magnuson. Reported by Dan Goodgame/Kennebunkport and Hays
Gorey/Washington.