A Deficit of Guts

By MICHAEL DUFFY WASHINGTON

Three months after Democratic and Republican congressional leaders sat down with George Bush to craft a plan for reducing the federal deficit, the budget talks collapsed last week under a combination of evasion, finger pointing and partisan bickering.

The President declared himself "frustrated" by the lack of progress but stopped short of holding the summiteers in Washington during the August recess to complete the job. Now, with the threat of a recession heightened by a leap in oil prices triggered by the Persian Gulf crisis, Bush and Congress have only 20 legislative days left before the Gramm-Rudman-Hollings deadline falls. If no agreement can be reached on paring the deficit to $64 billion by Oct. 1, across-the-board spending cuts -- the so-called sequester -- will go into effect, closing airports, canceling children's vaccinations and forcing federal prisons to furlough hundreds of inmates. Although the deficit problem may seem familiar, even tiresome, it is more acute than ever: Administration estimates for this year have grown from $100 billion to $161 billion, largely because the economy is growing less quickly than anticipated. Last week the Labor Department reported that civilian unemployment rose in June from 5.2% to 5.5%, the highest jobless level in almost two years. If, as many expect, the economy plunges into a full recession, the deficit could become even larger.

Just what did the budget summiteers do for 11 weeks? Not much. Though the panel met 18 times, its members never talked about the two essential elements in any budget deal: raising revenues and cutting entitlements. Instead, the two sides engaged in an Alphonse-and-Gaston routine, dithering over procedure, accounting rules and leaks.

As usual, the Democrats are divided. Senate majority leader George Mitchell, flanked by budget committee chairman Jim Sasser, favors a risky wait-'em-out approach, calculating that the nearer the dreaded sequester comes, the more malleable Bush will be. So far, Mitchell has prevailed over House Speaker Tom Foley, majority leader Richard Gephardt and budget chairman Leon Panetta, who, one White House official surmises, "would have preferred to wrap this up weeks ago."

But the biggest strike against the Democrats is their continued refusal to accept domestic-spending reductions. When Budget Director Richard Darman suggested 47 cuts in health care, agriculture subsidies, federal loan guarantees and other giveaways good for $16 billion in savings next year, Panetta countered with a "core package" of reductions worth only $5.6 billion. Paltry though his offer was, Panetta lacked much support from fellow Democrats for even those meager measures. "None of our guys were ready to do that much," said a Democratic participant. Meanwhile, loyalty on the Republican side has broken down, especially on taxes. In recent weeks the Administration has floated several revenue proposals, probing gently for reaction to possible taxes on energy and stock transactions and limiting deductions for state and local taxes. But while the White House is expert at leaking, it has been unable to keep its troops in line and has therefore stopped short of formally offering its ideas.

Bush and Darman believe they have already said too much about taxes without getting anything in return -- and aides point to the President's slipping approval ratings to prove it. In fact, the Administration's inept handling of its plan to cut back state and local income tax deductions two weeks ago sped the talks' collapse. At one point, both sides were close to pulling off what Darman calls "a no fingerprints" budget, in which each party simultaneously put forth complete budget plans. By doing so, says one aide, "no party could take advantage of the other." But the immaculate conception failed when Republican lawmakers disclosed the White House idea to reporters. No sooner had the idea surfaced than even such Republican stalwarts as House whip Newt Gingrich and a host of Governors lined up against it.

Scrambling to control the damage, Administration officials tried to mask that miscalculation by claiming that the Democrats had reneged on the bargain. But Gephardt told Bush at a White House meeting Tuesday that not only had there never been a deal but that Darman had not presented a full proposal either. As Panetta said later, "We did not pledge that every time the Republicans slit their wrists we would slit ours."

The breakdown in talks left Bush exactly where he did not want to be: severed from his "no-new-taxes" pledge with nothing to show for it. Darman calculated months ago that Bush could survive the political hit for his U-turn on taxes if in return he solved the deficit problem. As an Administration official admitted, "We got suckered. Now we're in the same place we were three months ago except we've taken a 10-point hit in the polls."

The President's unease had Democrats gloating, as though the goal of the budget summit had been to score political points rather than to cope with a national crisis. "By our silence we have been successful in these talks," boasted Dan Rostenkowski, chairman of the House Ways and Means Committee. "The Republicans have just shot themselves in the foot, in the neck, in the ear. They're masochists."

Such gamesmanship has made this budget summit a dismal failure. The two sides should have been discussing real cuts and constructive taxes, such as higher gasoline taxes or a broader levy on energy in all forms, or both. But though an energy tax would raise billions quickly, encourage conservation and decrease the nation's dependence on foreign oil, a huge -- perhaps insurmountable -- obstacle stands in its way: it would take guts to impose.

With reporting by Hays Gorey/Washington