TIME: Almanac 1993/TIME Almanac 1993.iso/time/caps/85/85capts.17

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                                                                                December 23, 1985

NATION

"Look, Ma!  No Hands!"


Congress embraces a draconian cure for the deficit and dithers
on taxes


Most landmark laws are signed in the Oval Office amid great
hoopla, by a beaming President surrounded by self-promoting
politicians grinning in the glare of television lights. But
when Ronald Reagan penned his name on the Gramm-Rudman Balanced
Budget and Emergency Deficit Reduction Control Act of 1985 last
week, he did so without ceremony or cameras.

The official silence was, in a way, understandable. Few bills
that cross a President's desk have the potential to reorder the
national agenda or change the way Government does business.
Gramm-Rudman has precisely such potential, but the force that
drove it through Congress was an embarrassment, not something
to crow about. For at heart, Gramm-Rudman, an amendment to a
bill to raise the debt ceiling, is a statutory act of
desperation, an admission that Government is incapable of
governing itself.

The final days of any legislative session are always chaotic,
but Congress last week seemed to be spinning out of control,
its leadership almost hopelessly fragmented. Racing to adjourn
for Christmas, the legislators were unable to agree on a series
of spending bills that faced the threat of a presidential veto.
Meanwhile, a revolt by House members of Reagan's own party
sidetracked--and possibly derailed--his avowed No. 1 domestic
goal: tax reform.

After years of paying lip service to balanced budgets while
racking up annual deficits approaching $200 billion, Congress
and the WHite House have finally decided to fit themselves with
a fiscal straitjacket. The bill, sponsored by Senate
Republicans Phil Gramm of Texas and Warren Rudman of New
Hampshire and by Democrat Fritz Hollings of South Carolina,
compels Congress to vote to balance the budget within five years
or face automatic cuts. "What this bill does is put the fat in
the fire," declared Gramm. "It forces decisions."  Senator J.
Bennett Johnston of Louisiana, however, likened Congressmen
voting for the bill to "the person who writes on the bathroom
mirror in lipstick, 'Stop me before I kill again.'"

The long-term impact on the economy is difficult to gauge. On
Wall Street, the prospect of Gramm-Rudman's passage helped spark
a stock- market rally that sent the Dow Jones industrial average
surging past the 1500 mark on the hope that lower deficits will
bring down interest rates and spur growth. But some leading
economists castigated the budget-balancing bill in the most
scathing terms imaginable. "It is," said Walter Heller, who
served as President John Kennedy's chief economic adviser,
"economically capricious, socially unfair, militarily risky,
constitutionally questionable, politically irresponsible,
procedurally perverse and administratively outlandish."

The political impact could be profound. To the Democrats who
controlled Congress for a half-century, Gramm-Rudman marks the
end of an era, assuming its provisions are actually followed.
No longer will legislators be able to view their primary role
as dispensers of Government largesse. From now on, the
overriding business of Congress becomes the politically
unrewarding task of slashing, and in some cases abolishing, the
legislative handiwork of the past three decades.

Though whittling down Big Government has been a favorite cause
of Ronald Reagan's, Gramm-Rudman leaves the President in an
awkward bind. By his own measure, his two greatest achievements
since taking office have been building up America's defenses and
cutting taxes. Yet Gramm-Rudman is all but certain to force him
to cut defense spending or raise taxes, or both.

Gramm-Rudman is designed to work with a kind of relentless
efficiency. The deficit ceilings set by the bill march
inexorably downward. The target is $171.9 billion for the
fiscal year that Began Oct. 1, and $144 billion for 1987. Then
the bill decrees that the deficit go down by $36 billion annual
increments:  to $108 billion in 1988, $72 billion in 1989, $36
billion in 1990 and finally zero in 1991. If Congress fails to
meet these targets, the cuts that automatically kick in will be
evenly divided between defense and domestic programs, and they
are likely to be applied with about as much discrimination as
a lawn mower shows high grass.

If the Gramm-Rudman approach seems a strange abdication of
budget- setting powers, Congress gave a vivid display last week
of its inability to deal with spending through its normal
procedures. Having failed to complete work on six of 13
appropriations bills, Congress struggled to pass a $498 billion
catchall measure for 1986 that Reagan threatened to veto because
it gives too much to domestic programs and too little to
defense. At the same time, Congress scrambled to finish a $50
billion farm bill, also regarded as veto bait because it exceeds
the White House target by $5 billion. Even if the White House
and Congress can resolve their differences, the 1986 budget
seems likely to fall short of the deficit-reduction target set
by Gramm-Rudman for this fiscal year, thus triggering the first
round of automatic cuts, totaling some $12 billion.

The painful surgery begins next month, when the White House and
Capitol Hill begin looking for $50 billion in savings. Under
Gramm- Rudman, this year some 70% of all federal spending,
including sacred cows like Social Security and antipoverty
programs like food stamps, is protected from the budget ax. At
least half the budget will be protected in future years. That,
of course, means deeper cuts in everything else, from
environmental protection to federal housing subsidies.

In the back halls of the Capitol, Gramm-Rudman brought hoots of
derision from staffers. "Today we begin Government by
Veg-O-Matic," declared Chris Matthews, a top aide to House
Speaker Tip O'Neill, sardonically referring to the kitchen
device once hawked on late- night TV ("It slices!  It dices!
It really, really works!"). On the floor, some prominent
legislators were scornful. Gramm-Rudman, huffed Wisconsin
Democrat Les Aspin, chairman of the House Armed Services
Committee, "is just about the dumbest piece of legislation I
have seen in my 15 years on Capitol Hill."  O'Neill himself
warned, "Wait until you get to 1987 and have to cut $55 billion.
Wait until you hear the American people."  Certainly, the cries
of lobbyists will be heard loudly on the Hill as interest groups
scramble to protect their favorite federal programs.

The act is not without defenders. Said Martin Feldstein,
Reagan's former chief economic adviser:  "It is very good policy
because it gets us out of stalemate. The essence of
Gramm-Rudman is to force a compromise and to provide political
protection for agreeing on a compromise."

Yet some Congressmen questioned whether the bill might not
serve simply as the ultimate vehicle for political hypocrisy.
Rather than try to make hard cuts, Congress might be tempted
to pass a phony budget, stuffed with goodies for the folks back
home, knowing full well that the impersonal machinery of
Gramm-Rudman would automatically chop it down to size later.
Scoffs Economist Heller: "Gramm-Rudman is a kind of 'Look, Ma!
No hands!' or 'Who, me?' approach to budget cutting."

There are those who contend that it is also unconstitutional.
Last week Democratic Congressman Mike Synar of Oklahoma filed
suit in federal district court in Washington challenging
Gramm-Rudman as an unconstitutional delegation of Congress's
power of the purse. The case could wind up in the Supreme Court
by spring.

At the Pentagon, which has grown accustomed to getting what it
wants after a five-year, $1 trillion buildup, the top brass is
hoping that Gramm-Rudman will be struck from the statute books.
Congressional passage would send "a message of comfort to the
Soviet Union," warned a Pentagon spokesman before the bill came
to a vote last week. Said he:  "We are looking at reductions
that would cut defense by 3% to 8%, coming out of our hide."

Unless, that is, Congress decides to raise taxes. Though Reagan
made flatout opposition to a tax hike his No. 1 campaign promise
in 1984, even the true believers in the White House are
beginning to waver. "Nobody here is hankering for a tax
increase, but sure, we've given it thought," a top aide conceded
last week. Some conservatives are toying with the idea of what
is known as a "dedicated" tax increase, one that would raise
money only for defense, perhaps specifically to fund Reagan's
Strategic Defense Initiative, or Star Wars.

The Democratic-controlled House, however, is hardly apt to vote
for a tax increase dedicated to guns and not butter. Some
Democrats are convinced that Gramm-Rudman will at last force the
Administration to back a general tax hike. "Many people here
feel that it makes the President choose between sacrificing a
continued buildup of national security and getting additional
revenue," warned Democratic Whip Tom Foley.

For the Democrats there was some bitter satisfaction at the
prospect of seeing the President squirm. In the 1984 campaign,
Reagan delivered dreamy, feel-good preachments of peace and
prosperity while his hapless opponent, Walter Mondale, dourly
warned of tax hikes and hard choices ahead. In so doing,
Mondale induced Reagan to commit himself, perhaps more firmly
than he wanted, to oppose any increase in taxes or cuts in
Social Security. Having won a resounding victory, Reagan now
finds himself boxed in by his own campaign rhetoric and living
Mondale's grim fiscal prophecy.

Even more galling to the President, the growing public fears
over the deficit have disrupted, at least for the moment, his
crusade for tax reform. The drive to overhaul the nation's tax
laws by closing loopholes and lowering rates is in precarious
shape, as last week's surprising setback in the House
demonstrated.

To push tax reform through the Democrat-controlled House, the
President had taken a calculated gamble and formed an unholy
alliance with Ways and Means Chairman Dan Rostenkowski, a bluff
old-style Democratic pol. Though studded with deals and
concessions to buy off various Congressmen and their
constituencies, the tax package Rostenkowski wrung out of his
committee last month was at least a reasonable facsimile of the
reform proposal launched by Reagan with great fanfare last
spring. Beset by conflicting advice from his aides, however,
the President hesitated before endorsing Rostenkowski's bill two
weeks ago, and even then his praise was lukewarm.

Meanwhile, a mutiny was brewing in the ranks of Republican
House members. They felt ignored by the White House, and many
considered Rostenkowski's bill antibusiness and hence a damper
on growth. Reagan moved last week to try to bring the G.O.P.
into line, but he faced determined opposition from Minority
Leader Robert Michel of Illinois and the rest of the House
Republican leadership.

In a shrewd and sudden pre-emptive strike, the G.O.P. leaders
pushed their followers to vote against what is known as "the
rule," the procedure by which the House was supposed to debate
tax reform. The White House and Democratic chiefs wanted to
hold a simple up-or-down vote on the Rostenkowski bill, as well
as on a Republican alternative that was given no chance of
passage. At a G.O.P. strategy session, however, Whip Trent Lott
of Mississippi urged, "Let's kill this snake before it gets out
of the hole."  On the House floor, Republicans moved to do just
that by insisting that they be given the chance to vote on
amendments. They were all for tax reform, they disingenuously
avowed; they simply wanted the chance to make a few
improvements.

This rationale offered perfect political cover for Congressmen
whose real purpose was to protect the endangered tax breaks of
special- interest groups. Sunbelt Congressmen could look out
for oil and gas; Northwestern Congressmen could protect timber;
Representatives from Rustbelt states could defend steel and
heavy industry. In the end, 164 Republicans and 59 Democrats
rebelled and defeated the proposed rule, 223 to 202. Only 14
Republicans backed the President.

"The patient is on the table, dying but not yet dead," said a
dejected Richard Gephardt, the Missouri Democrat who has made
tax reform his major cause. But Reagan, who grew increasingly
angry as he mulled over the G.O.P. defections, ordered his
lieutenants to try to revive the moribund bill last week. Said
Treasury Secretary James Baker as he headed off to Capitol Hill
to cajole and arm-twist, "It ain't over till it's over."

Democratic leaders, however, refused to bring up tax reform
again until the White House could guarantee at least 50
Republican votes. Into the weekend, the Reaganauts feverishly
searched for a formula that would woo G.O.P. converts. In an
unusual display of accommodation, Reagan made plans to journey
to Capitol Hill personally on Monday to lobby G.O.P. leaders on
their own turf. Minority Leader Michel demanded that his party
be allowed to vote for an amendment increasing the personal
exemption to $2,000, while other House Republicans wanted an
assurance from Reagan that he would veto the tax bill if certain
revisions were not made when it reaches the Senate next year.
But any concessions that the White House could promise them
risked losing Democratic votes or opening up a special- interest
bidding war that would unravel the whole package.

Already the political posturing has begun in earnest. White
House strategists had hoped to use tax reform to broaden the
party's base by appealing to lower- and middle-income voters
with lower tax rates. But by attacking the Rostenkowski bill as
antibusiness, House Republicans allowed the Democrats to revive
an old refrain that the G.O.P. is the party of fat cats.
Democratic Party Chairman Paul Kirk almost gleefully told
reporters last week that the G.O.P. Congressmen opposed tax
reform because it "strikes at the heart of the Republican elite"
by closing their favorite loopholes.

If tax reform does finally make it through the House this week,
it faces an uphill struggle in the Senate next year. Reagan has
urged House G.O.P. members to vote for the bill simply to get
it into the Republican-controlled Senate, where it can be
reshaped to their liking. Yet last week Senate Finance
Committee Chairman Robert Packwood of Oregon blandly stated that
the Senate had no intention of making significant changes in the
Rostenkowski version. For Senate Majority Leader Robert Dole
of Kansas, tax reform has never been a high priority. Cutting
the deficit remains on top of his own agenda, and that makes it
likely that a tax increase will be on the Senate agenda, rather
than tax reform.

By putting so much weight behind tax reform and failing to heed
growing public fears about the deficit, Reagan may have
forfeited his chance to exercise leadership on Capitol Hill and
squandered much of the huge, if diffuse, public mandate he won
only a year ago. His miscalculation is made doubly unfortunate
by the vacuum of leadership in a Congress that is already split
between a Republican Senate and a Democratic House. Leaders in
both parties have trouble controlling their members, many of
whom are more apt to heed the special-interest groups who
finance their re-elections. To cite but one example of Congress
at work:  House Majority Leader Jim Wright may not vote for the
tax-reform bill because 1) its sponsor, Rostenkowski, is his
rival to become Speaker of the House when O'Neill steps down in
1986, and because 2) oil and gas interests in Wright's home
state of Texas stand to lose tax breaks.

Adrift and divided, lacking intelligent leadership from the
White House, the members of Congress have chosen to abnegate
their constitutional responsibility in the hoe that the blunt,
crude mechanism of Gramm-Rudman will compensate for the failure
of political will. Therein lies the final irony of a bill so
bad that it may actually do some good. For in all likelihood,
Gramm-Rudman will force the Government to choose between sharp
spending cuts and sizable tax increases, and that is the sort
of vote no politician wants to cast.

--By Evan Thomas.  Reported by Laurence I. Barrett and John E.
Yang/Washington