A Fiscal Fairy Tale

By Laurence I. Barrett

Once upon a time, the nation's leaders tried to exorcise the deficit devil with a frightful fairy tale: if they couldn't find the wisdom and courage to reduce spending and raise revenue themselves, a crude wrecking ball would knock many billions from government programs. The threat of an indiscriminate "sequester" of funds, the story went, would be so politically devastating as to scare the government into facing its fiscal responsibilities. That fantasy, in the form of the Gramm-Rudman-Hollings Act five years ago, projected a balanced budget by fiscal 1991, which begins Oct. 1. But the brutal fact is this: the nation will face a deficit of about $200 billion even if the cranky negotiations that dragged into the weekend produce a feasible deficit-reduction package.

George Bush brandished the sequester threat in his address to Congress last week. The President's original plan was to use the occasion to unveil a bipartisan "50/500" deal, which would pare $50 billion from the 1991 deficit and $500 billion over five years. For a while, everything seemed to be on track. Budget Director Richard Darman and congressional leaders had made some progress in bargaining sessions that started Sept. 7. But the negotiations bogged down before the speech. So instead of making a triumphant announcement, Bush used his prime-time pulpit to sermonize: "Most Americans are sick and tired of endless battles in the Congress and between the branches over budget matters. It is high time we pull together and get the job done right."

No one could argue with that, or with his insistence that the mix of spending cuts and tax hikes "must be fair; all should contribute." But when the President got to specifics, fairness became scarce. In the name of promoting economic growth, Bush renewed his support of six tax giveaways that would cost the Treasury an estimated $30 billion over five years. The most controversial of these would cut the maximum levy on capital gains from 33% to 15%. Meanwhile, he seemed to reject any increase in income taxes for high earners. Concerning reductions in domestic spending -- the most politically explosive part of deficit control -- Bush was mute.

His firm rhetoric, fluently delivered after four rehearsals and some coaching from image maven Roger Ailes, radiated statesmanship. A compromise, he maintained, was needed not only for the country's economic health but also to permit the U.S. "to function effectively as a great power abroad" -- a potent argument at a time when 100,000 U.S. soldiers are in harm's way in Saudi Arabia. If the negotiations stopped, Bush said, he would demand a decisive vote by Sept. 28 on a comprehensive Administration package. If that failed, he warned, the Gramm-Rudman sequester would ravage public services.

It was the political equivalent of the old hidden-ball trick, in which a first baseman conceals the ball, waits for an unsuspecting runner to step off the bag and tags him. In this case, Bush (who played first base for Yale) would try to catch the Democratic-controlled Congress off base and tag it with the onus of causing a breakdown. Republicans would then have a good issue with which to bash their opponents in November's congressional elections. As one of Bush's senior advisers observed, "When it comes to the blame game, the President has the loudest voice." Last week's TIME/CNN poll indicates that Bush is well placed to push that strategy: not only does he enjoy a 71% job approval rating, but the Democrats are being blamed by far more voters (42%) than the Administration (29%) for stalling a budget agreement.

However deft the President's tactics may be politically, they did not seem to help the negotiations. Instead, Bush's high-handedness had a polarizing effect. That was discouraging considering the progress that had been made. Despite G.O.P. reservations, the level of Pentagon spending was being pared down. Despite Democratic qualms, significant savings on entitlements such as Medicare were gathering a consensus. And despite everyone's abhorrence of taxes, there was agreement that substantial new revenue is necessary.

But who should pay what taxes remained the toughest question. The Democrats might live with the capital-gains cut if it was offset by an increase in income tax rates for the wealthiest families. But the Republicans were digging in against that, offering a variety of other levies instead. The who-pays issue was complicated by the fact that the Democrats also had their eyes on the elections. As House Majority leader Dick Gephardt put it in his reply to the President's speech, "We will never abandon the cause of working families. They benefited the least from the decade of the '80s. They should not have to sacrifice the most in the decade of the '90s." Such concerns were heightened by a Congressional Joint Tax Committee analysis indicating that the Republican plan would increase net income for those earning more than $50,000 a year while decreasing it for the less affluent. When Democrats leaked this reading, Republicans cried foul, accurately charging that the Democrats sought political points.

If all parties concerned would simply close ranks and present the electorate with the harsh truth about necessary sacrifices, presumably few incumbents would be drowned for their efforts. The pols, though, seem unable to believe for very long in the life jacket of bipartisan action. But amid all the maneuvering around the budget, a couple of realities cannot be evaded: 1) even the best package now obtainable would be only a first step toward a tolerable deficit trend, and 2) in any event, the Gramm-Rudman timetable will have to be amended once again, pushing the goal of balanced budget even further into never-never land.

CHART: NOT AVAILABLE

CREDIT: TIME Chart by Steve Hart

From a telephone poll of 500 adult Americans taken for TIME/CNN on Sept. 13 by Yankelovich Clancy Shulman. Sampling error is plus or minus 4.5%

CAPTION: NO CAPTION

With reporting by Michael Duffy and Nancy Traver/Washington