<p>Wrangling over the budget forces the government to shut down,
at least for a while
</p>
<p>By LAURENCE I. BARRETT/WASHINGTON--Reported by Michael Duffy
and Nancy Traver/Washington
</p>
<p> If, as George Bush warned last Tuesday, "no nation can
continue to do business the way the Federal Government has been
operating and survive," the U.S. is in peril. So it seemed for
several tumultuous days in Washington last week. Only two
nights after the President's nationally televised address, an
angry coalition of right-wing Republicans and liberal Democrats
revolted on the floor of the House, overwhelming and sinking
a bipartisan plan to rein in the rampaging deficit. The
uprising left the government without a budget or the authority
to spend money for the fiscal year that began Oct. 1, forcing
the layoff of thousands of nonessential government employees,
at least temporarily.
</p>
<p> How long the shutdown would last and how deeply it would
bite remained uncertain. Fortunately, it went into effect on
the Columbus Day weekend, giving Congress and the President
three more days to strike an agreement before most government
employees were due to report to work. On Friday evening, while
congressional leaders scrambled to rejigger the deficit-cutting
plan to make it more acceptable, the House overwhelmingly
passed a short-term continuing resolution that would have
funded government operations for a week. The measure was
approved by a voice vote in the Senate hours later.
</p>
<p> But on Saturday Bush vetoed the resolution, calculating that
the outcry from outraged citizens denied access to Social
Security offices, national monuments and federal services would
stampede Congress into quickly adopting a budget resolution
along the lines of the defeated pact. After an attempt to
override the veto failed, negotiations between Congress and the
White House resumed. To break the impasse, it appeared for a
time that the factions might agree to a trade: Democrats would
go along with a cut in the capital-gains tax favored by the
President; Republicans would accept the hike in income taxes on
the wealthy that the Democrats demand. Such a swap had been
explicitly rejected during the five-month budget talks that
produced the original plan.
</p>
<p> The sorry spectacle damaged everyone who took part in it.
For Bush, who had invested much of his political capital to
promote the deal reached after contentious negotiations with
congressional leaders, the fiasco was the worst setback of his
presidency. For the congressional hierarchies of both parties,
which had pledged to deliver majorities of their followers in
support of the accord, it was a humiliating reminder of their
powerlessness. For the frustrated voters who have watched for
months as their elected representatives dithered and delayed
real action on the nation's most harrowing domestic problem, it
was further proof that shortsighted political self-interest is
the strongest and most destructive force in Washington today.
</p>
<p> The plan was a politician's worst nightmare. With midterm
elections looming in less than a month, rank-and-file members
of Congress were being asked to endorse the unpalatable idea
that voters should pay more taxes while receiving less in the
way of public services. Faced with that painful--albeit
necessary--proposition, the lawmakers simply cut and ran,
ignoring Federal Reserve Chairman Alan Greenspan's admonition
that "failure to enact the agreement would produce an adverse
reaction in financial markets that could undercut our economy."
</p>
<p> Bush and his congressional allies had been unhorsed because
they committed a brave though flawed act of statesmanship. On
Sept. 30 they had agreed on a sweeping program to cut deficits
$500 billion over five years by inflicting short-term pain on
almost every American in exchange for the long-term gain of
fiscal sanity. To smooth enactment of the package, they had
tacitly agreed that neither party would use it against the
other for electoral advantage.
</p>
<p> Bush and most of the ranking members of Congress did their
part. For the first time, the President took to prime time to
promote a specific legislative measure, labeling the deficit--which is expected to exceed $300 billion in fiscal year 1991--"a cancer gnawing away at our nation's health." George
Mitchell, the Senate Democratic leader, followed Bush on the
networks. Instead of delivering the usual rebuttal, Mitchell
seconded the President's motion for bipartisanship. When many
lawmakers began to rebel, Senate Republican leader Bob Dole
scolded them for cowardice. "You pay a penalty for leadership,"
he said. "If you don't want to pay the penalty, maybe you ought
to find some other line of work." But neither those stinging
words nor Bush's suggestion that lawmakers "blame me" for the
hardships the pact would impose managed to sway most members
of the House, who feared that supporting the austerity package
would alienate voters.
</p>
<p> Around the country, challengers began to attack incumbents
who were willing to stick with the program. Some G.O.P.
strategists detested the concept of a bipartisan deal because
it blurred the distinctions between Republican and Democratic
candidates. Said Ed Rollins, head of the Republican
Congressional Campaign Committee: "What we need desperately is
an angry President to go out in the last 21 days arguing that
there must be wholesale change in the makeup of Congress."
</p>
<p> Whatever an individual legislator's reasons for defecting,
it was easy to find fault with the agreement, because it was
a collection of uneasy compromises that displeased even its
authors. House majority leader Richard Gephardt, one of the
plan's most diligent architects, conceded that he was "deeply
disappointed with the results we achieved." For one thing,
vague provisions designed to promote economic growth might
benefit only oil producers and investors with deep enough
pockets to take risks on investing in small companies. Almost
everyone else would be socked immediately. It could hardly be
otherwise in the largest assault on the deficit ever, a plan
that would have raised $135 billion in taxes, lopped off $300
billion in government services and saved up to $65 billion in
interest payments on the national debt. The plan's highlights:
</p>
<p>-- Higher federal excise levies would be slapped on a
variety of products ranging from beer, cigarettes, gasoline and
home heating oil to expensive jewels, furs and yachts.
</p>
<p>-- While income tax rates would not be altered, two changes
would nick the affluent. The cap on income subject to the
Medicare payroll levy of 1.45% would be raised from $51,300 to
$73,000. Any individual or couple earning above $100,000 would
face a minor limitation on deductions from taxable income.
</p>
<p>-- There would be some tax relief as well. Poor working
families with children would benefit from an increase in the
"earned income tax credit," though the exact impact of that was
unclear. Producers of oil, natural gas and ethanol would get
breaks, ostensibly to encourage domestic energy production.
</p>
<p>-- The murkiest set of provisions--designed to assist
economic growth--would introduce a large new loophole for
those who buy stock in certain types of companies capitalized
at less than $50 million. Regulations for this measure have not
been written; critics charged that the scheme would create a
new set of tax shelters--dodges that do little for the
economy but benefit those who can strain large profits through
porous rules.
</p>
<p>-- Reductions in a variety of spending programs, military
and civilian, along with increased fees for many services would
make up the lion's share of deficit reduction. Pentagon
spending would fall a total of $67 billion during the first
three years, not counting the cost of the Persian Gulf
operation. Farm supports would shrink by $13 billion, civil
service pensions by $8 billion, guaranteed student loans by $2
billion, assistance to veterans by $2.7 billion. Jobless
workers would have to wait two weeks before receiving
unemployment compensation.
</p>
<p>-- The single most controversial hit would be absorbed by
Medicare recipients. Regardless of their income, they would be
required to pay higher premiums for Part B coverage, which
covers doctors' bills. The deductible they pay before receiving
any reimbursement would also rise. Finally, new limitations
would be put on the fees charged by physicians and hospitals,
raising fears that medical attention may become scarcer for the
elderly. These items would save nearly $60 billion over five
years, or 12% of the total package.
</p>
<p> In political terms the plan's biggest flaw was its perceived
failure to distribute the burden equitably. Its reliance on
regressive taxes like the levy on gasoline meant that the brunt
would fall on low- and middle-income taxpayers. The White House
and congressional leadership had hoped to overwhelm qualms
about the pact's fairness by arguing that it was the best
compromise that could be achieved. But as soon as the plan was
presented, the Administration, House Speaker Tom Foley and
minority leader Robert Michel promptly found themselves
absorbing fire from left, right and center. The plan's Medicare
component immediately became one paradigm of the scheme's
vulnerabilities. Loreen Gephardt, 81, mother of the House
majority leader, seemed to speak for the 33 million other
Medicare recipients when she urged her son to leave Medicare
alone. "I would rather he wouldn't touch Medicare, because we
were already paying pretty much and not getting what we
[received] before," she said.
</p>
<p> Potent lobbies for the elderly soon found an ally in
Democratic Congressman Henry Waxman of California. "Senior
citizens didn't create the deficit, and they shouldn't be
forced to pay for it," he argued. "The elderly are being told
they should bear the burden so that we don't have to raise
taxes on the very wealthy."
</p>
<p> That attack dovetailed with a surge of protests aimed at the
excise tax increases, particularly the 10 cents per gal. on
gasoline--never mind that the U.S. is involved in a gulf
crisis partly because of its failure to use energy prudently.
Word that there would be a tax break for the wealthy also
prompted indignation. The offices of some lawmakers received
hundreds of calls protesting the measures. Radio call-in
programs got a similar response. At radio station WGST in
Atlanta, all three talk shows buzzed with listeners'
indignation. Said producer Nancy Zintak: "I haven't heard
people this mad about anything in a long time."
</p>
<p> Whether this initial rush of rage fully reflected public
opinion was unclear. A TIME/CNN poll taken by Yankelovich
Clancy Shulman after Bush's televised speech showed that 77%
of Americans thought the deficit a "very serious" problem. When
asked in general terms about the austerity program, 54% said
they opposed it, compared with 36% in favor. But when asked if
passing the package was more important than their objections
to some of its parts, respondents favored enactment by a clear
majority: 59% to 31%.
</p>
<p> Such nuances in the public mood went unheard in the shouting
of naysayers. Said Linda DiVall, a Republican pollster: "The
members in opposition are in sync with what their constituents
think." First to exploit this sentiment on the right was Newt
Gingrich of Georgia, long a spokesman for Republicans still
enthralled with Reaganomics. He temporarily relinquished his
post as House Republican whip to lead a crusade against the tax
increases at the heart of the measure. "This budget package
with its higher taxes will deepen the recession and increase
the number of unemployed," he said. Gingrich urged a freeze on
discretionary social spending, which would ease pressure on
Medicare, and revived the argument for a cut in the
capital-gains tax, though that would lose money over the long
run.
</p>
<p> On the left, David Obey of Wisconsin and other liberals
cobbled together an alternative budget proposal, hoping to get
a separate vote. "The President's negotiating team insisted on
protecting the superrich," said Obey. "This agreement simply
continues the march that was started in 1981 when budget and
tax changes tripled America's deficits and dropped the word
fairness from the vocabulary of the Federal Government." The
Obey faction proposed sharper cuts in defense spending and
higher income tax rates for those with incomes over $200,000.
</p>
<p> In the face of rising protests, congressional leaders urged
House members to "hold your nose and vote" for the proposal.
Bush gave them as much support as he could, canceling a
campaign trip to lobby House members in small groups. While
Bush played the good cop--winning the support of a Florida
Congressman by telephoning his sick daughter--some of his
staff engaged in hardball. On Monday chief of staff John Sununu
enraged Republicans at a White House meeting by suggesting that
the President might actually campaign against members of his
own party who opposed the deficit package. When Pennsylvania
Congressman Bill Goodling objected, saying, "I know George Bush,
and he would never do anything like that," Sununu snapped
back, "George Bush is a much nicer guy than I am." (Goodling
voted for the plan.) At a session the next day, Michigan
Congressman Fred Upton explained that he would vote against the
plan because it was "a rotten deal." Erupted Sununu: "What are
you smoking?" (Upton voted no.)
</p>
<p> The White House sent other small but unmistakable signals
of its displeasure to G.O.P. renegades. Two nights before the
vote, Ohio Congressman Ralph Regula had planned to impress some
constituents by taking them to the presidential box at the
Kennedy Center for the Performing Arts to see a play. But that
afternoon he got a call from the White House congressional
liaison office inquiring about his position on the budget plan.
"Leaning against," he replied. His tickets were canceled. New
York Congressman Gerald Solomon complained that Bush had
telephoned him at his home at 6:45 a.m. to solicit his support
and that Sununu made a follow-up call two hours later. "They're
threatening me," said Solomon, "and they better not." Like
Regula, Solomon voted against the plan.
</p>
<p> Despite the arm twisting, the defections mounted. In fact,
they were fueled to some degree by resentment of Sununu's
strong-arm tactics, which some Republicans derided as "all
stick and no carrot." The Democrats had no more success in
keeping their members in line. At a White House meeting, Bush
and Foley agreed that the Speaker could offer the Democratic
majority a carrot: assurances that the most objectionable
details in the plan could be changed in the next two weeks,
before the final legislation was to be passed. Foley took this
word to the Democratic caucus, along with a strong warning: if
Democrats were seen as killers of the deal, they would shoulder
the blame for the paralysis in government. Said one member:
"Tom was very emotional, very strong."
</p>
<p> As the Thursday night debate approached, it briefly appeared
that the wooing by Foley and Gephardt would pay off. Ways and
Means chairman Dan Rostenkowski, whose committee writes tax
legislation, pledged his support with the understanding that
he would be able to tighten the proposed investment loophole.
It appeared that some Democrats would even be willing to vote
for the package in the absence of a Republican majority.
Predictions seeped out of the Speaker's office that supporters
would probably prevail by the narrowest of margins. If the nose
counters could not forecast the critical number--218--they
would delay the showdown until Friday. Yet many members went to
the floor still undecided, worrying about November.
</p>
<p> The subsequent debate on the House floor probably changed
few minds. Michel, whose leadership of the G.O.P. has been
cruelly undercut, admonished his followers to focus on the
importance of the whole package rather than its objectionable
provisions. "We can pick apart the agreement with 1,000 points
of spite," he said. "If we do, we'll not only lose the
agreement but our ability to govern." Departing from the
tradition that the Speaker usually does not take part in floor
debates, Foley went to the floor to deliver an impassioned
appeal.
</p>
<p> As the actual tally began, it appeared that the ayes were
winning. But many Democrats delayed casting their votes,
watching the electronic scoreboard. They soon realized that
Republicans were defecting en masse. All eight G.O.P.
Congressmen seeking elevation to the Senate this November voted
no. At that point, scores of undecided Democrats rushed into
the negative column. Of the 25 Democratic incumbents facing
stiff challenges this year, none supported the deal. Eight of
the 13 chairmen of the appropriations subcommittees, who usually
have great power in shaping the details of spending plans,
deserted the Democratic leadership. The final tally, shortly
after 1 a.m.: 254 to 179 against the measure. The Democrats
opposed it 149 to 108, the Republicans 105 to 71.
</p>
<p> On Friday a stunned White House tried to pick up the pieces.
Its negotiating team, led by Budget Director Richard Darman,
was back in Foley's office seeking a new consensus built on a
majority of Democratic votes; the Republican rebels seemed
intractable. Said a Bush adviser: "Our Republicans were too
stupid to figure out that we weren't going to move in their
direction." It appeared that any new deal would, at minimum,
have to reduce the cost to Medicare recipients.
</p>
<p> Despite last week's chaos, the White House and Congress will
doubtless stumble their way to at least a short-term solution
to the budget crisis. It is conceivable that they will concoct
a much better remedy. But even if a five-year, $500 billion
deficit reduction is finally put into place, the cumulative
debt will still grow by roughly $500 billion over those five
years. That danger alone should stiffen the spine of even the
