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Budget [1990] - Press Report #2 [7]
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Budget [1990] - Press Report #2 [7]
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Records of the White House Office of the Chief of Staff to the President (George H. W. Bush Administration)
John Sununu Issues Files
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Originally Processed With FOIA(s):
FOIA Number:
1998-0004-F[1]; 1998-0251-F
S
FOIA
MARKER
This is not a textual record. This is used as an
administrative marker by the George Bush Presidential
Library Staff.
Record Group/Collection:
George H.W. Bush Presidential Records
Collection/Office of Origin: Chief of Staff, White House Office of
Series:
Sununu, John, Files
Subseries:
Issues Files
OA/ID Number:
29141
Folder ID Number:
29141-003
Folder Title:
Budget [1990] - Press Report #2 [7]
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15
24
6
7
The Washington Post
TUESDAY, OCTOBER 2, 1990
Budget Optimism in Senate
Isn't Echoed by House GOP
By Helen Dewar
will be the main battleground in
and Tom Kenworthy
the fight over approval of the pact.
Washington Post Staff Writers
House Republicans appear to be
more hostile to the plan than Sen-
Senate leaders expressed grow-
ate Republicans in part because all
ing confidence yesterday that the
of them face the voters next
new bipartisan budget agreement
month and many feel that Bush's
will be approved by the Senate as
reversal on his promise not to in-
the Bush administration moved to
crease taxes has exposed them
quell a mounting rebellion among
politically.
House Republicans that could en-
The first test for the plan will
danger final passage of the pact.
come as early as Wednesday when
"We feel very optimistic," said
the House may take up a budget
Senate Minority Leader Robert J.
resolution incorporating the deal
Dole (R-Kan.). "It won't be easy but
that was cut by the president and
the alternatives are so grim I think
leaders of both parties in Congress
it will be approved," said Senate
after lengthy negotiations. Other
Majority Whip Alan Cranston (D-
equally critical votes will follow to
Calif.).
implement the plan before Con-
Their comments followed party
gress adjourns later this month.
caucuses in which most senators
Democrats have demanded that
reportedly indicated they could re-
a majority of Republicans in both
luctantly support the tax increases
houses vote for the budget plan as
and spending cuts endorsed Sunday
the price for their support, mean-
by President Bush and congression-
ing the package may be doomed if
al leaders as part of the largest def-
Bush and Minority Leader Robert
icit-reduction plan ever proposed.
"It's like drinking a gallon of cas-
H. Michel (R-III.) cannot produce
at least 89 GOP votes for it in the
tor oil, but we're going to do it,"
House.
said Sen. John W. Warner (R-Va.).
However, even some of the
But prospects for the five-year,
$500 billion deficit-reduction plan
House Republican leaders who
were far less clear in the House,
oppose the budget plan indicated
where Minority Whip Newt Ging-
they thought Bush may be able to
rich (R-Ga.) and four other GOP
get at least half of the House Re-
leaders denounced the pact after an
publicans to support him. "I do not
hour-long Republican caucus at-
underestimate the ability of the
tended by Vice President Quayle
White House to get a majority
and other top administration offi-
based on appeals to loyalty," said
cials as part of the administration's
Weber.
lobbying effort.
To accomplish this, the White
"It is my conclusion it will kill
House dispatched Chief of Staff
jobs, weaken the economy and that
John H. Sununu, Treasury Secre-
the tax increase will be counterpro-
tary Nicholas F. Brady and Office of
ductive and that it is not a package
Management and Budget Director
that I can support," said Gingrich.
Richard G. Darman to meet with
"We need to do better than this."
Republicans in both houses. The
The budget agreement includes a
three senior administration officials
politically painful combination of
were joined by Quayle in courting
spending cuts in popular domestic
conservative Republicans in the
programs, increased health care
House.
costs for the elderly in the Medi-
The group, including Quayle, also
care program, higher excise taxes
met separately with at least two
on cigarettes, liquor and wine, and a
groups of House Republicans at the
12-cent hike in federal gasoline
White House, and Cabinet members
taxes that will affect virtually every
were phoning wavering lawmakers.
American.
Bush is expected to participate in
Financial markets gave the bud-
similar meetings at the White
get agreement a generally warm
House today.
welcome. The Dow Jones industrial
But White House officials ex-
average, which also was buoyed by
pressed misgivings about the idea
a slide in oil prices, rose 63.36
of a nationally televised speech by
points to close at 2515.84.
the president to build public support
Denunciation of the agreement
for the budget plan, which some
by Gingrich and Reps. Vin Weber
Democrats have been urging as a
(Minn.), Bill McCollum (Fla.), Dun-
key element in bringing pressure on
can Hunter (Calif.) and Robert S.
Congress to approve the plan. They
Walker (Pa.), all members of the
said timing was a problem and in-
House GOP leadership, under-
scored expectations that the House
dicated reluctance to risk the pres-
ident's political capital when the
outcome is uncertain.
In remarks at a ceremony in New
York to sign the stopgap spending
peared to be holding in both par-
bill approved by Congress Sunday,
ties-largely because of the spec-
Bush used what aides said would be
ter of huge automatic spending cuts
his major sell-the-budget theme.
that would take effect if deficit re-
"This is a time for leadership," he
ductions are not approved, mem-
said. "We must put aside partisan-
bers said.
ship for the sake of our nation. We
"If you're floating in the water
must act now to solve this budget
and a life preserver looms up but it
problem."
looks a little shabby, you grab it
Bush also said the pact should
because the alternative is drown-
result in lower interest rates. "I
ing," said Sen. Warren B. Rudman
would look to the Federal Reserve
(R-N.H.).
to lower the rates," he said. "I hope
Lobbying efforts against various
they would once they see that a
aspects of the plan appeared to be
sound budget agreement has been
gathering steam slowly, including
put into effect."
pressure from some groups of the
The president acknowledged
elderly against proposed increases
that he may come under attack for
in Medicare premiums. But law-
dropping his campaign pledge
makers said the lobbying so far is
against tax increases and for giv-
nowhere near as intense as they
ing up his quest for a cut in the
expect it to become, especially
capital gains tax rate. "I'm not in-
when committees begin to consider
terested in talking about that," he
details for implementation of the
said. "Fine. Take the heat. Take
plan.
the hit. There have been changed
times. It didn't work out the way I
Staff writers Dan Balz in
want. I don't have the horses in
Washington and Ann Devroy,
the Congress to do it exactly my
traveling with Bush, contributed to
way. So you have to govern. You
this report.
have to lead."
Democratic leaders in the House
and Senate met yesterday with
Democratic lawmakers who have
problems with the package, includ-
ing conservatives and members of
the black caucus.
But Democratic aides insisted
that the primary burden for passing
the agreement into law rests with
Bush and his ability to win over dis-
sidents in his own party. Some
Democrats privately expressed the
hope that Republican defections will
kill the plan so they don't have to.
"Let them screw it up," said one
member.
"I expect that we are going to get
50 percent plus one in each party,"
said House Speaker Thomas S.
Foley (D-Wash.).
But others appeared less certain.
The office of one House member
from the Southwest reported re-
ceiving 50 phone calls on the issue
yesterday, with 49 of them opposed
to the plan. "I don't sense any en-
thusiasm. How do you pass this
thing? The middle is not that big,"
said another lawmaker, Rep. Mi-
chael A. Andrews (D-Tex.), in ref-
erence to opposition to the pact
from the political extremes within
the Democratic Party.
In both houses, leaders indicated
that the package may be modified
somewhat to satisfy complaints and
win approval but cautioned that the
basic outlines of the agreement
must be retained. "If the final prod-
uct strays too far from the agree-
ment, I think it will be difficult to
pass," said Foley.
In the Senate, the middle ap-
The Washington Post
TUESDAY, OCTOBER 2, 1990
For Candidates, Pure Political Poison
By David S. Broder
and Thomas B. Edsall
Washington Post Staff Writers
A host of Senate candidates in
Last Wednesday, Rep. Lynn Mar-
close races quickly determined that
tin, the Illinois Republican senato-
these liabilities far outweighed any
rial challenger, had a fund-raising
advantage to be gained in support-
visit to her state from President
ing the package, regardless of the
Bush. Last night, Vice President
economic consequences for the
Quayle was scheduled to boost her
country. Democrats and Republi-
campaign.
cans, liberals and conservatives
But in between, Martin an-
who face tough opposition in No-
nounced that "I cannot and will not
vember, all found reasons to object.
support the proposed budget agree-
Without exception, the Senate
ment" that Bush and Quayle had
candidates premised their decision
blessed at Sunday's Rose Garden
on substantive objections to the
ceremony because "it is bad for sen-
agreement. Some of the same ob-
iors, bad for taxpayers and bad for
jections came from House and Sen-
the state of Illinois."
ate members with few reelection
"It wasn't a hard decision at all,"
problems. But the political calculus
her campaign manager, Mark
for people in tough races was ev-
ident.
Schroeder, said yesterday. Nor, as
it turned out, was it difficult for her
Last month, well before the final
opponent, Sen. Paul Simon (D-III.),
agreement was reached, Garin-Hart
to dump on the agreement his par-
Strategic Research Group, a Dem-
ty's congressional leaders had
ocratic polling firm, argued in a
framed and approved. He said the
memo to clients that a vote for a
budget accord puts "too much of the
major deficit-reduction package car-
burden on middle-income families
ried serious political dangers.
and older Americans."
Using a sample of 506 likely vot-
Simon was still reserving judg-
ers in a Midwestern congressional
ment on his vote yesterday but his
district, the firm found that "overall
rhetoric was nearly as tough as
voters in this district say by 67 per-
Martin's.
cent to 23 percent that they would
Although Senate leaders ex-
oppose the budget plan" after its
pressed growing confidence that a
major elements had been described
majority of senators from both par-
to them.
ties would support the deal, Martin
In one of the clearest statements
and Simon were part of a bipartisan
of the political logic, the firm wrote:
wave of senatorial candidates who
"Voting for a budget settlement
swiftly announced their opposition
may be the most responsible
to the agreement that was ham-
course, but do not expect much
mered out after months of painful
credit from voters for doing the
negotiation. The quick, negative
responsible thing.
If you vote
reactions of the Senate candidates
for the budget compromise, you
illustrated the gulf separating cam-
should recognize that many voters
paign politics from the realities of
will resent it. The dominant feeling
governing a country beset by a gi-
voters appear to have on this issue
ant budget deficit.
is: 'We did not create the deficit, we
The pollsters and campaign con-
did not benefit from it, and it is not
sultants on both sides said simple
fair to put the burden of solving the
politics virtually dictated that
deficit on our backs.'
stance for anyone in a seriously con-
The candidates' comments
tested race.
seemed to reflect that judgment.
"Anybody who is for it is probably
"The budget plan," declared Ted
a masochist," said Democratic poll-
Muenster, the Democratic Senate
ster Harrison Hickman. "There are
nominee in South Dakota, "is not a
a hundred things in it to hate."
victory. It's largely an attack on the
National Republican Congres-
average American."
sional Committee Co-Chairman Ed-
Rep. Hank Brown (R-Colo.), who
ward J. Rollins said, "I would cer-
is running for the open Colorado
tainly not argue" with candidates
Senate seat against Democrat Josie
who oppose the package. He said he
Heath, denounced the plan as a
expected virtually all GOP challeng-
"fraud. The estimates [of budget
ers to adopt that stance and ex-
savings] are so flakey I don't think
pressed the hope that "my vulner-
it's much to hang your hat on."
able incumbents will be left off the
Some Democratic incumbents
hook" when the administration tries
with serious reelection contests
to round up votes for passage.
held their fire. Simon and Sen. Clai-
The list of politically poisonous
borne Pell (D-R.I.) took the judi-
elements cited by political strate-
cious stance, while expressing dis-
gists includes proposed increases in
taste for key provisions. Sen. Carl
M. Levin (D-Mich.) issued a one-
Medicare premiums for the elderly,
higher gasoline, cigarette, beer and
sentence statement: "I'm going to
liquor taxes, and cuts in politically
give the complete package careful
review."
popular health, housing, education,
urban and farm programs.
Sen. Tom Harkin (D-lowa), in a
tortured statement, left open just a
sliver of a chance that he will cast a
"yea" vote: "Senior citizens and our
family farmers will suffer dispropor-
tionately. More than half the cuts in
entitlement programs will come
from the Medicare budget.
Nevertheless, I recognize the bipar-
tisan effort that went into this
agreement, but I believe it is seri-
ously flawed.
I will spend the
next couple of days studying the
agreement carefully."
Harkin's challenger, Rep. Thom-
as J. Tauke (R-Iowa), was less hes-
itant in making his decision. "I've
decided to vote against it," he said
in an interview. "It's a business-as-
usual package. It is bad for Iowa and
for the country."
In New Hampshire, both Senate
candidates came out against the
measure, but former senator John
Durkin (D) sought to escalate the
battle by calling on his opponent,
Rep. Robert C. Smith (R), to "dis-
invite" Bush from a scheduled cam-
paign appearance in New Hamp-
shire for Smith on Friday.
Illinois candidate Martin lost her
date with Quayle last night-but
not because she jumped ship on the
budget agreement. Quayle stayed in
Washington to help lobby for the
package and promised Martin a
makeup appearance.
While candidates were defecting
right and left, the leaders of both
parties rallied behind the agree-
ment. Democratic National Chair-
man Ronald H. Brown told report-
ers, "I support the leadership po-
sition" and promised he would "not
be critical of those who vote for the
package," even if they are Repub-
licans he would love to see de-
feated.
Brown and others suggested that
the alternative of deep, across-the-
board spending cuts and the result-
ing "chaos" would make the budget
package seem preferable. But Dem-
ocratic pollster Geoff Garin dis-
agreed.
"If it [the budget agreement]
goes down," he said, "it would be
further proof to people that the sys-
tem doesn't work. But that gener-
alized anger is small compared to
the personalized anger [an incum-
bent might face] for an individual
vote" for the package.
The reaction pointed up what
many observers have noted as the
growing gap between campaign pol-
itics and governing. Some campaign
advisers said that they had to dis-
tinguish between the country's in-
terest in having the deficit reduced
and their clients' desire to reduce
their political risks.
Hickman tacitly acknowledged
this when he was asked what coun-
sel he was giving to candidates.
"The Republic is better off if no-
body asks me," he said.
Political researcher Bruce Brown
contributed to this report.
The Mashington Post
TUESDAY, OCTOBER 2, 1990
Budget Success Depends on Economy
White House Betting Against Recession and on Lower Oil Prices
By John M. Berry
such as Donald H. Straszheim, chief
spending cuts and tax and fee in-
Washington Post Staff Writer
economist of Merrill Lynch & Co.,
creases will go just to offset the ef-
who declared late last week, "We are
fect of the worsened economic out-
The Bush administration's new
in a recession: The U.S. economy
look, according to the figures
claim that the federal budget can be
fell into a recession around mid-
released by the budget negotiators.
balanced in three years, which ac-
year-before the Persian Gulf crisis
Even with passage of $40 billion
companied the weekend deficit re-
erupted."
worth of deficit reduction measures
duction agreement, hinges on White
"Some of the economic forecast-
for 1991, this year's gap between
House hopes that a recession can be
ing used to arrive at the [deficit re-
federal income and spending is pro-
averted and that soaring oil prices
duction] targets may, in fact, be too
jected to be a record $253.6 billion.
will turn sharply downward again
optimistic," said Drew Lewis, chair-
That figure would not be as high,
next year.
man of the Business Roundtable, a
however, as some of the deficits in
In their updated projections for
lobbying organization for major cor-
the mid-1980s when compared to
1990 through 1995, Bush econo-
porations. "But there is no question
the size of the U.S. economy.
mists are counting on a drop in
that this is real deficit reduction, of
To guard against having a further
world oil prices to help the economy
the magnitude the roundtable for
deterioration of the economic out-
bounce back late next year from a
years has called for," said Lewis,
look cause problems next year in
period of slow growth that has al-
chairman of Union Pacific Corp.
meeting a new target for the fiscal
ready lasted for a year and a half.
A recession, if it occurred, would
1992 deficit, the budget negotiators
The oil price assumption, in turn,
not have much effect on the specific
proposed changing the way in which
is dependent upon resolution of the
spending cuts and tax and fee in-
the Gramm-Rudman-Hollings deficit
current confrontation with Iraq
reduction law works.
creases included in the budget
quickly enough to knock the average
agreement. Likewise, the proposed
If the changes are adopted, next
price of domestic crude, currently
$500 billion worth of deficit reduc-
March administration and congres-
just under $40 a barrel, down to
tions over the next five years would
sional representatives will agree on
$24.15 during 1991 and to $21.10
an economic forecast that would be
not be dependent on how well the
in 1992.
used in projecting the 1992 deficit
economy performs.
White House economists do not
even if the outlook changed between
But a recession could cause the
see recession in 1991, but rather
then and the beginning of the fiscal
federal budget deficit to soar beyond
year. That way a decline in econom-
project the economy will grow at 1.3
$300 billion this year even if the pro-
ic growth could not cause a large se-
percent next year, after allowing for
posed $40 billion deficit-reduction
quester-a set of automatic spend-
inflation, picking up to 3.8 percent in
package for 1991 is enacted.
ing cuts in discretionary spending
1992.
The new forecast already shows a
programs triggered if appropriations
The forecast is similar to that of a
track for the U.S. economy far
exceed a set amount-as nearly hap-
number of private economists, who
enough below what the administra-
pened this week.
also assume that the situation in the
tion was predicting only two months
The negotiators also agreed on a
Persian Gulf will be resolved one
ago, that adoption of the predictions
set of other changes, including in-
way or another-and that if the res-
raised the projected deficit for this
creasing from $10 billion to $15 bil-
olution involves a war, the ability of
year by $30.4 billion and those for
lion the amount by which the
Saudi Arabia to produce oil will not
the 1991-95 period by a total of al-
Gramm-Rudman-Hollings target
be significantly damaged-by next
most $200 billion. In other words,
could be exceeded before a seques-
spring.
the deficit outlook had deteriorated
ter would take effect, to lessen the
But it is more optimistic than
to the point that $200 billion worth
impact of economic changes on the
those of other private forecasters,
of the proposed $500 billion in
budget process.
The Mushington Post
TUESDAY, OCTOBER 2, 1990
Months of Contentious Talks Lead
Budget Negotiators to Big Fix'
Darman and White House Chief of Staff
John H. Sununu took the Republican lead, to
By John E. Yang and Steven Mufson
the irritation of some GOP bargainers. "We
Washington Post Staff Writers
meet every day before the other meeting just
When President Bush boarded Air Force
to see what Mr. Darman has in mind so we're
One in New York Sunday morning for the
not surprised-as much surprised," said Sen-
quick flight back to Washington, he wasn't
ate Minority Leader Robert J. Dole (R-Kan.).
sure whether he was coming back to bless a
On the Democratic side of the table,
budget deal or to face a roomful of snarling
House leaders, were more eager to cut a
negotiators at the White House.
deal with the administration than their
"We were not convinced there was going
more partisan Senate counterparts.
to be a deal," a Bush administration official
The talks dragged on through the sum-
said. "He was going to try to close the deal
mer, past self-imposed deadlines, as the
when he got in the room."
bargainers engaged more in political pos-
Hours later, Bush, who had won election
turing than serious negotiating. At several
key points, administration actions saved
pledging "no new taxes," was standing with
congressional leaders in the Rose Garden,
Democrats from embarrassing splits in
their own camp. In late June, for instance,
squinting into the sun and announcing the
when the Democrats were deeply divided
largest package of tax increases and spend-
over how to proceed, Bush threw GOP ne-
ing cuts ever proposed.
gotiatiors into turmoil by declaring that "in-
The road to that ceremony began on a
creased tax revenues" would be necessary.
cool evening in early May, upstairs in the
Hoping that a change in scenery would
private quarters of the White House, when
lead to a change in attitude, the negotiators
Bush asked four of the top congressional
moved talks to the Andrews Air Force Base
leaders who stood with him Sunday to begin
Officers' Club. What began as a weekend
talks aimed at getting the burgeoning fed-
retreat became an 11-day siege so slow-
eral budget deficit under control.
moving that one participant likened it to
The journey took the bargainers from the
"being in a 10-reel Fellini film."
Cabinet Room of the White House to a con-
"There was a great rush of optimism af-
verted bar at Andrews Air Force Base and
ter the first two or three days," said an ad-
finally to House Speaker Thomas S. Foley's
ministration participant. "We got past some
private dining room in the Capitol. The
easy hurdles."
main issue had not changed since Office of
But the early enthusiasm wore off.
Management and Budget Director Richard
The talks nearly broke down the fourth
G. Darman defined it in February: "It is a
day at Andrews. At one point, participants
question of when to invest the political cap-
recalled, Sununu rebuffed a Democratic
ital in a big fix."
offer by remarking, "It's worse than be-
For each side, that meant giving up some-
fore." Darman tried to keep the talks mov-
thing dear. For Democrats, it meant accept-
ing. As Sununu kept complaining in a rising
ing large cuts in social programs they had
voice, Darman glanced at Sununu and
long fought to protect and the postponement
laughed nervously, participants said.
of their efforts to shift more of the tax bur-
Later that day, participants recalled,
den from the middle class to the rich. For
when a Democratic domestic spending plan
Bush it meant abandoning his campaign
fell $20 billion short of Republican de-
pledge against new taxes as well as his per-
mands, Sununu cried: "Where's the rest of
sonal crusade to cut taxes on capital gains.
it? Where's the other $20 billion?"
Partisan bickering surrounded congres-
His outburst prompted Sen. Robert C.
sional deliberations over the budget from
Byrd (D-W.Va.), the venerable Senate Ap-
early January, when the administration first
propriations Committee chairman, to re-
proposed its fiscal 1991 spending plan, until
buke Sununu and Darman, calling them "ar-
Bush suggested talks in May. Democrats
rogant" and "rude," participants said.
only agreed to go the table after the pres-
The Republicans quickly retired to a pri-
ident cracked open the door to the possi-
vate caucus and returned with a counter-
bility of new taxes.
proposal that moved toward the Democrats
When the talks began in May, they did
in several areas.
not look promising. Senate Majority Leader
Gephardt rose in the esteem of the ad-
George J. Mitchell (D-Maine), still smarting
ministration, meeting daily in private with
from last year's fight over capital gains,
Darman to try to hammer out differences.
distrusted Darman. The president disliked
Gephardt "was the glue that held their side
House Majority Richard A. Gephardt (D-
together," said an administration official.
Mo.), who had scrapped with Bush on issues
For the first time, the talks turned to
ranging from tax fairness to foreign policy.
taxes, and the Democrats clearly established
In addition, there were more than two
that their price for the president's cherished
sides to these talks. House GOP Whip Newt
capital gains tax cut would be a higher income
Gingrich (Ga.) did not subscribe to a basic
tax rate for the richest Americans.
premise of the talks: that new taxes were
Republicans complained that Democrats
needed. At one point, Gingrich advertised his
caucused for hours on administration offers,
lack of enthusiasm for the process by osten-
but Democrats said they wanted to consult
tatiously reading books and magazines during
crucial committee chairmen.
bargaining sessions, participants said, exas-
Progress slowed. During one long break,
perating even fellow GOP negotiators.
some Republican bargainers played nine
holes on the base golf course. Republicans
were irritated when House Majority Whip
William H. Gray III (D-Pa.) arrived at meet-
ings in tennis clothes. Food became a high
point. Participants said they were particular-
Never as enthusiastic as Bush about re-
ly fond of the vanilla ice cream and hot fudge
ducing the capital gains tax, Michel had
sauce and the base's regular Monday night
been growing increasingly frustrated with
prime rib special. Rep. Silvio O. Conte (R-
the pace of the negotiations. Last Tuesday,
Mass.) called the scene "Camp Run-Amok."
the plainspoken midwesterner finally broke
"Maybe it would have ended sooner if the
his public silence, telling reporters: "The
food wasn't so good," said one participant.
doggone price is too steep.
Politics
is
"It wasn't going to end before prime rib
night rolled around again. On Monday night,
the art of what's possible."
we had our prime rib and left."
"Sununu knew, when Michel said what he
After 11 days, "We had hit the wall," a
said, that he couldn't get capital gains," an
participant said. Gephardt, Mitchell and
administration official said.
Darman met and acknowledged that this
But administration bargainers were de-
phase had ended. They decided the nego-
termined not to give in until Democrats
tiations should continue in a smaller group
stopped demanding an income tax rate hike,
of top congressional leaders and adminis-
fearing that if they conceded too quickly the
tration officials.
Democrats would try to trade something
To accentuate the differences between
else for a higher rate.
administration and Democratic bargainers
As yesterday's fiscal deadline ap-
on taxes, Gephardt and Mitchell persuaded
proached, one top administration official
their team to make significant concessions
accused the Democrats of "playing chicken"
on spending in order to portray capital gains
with the nation's economic well-being. Fi-
as the main remaining obstacle.
nally, in the early hours of Sunday morning,
The bargainers left Andrews significantly
the administration bargainers dropped their
closer. "There was no way else you could
capital gains issue in favor of other tax
have gotten them to move that much," a
breaks for investments. Democrats re-
participant said of the self-imposed seclu-
treated on higher tax rates, settling on a
sion. "But you should have been able to do
limitation of tax deductions for the wealthy.
that in two days."
Within hours, the rest of the deal fell into
When the smaller group of top-level ne-
place.
gotiators, dubbed "The Big Eight," con-
They rushed to the White House with a
vened in Foley's red-walled dining room,
sketchy plan, leaving staff to work out many
congressional officials expected it to be a
of the details. But at the last minute, there
brief interlude between the larger bargain-
was confusion. A draft agreement said heat-
ing group sessions and final meetings, in
ing oil would be exempt from a 2-cent-per-
which Democrats wanted to involve Bush
gallon petroleum tax when Senate Finance
directly so as to make him share responsi-
Committee Chairman Lloyd Bentsen (D-
bility for an unpopular package.
Tex.) had removed the exemption, irritat-
The talks centered almost exclusively on
ing northeastern lawmakers.
taxes, officials familiar with the proceedings
A dispute over military spending
said. As the talks dragged on, cracks
prompted Darman to threaten, "If you do
formed in GOP unity. First, Dole suggested
that, the deal is off!"
that capital gains be considered in a sepa-
rate legislative package from spending cuts
For many bargainers, Sunday night
and tax increases. But administration bar-
meant the first full night's sleep in days.
gainers knew the quest for the capital gains
"It's good to be back to life," Gephardt
tax cut was dead when the man from Peo-
joked, "taking fluids and seeing my family."
ria-House Minority Leader Robert H. Mi-
Staff writer Dan Balz contributed to this
chel (R-III.)-said no.
report.
The Washington Post
TUESDAY, OCTOBER 2, 1990
From Post Office to Gas Pump,
Almost Everybody Will Take a Hit
By Albert B. Crenshaw
Washington Post Staff Writer
A new 10 percent luxury tax on a
president of the Wine Institute, a
Much of middle America isn't go-
variety of expensive items.
trade association of California winer-
ing to like this. Their beer will cost
In all, the budget negotiators are
ies. He charged that it "was done to
more and so will their cigarettes and
counting on these taxes, including a
obscure the size of the increase"
gasoline for the pickup.
tax on motor fuel, to raise nearly
which he put at 647 percent from
$75 billion over the next five years.
But if they are unhappy, these
the current 3 cents a bottle to 25
The items that are aimed at the
folks can take comfort from the fact
cents.
well-to-do:
that the two-career couple in their
De Luca said that the tax would
A complicated formula to reduce
uptown condo also will feel the tax
add 50 cents to the current $2.89
the itemized deductions of taxpayers
collector's bite if the budget package
average retail price of the 750-milli-
whose adjusted gross income ex-1
fashioned over the weekend by con-
liter bottle cited by the negotiators.
ceeds $100,000. Under this formula,
gressional and White House negotia-
But he said most of his members'
to the extent that adjusted gross in-
tors becomes law.
volume is in larger containers,
come exceeds $100,000, deductions
The prosperous couple's next
whose prices would jump more
must total more than 3 percent of
Mercedes would cost more and their
sharply. A three-liter bottle current-
the excess before they become ef-
wine tab would go up. Their payroll
ly retailing for $5.99 would jump to
fective. For example, if a taxpayer
taxes also would rise and their de-
$8, he said.
had adjusted gross income of
ductions would be. trimmed under
The impact of the gasoline tax in-
$130,000, he or she would lose
the terms of the package.
crease would vary greatly with the
$900 worth of deductions ($130,000
amount of driving a taxpayer does
In both cases, however, if the peo-
minus the $100,000 threshold
and what kind of mileage his or her
ple don't smoke, don't drink and
leaves $30,000; 3 percent of
car gets.
don't drive a lot, the impact of this
$30,000 is $900. Only itemized de-
For instance, the motorist who
new budget plan will fall much more
ductions in excess of $900 would be
drives 15,000 miles a year in a car
lightly upon them. That is what
allowed.) This system is much like
that gets 25 miles per gallon would
makes the new plan most unusual by
the ones that apply now to medical
pay an extra $72 a year when the
traditional standards. While it will be
expenses and miscellaneous business
12-cent increase is fully implement-
more costly for the well-to-do, much
expenses, and the thresholds on
ed. Driving 40,000 miles in a 12
of its impact depends on the lifestyle
those items would remain, so de-
miles-per-gallon car, however, would
of the individual taxpayer rather
ducting them would require them to
cost $400 extra annually.
than his or her economic situation.
exceed both requirements.
A pack-a-day smoker would not be
For example, heavy smokers and
An increase in the ceiling for col-
hurt too badly. His or her year's sup-
drinkers would see the price of their
lection of the Medicare component
ply of 365 packs would cost $29.20
habits rise, but abstainers would feel
of the Social Security payroll tax.
more under the plan.
no impact. Long-distance commut-
This tax is now a 1.45 percent levy
The package had accountants and
ers and drivers of gas-guzzlers
collected on incomes up to $51,300,
tax lawyers poring over its provi-
would be hit hard, but in-town dwell-
but the agreement would extend the
sions in search of ways to minimize
ers and drivers of fuel-sipping econo-
tax up to incomes of $73,000. This
its impact. However, most said the
my cars would get off easy.
would add roughly $300 a year to
pickings seemed slim.
The combination will make it diffi-
the taxes of any worker earning
cult for many people to figure out
$73,000 or more.
Carl W. Duyck of Price Water-
house in the District noted that the
just what size tax increase they face
Workers earning between
because the calculations depend on
$51,300 and $73,000 can get an
restriction on deductions apparently
idea of their new liability by sub-
will not become effective until next
how much of the taxed items they
tracting $51,300 from their wages
year, creating added incentive to ac-
consume.
and multiplying the result by .0145.
celerate deductions. Where possible,
"I guess that's the biggest ques-
tion mark-how much additional tax
For example, a worker earning
he suggested deductible items that
am I really paying?" said Stephen R.
$65,000 would pay about $198 more
can be paid this year or next year
Corrick, a tax partner at Arthur An-
next year under the plan. (The fig-
should be taken this year-assuming
dersen & Co. here in Washington.
ure is not exact because the
the package becomes law, which is
"There's a nickel here and 16 cents
$51,300-wage base is adjusted each
not a certainty.
there and that limitation on itemized
year and next year's figure is not yet
William G. Brennan, an accoun-
deductions. That will have some ef-
known.)
tant with Ernst & Young in Wash-
fect but not like a higher [overall
Some targeted industries warned
ington, said the plan would create
tax] rate. Maybe that's the point of
that the cost to consumers will be
"more incentive than in the past for
this whole exercise: to raise $130
sharply higher than the tax increases
determining what are my expenses
billion without anyone really know-
published in the budget package.
and getting them paid." It's only a
ing how big a hit they're taking."
Because the taxes are assessed at
proposal, he added, but "it's not go-
Most significant of the proposed
the producer level, they tend to be
ing to be good news no matter how
"lifestyle" tax boosts are:
treated as part of the base price and
you cut it."
A 12 cents-per-gallon increase in
are marked up further by wholesal-
Duyck also expressed concern
the tax on gasoline, phased in be-
ers and retailers. The Beer-Institute
about charities. Since adjusted gross
tween Dec. 1 and July 1, 1991.
calculates that this effect will cause
income is difficult to predict for
An 8 cents-per-pack boost in the
the price of a six-pack of beer to rise
many people, he worried that they
tax on cigarettes, beginning Jan. 1
22 cents when the tax increase is
may become less willing to make
and fully implemented in 1993.
only 16 cents.
large gifts if they are not able to cal-
Wine industry representatives
culate the value of their write-offs
A 22 cents-per-bottle increase in
said they feel particularly victimized
the tax on table wines, a 16 cents-
precisely.
because the budget package switch-
per-six-pack boost for beer and a
es from the traditional method of
boost in the tax on hard liquor that
will work out to about 24 cents on a
taxing wine by the gallon to taxing it
by the bottle.
750-milliliter bottle.
"We have never been taxed by the
bottle before," said John De Luca,
The Moshington Post
TUESDAY, OCTOBER 2, 1990
Cuts to Affect Cherished Programs:
Medicare, Student Loans, Agriculture
By Guy Gugliotta and Spencer Rich
Washington Post Staff Writers
The budget agreement an-
Provisions of the pact suggest
nounced Sunday reaches deep into
restricting borrowing among stu-
programs long cherished by mem-
dents at proprietary trade schools
bers of Congress, social workers
and, to a lesser extent, community
and millions of Americans, young
colleges and historically black col-
and old. If it is approved, almost
leges.
everyone would take a hit, and
Some education advocates raised
while some hits will be harder than
questions about the impact on op-
others, all of them will hurt.
portunities for poor and high-risk
Under the agreement, the U.S.
students. One suggested change
Postal Service in the next five years
would bar schools with high default
will be asked to absorb $5.38 billion
rates from student loan programs.
in employee and health care ben-
Other proposals could eliminate
efits now paid by the government.
correspondence schools and stu-
Student loan defaults would be
dents without a high school diploma
slashed by $2 billion during the
or the equivalent.
same period.
Another proposal would require
Medicare would take the biggest
credit checks on students 21 or old-
single non-military spending cut.
er before they could receive a stu-
The health insurance program for
dent loan: "We are only going to
33 million aged and disabled Social
make these loans available to peo-
Security recipients would be re-
ple who don't need the guarantee.
duced by $4.9 billion in fiscal 1991
Then why have the program?" said
and $60 billion over the next five
Stephen A. Blair, president of the
years.
National Association of Trade and
And projected farm subsidies
Technical Schools.
would be cut by $13 billion over the
In Medicare and Medicaid, the
next five years. Compliance could
budget agreement made recom-
mean a major structural change in
mendations on how savings could be
the way government oversees the
achieved, but spokesmen for autho-
welfare of U.S. agriculture.
rizing committees said they will be
These four programs are key el-
the ones making the changes.
ements in the government spending
The agreement suggested that
side of the budget equation. In all,
almost half the $60 billion in cuts
cuts in government benefits are
would come from three major
expected to save $104.8 billion
changes in charges to Medicare
over five years. The rest of the
patients. The doctor-insurance de-
$500 billion deficit-reduction pack-
ductible-the amount a patient
age was expected to come from tax
pays each year before Medicare
increases and cuts in military
starts paying the bills-would rise
spending.
from the current $75 a year to
For the Postal Service, the bud-
$100 in 1991, $125 in 1992 and
get agreement would mean picking
$150 thereafter.
up $689 million this year and $5.38
Also, Medicare patients would
billion over the next five years in
have to pay 20 percent of the cost
benefit and health care premium
of clinical laboratory tests. Finally,
costs.
the premium for Part B of Medicare
The new obligations, Postmaster
would rise from $28.60 per month
General Anthony M. Frank said,
to about $35 in 1991.
will nearly wipe out $700 million in
Rep. Fortney H. "Pete" Stark
expected productivity gains this
(D-Calif.), chairman of the House
year. "This is pretty discouraging to
Ways and Means subcommittee on
our people," he added.
health, called the cuts "obscene,"
Frank criticized the budget pro-
and said he would offer an alterna-
posal as a hidden "stamp tax," pre-
tive plan, "hitting rich people of all
dicting that the post office's new
ages."
summit-induced costs would cause
The rest of the $60 billion would
postage rates to go up "five cents
come from cutting payment rates to
higher in 1995 than they otherwise
hospitals, doctors, producers of du-
would have been." The post office
rable medical equipment and others
already has sought to raise the cost
who care for Medicare beneficiar-
of mailing a first-class letter from
ies. The document suggests raising
25 cents to 30 cents next year.
Medicare payment rates to hospi-
In the administration of student
tals 4.1 percent in fiscal 1991, less
loans, the budget agreement envi-
than the 5.3 percent needed to keep
sioned reducing defaults by $2 bil-
pace with inflation.
lion over five years. The adminis-
tration had projected that defaults
would reach $2.3 billion in the fiscal
year just ended, and $2.6 billion in
1991.
Reimbursements to hospitals for
the costs of capital investments
"I don't think anyone was blind-
would be cut by 15 percent, extra
sided," said Charles Connor, minor-
payments for use of interns and res-
ity staff director for the Senate Ag-
idents would be cut as would rates
riculture Committee. "We [Repub-
paid to doctors in radiology, anes-
licans] were prepared for that; the
thesiology and procedures Medi-
range that we always used was $11-
care deems to be overpriced.
to-$13 billion."
In Medicaid, the federal-state
Still, the size of the cuts rendered
welfare program for the poor, the
obsolete much of last summer's ar-
budget agreement suggested a ma-
cane debate on how to fine-tune
jor new program to save $1.6 billion
subsidies. Under last weekend's
over five years for outpatient pre-
deficit guidelines, subsidies are go-
scription drugs. Manufacturers
ing to be hit with a hammer: "If you
could only charge a state Medicaid
have to revise the policy to get
program the lowest price for drugs
money, that's a structural change,"
de la Garza said.
given any bulk purchaser in the
state.
After what Connor called "nickel
The summit document also sug-
and diming" the subsidy program,
gested states be permitted to pay
the conference committee has two
for the health insurance premiums
basic options for removing the lion's
of family members when a worker
share of $13 billion from farm
has employer-provided health insur-
spending: lower the subsidized
ance only for himself. Projected
prices paid to farmers for their
savings are $1 billion over five
crops; shrink the acreage eligible
for farm benefits.
years.
Despite the magnitude of the
Lowering subsidy levels-so-
Medicare-Medicaid cuts, the budget
called "target prices"-would con-
agreement asks that the programs
tinue a practice begun under the old
simply be trimmed. For farm leg-
1985 farm bill but abandoned in the
islators, however, the required cuts
legislation currently before the con-
are likely to mean major structural
ferees. Shrinking eligible acreage
revisions in the decades-old crop
under a program known as the "tri-
subsidies paid for cotton, wheat,
ple base option," however, has nev-
er been tried.
corn, rice and other grains.
Senate and House conferees
"There really are only those two
drafting the joint 1990 farm bill
choices, and they're both in the
were scheduled to meet today for
commodity programs," said Rep.
preliminary discussion on the bud-
Jim Jontz (D-Ind.). "Those are the
get cuts and how to make them.
payments that come directly out of
The farm bill will define the govern-
farmers' pockets."
ment's role in U.S. agriculture for
Jontz, de la Garza and other
the next five years.
Democrats had sharp words for a
The conference is working with
program of cuts that appeared to
savings suggestions prepared for
reinforce the Bush administration's
the summit by the Office of Man-
desire to emphasize free trade prac-
agement and Budget, but House
tices and take the government out
Agriculture Committee Chairman
of farm spending alogether.
Rep. E. "Kika" de la Garza (D-Tex.)
"We play by the rules, and we will
said lawmakers would "look at ev-
give them their cuts," de la Garza
erything."
said. "Their [the administration's]
"I've said all along that if they
intent is to change the structure of
[the summit] give us the number,
the programs. They couldn't do it
we'll be the ones to fill in the
with a frontal attack, so they
blanks," de la Garza said. "I've
wanted to use the budget summit."
talked with the [House] leadership,
Staff writers Dana Priest and
and they're of the same opinion."
Kenneth J. Cooper contributed to
The Senate and House two
this report.
months ago passed their respective
versions of the farm bill, envision-
ing program benefits calculated at
$53 billion to $55 billion spread
over the five-year life of the bill.
Even then, however, legislators
from both parties agreed the bud-
get agreement would require sig-
nificant cuts in benefits, especially
the crop subsidies that are the core
of any farm bill. The final summit
figure-$13 billion in cuts over five
"years, $1.3 billion in the first
year-was seen as high, but not
altogether unexpected.
The Moshington Post
TUESDAY, OCTOBER 2, 1990
Budget Plan Would Tighten
Tax Scrutiny of Foreign Firms
Package Seeks to Widen Special IRS Powers
By John Burgess
Washington Post Staff Writer
In their search for ways to raise
taxes, congressional budget negotia-
tors had little trouble taking aim at
nese companies have been called
one target in particular: foreign
particularly frequent offenders.
banks and foreign companies operat-
"Foreign companies operating
ing in this country.
here are going to have to be treated
The budget package before Con-
more like domestic" firms, a Demo-
gress proposes to raise $300 million
cratic congressional aide said yester-
through 1995 by tightening tax re-
day. "They're going to need to pay
taxes as a U.S. citizen, pay their fair
porting requirements for the foreign
share."
firms, a group that legislators con-
tend is systematically cheating on
Foreign firms have responded
that they do pay their fair share, but
U.S. taxes.
that exchange rate fluctuations and
The package would broaden spe-
low profits due to investment in
cial powers that the Internal Reve-
start-up operations have made them
nue Service was granted last year
as a group less profitable than U.S.
concerning inspection of the books
companies in selected years.
of the U.S. subsidiaries of foreign
Foreign companies have criticized
companies. The IRS would now be
the 1989 measure, which created
free to scrutinize branches of those
new reporting requirements and
subsidiaries and use the special pow-
strengthened the IRS's powers to
ers in audits that are already under-
fine them and gather documents and
way.
testimony. The companies say it is a
Budget negotiators adopted these
violation of a long-standing U.S.
measures from a bill authored by
principle that foreign and U.S. com-
House Majority Leader Richard A.
panies should be treated alike under
Gephardt (D-Mo.) and Rep. Dan
the law. The Bush administration
Rostenkowski (D-III.), chairman of
has also opposed measures that it
the House Ways and Means Com-
believes would soften this guideline.
mittee. Cracking down on foreign
Yesterday, officials of foreign firm
tax evaders offered a politically easy
seemed to indicate that they could
way to promise to raise revenue.
live with the new arrangements,
But the package they agreed on
which would expand the 1989 law.
does not include several of the bill's
"They're certainly not thrilled with
more controversial features, to
this," said Catherine Porter, an at-
which the White House objected.
torney who represents the Organiza-
Notably absent are proposals to im-
tion for the Fair Treatment of Inter-
pose a withholding tax on foreigners
national Investment, which is
for capital gains and to allow the IRS
composed of foreign investors. "But
broad rights to unilaterally extend
they are relieved that the even more
the statute of limitations on foreign
onerous and discriminatory provi-
companies' tax affairs.
sions suggested this summer were
Congress and the IRS are pursu-
not adopted."
ing tax investigations of a broad
range of foreign companies and
banks. Suspicions of wrongdoing
have been stoked by Treasury De-
partment figures showing that the
U.S. subsidiaries of foreign compa-
nies reported sales of $650 billion in
1987 but profits of only $5.6 billion,
a far lower rate than for American
companies as a group.
Critics contend that profits are
improperly transferred overseas
through the inflation of prices that
parent companies charge in sales to
U.S. affiliates. This, critics say,
short-changes the U.S. Treasury
and also gives the-offending compa-
nies an unfair advantage in the mar-
ket by lowering their tax bills. Japa-
The Washington Post
TUESDAY, OCTOBER 2, 1990
Proposed Luxury-Tax Takes Aim at the High Side
By Warren Brown
Washington Post Staff Writer
If you're thinking about putting
another chinchilla in your closet,
Bush and the congressional leaders
"could accelerate the decline in
BMW in your garage or boat in your
sales," Jacobs said.
slip, you have 91 shopping days left
The picture in the fur and jewelry
until proposed new taxes would
department isn't much prettier.
make that purchase a bit more pric-
It's fairly easy to drop $5,000 for
ey.
a decent mink or an engagement
Starting Jan. 1, if Congress and
ring worth wearing.
the Bush administration can agree, a
At Fendi Furs, $1,300 will buy
new luxury-goods tax of 10 percent
you just a shearling jacket, but if you
would be added to purchase prices
are thinking of the more exotic furs
that exceed $100,000 for a private
such as chinchilla, prices can esca-
boat, $30,000 for cars and $5,000
late as high as $100,000.
for jewelry and furs.
Jewelry prices range, for example,
Upwards of $100,000 may seem
from a $25 silver key chain at Tiffa-
like a lot of boat, but according to
ny into the gem stratosphere.
Phil Keeter, executive director of
Some suggest that there may be
the Marine Retailers Association of
sneaky ploys around the taxes, such
America, that price range repre-
as selling expensive earrings sepa-
sents 25 percent of the private boat
rately, but most retailers said they
market. Those are just normal plea-
would comply with any new taxes.
sure boate," Keeter said. Normal, in
Staff writer Kara Swisher
this case, gets you something like a
contributed to this report.
31-foot-long, 12-foot-wide Express
Cruiser, outfitted with twin eight-
cylinder engines and sleeping space
for four to six people.
"It's nothing that Donald Trump
would look at. It's something pur-
chased by people just attaining suc-
cess," said Jeff Martini, sales manag-
er of Harbor Yacht Sales in Deale,
Md.
People who buy such boats usually
finance them over a 30-year period,
paying about $1,000 a month.
"They're not tycoons," said Martini,
who added that a 10 percent excise
tax "would scare a lot of those peo-
ple away."
"We just don't need something
like this, now," Martini said of the
proposed tax.
It's not exactly great news for au-
tomakers like Jaguar or BMW, ei-
ther.
With car prices ranging from
$39,700 to $53,000, the proposed
tax would affect everything Jaguar
sells in the United States. It
wouldn't be any better for Porsche,
whose cars start at $58,500. BMW
sneaks one model in under $20,000,
but most of its offerings are in the
$30,000 to $70,000 category.
Overall, about 20 percent of the
cars sold in America cost $30,000 or
more, said Susan Jacobs, president
of Jacobs Automotive, a New Jersey
market research company specializ-
ing in luxury-car sales.
The excise tax alone "won't be
catastrophic for luxury-car sales,"
which have been slowing over the
past year. But all of the other taxes
in the package wrapped by President
The Washington Post
TUESDAY, OCTOBER 2, 1990
Financiers, Entrepreneurs
Cool to Budget Package
By Evelyn Richards
Washington Post Staff Writer
MENLO PARK, Calif., Oct. 1-
At the Sundeck, a favorite lunch spot
here for financiers who control much
The measures may help attract in-
of the nation's $33 billion in venture
dividual investors who are willing to
capital, people might have been
remain loyal to a start-up company
beaming today about the tax provi-
during its early years, thus sheltering
sions included in the congressional
it from the "hot and cold" swings of
budget package. But they weren't.
Wall Street, said Gary Steele, presi-
Instead, many venture capitalists
dent of a California biotechnology
and entrepreneurs in Silicon Valley
company that recently surpassed the
were unhappy with Washington's
$50 million mark in equity. For small
budget compromise and uncertain
firms, "it's been brutal to do financ-
about how well it would stimulate job
ings," he said.
growth of the type and proportions
But venture capitalists and institu-
that can significantly bolster the
tional investors, who see themselves
country's competitiveness.
as the real forces behind growth, said
But while these and other backers
the measures just nibble around the
of a full-blown capital gains tax cut
edges of the investment problem.
criticize the accord as doing too lit-
For example, the 25 percent de-
tle, most saw the package as at least
duction, because it would be limited
one small step toward encouraging
to individuals who invest only
investment in small and medium-size
$200,000 a year and wouldn't benefit
companies.
institutional investors in venture cap-
Indeed, the tax package does
ital funds, likely would do little to
promise several benefits for "small"
spur capital-intensive high-technolo-
entrepreneurial corporations—
gy companies-firms like those in
those with equity of less than $50
Silicon Valley that cost millions of
million that are engaged in a trade
dollars to start but have been huge
or business.
job generators.
The object is to make these com-
"I don't see it as a big benefit to
panies more attractive to individual
the economy overall
unless we
investors. For example, investors
feel we need a lot more dry cleaners
would receive a 25 percent deduc-
and shoe repair shops," said venture
tion on the purchase price of stock in
capitalist Dave Marquardt.
such companies, with a maximum
Start-up companies may benefit in-
deduction of $50,000 per year. The
directly, venture capitalists said, by
provision apparently will apply only
being able to use the tax breaks as a
to newly issued shares.
lure to attract employees, who would
Also, individuals who hold their
be paid in part in stock. But many
said the measures aren't enough.
shares for five years would be taxed
at a lower rate when they sell, pro-
"This is a politically nice thing to
vided the company had remained
do and it's helpful for smail compa-
"small" at any-point during the previ-
nies," said Ken Oshman, a two-time
ous two years. Finally, stock held for
entrepreneur who started Rolm
at least a year would be indexed to
Corp. "But my question is why did
eliminate taxes on increased gains
they stop with small companies.
I
due solely to inflation.
wish I could be more enthusiastic, but
I think it's a narrow view."
The companies themselves would
benefit, too, from a one-year in-
Staff writer Stan Hinden
crease in the amount of deductions
contributed to this report.
allowed for spending on research
and experimentation and from a
measure that allows certain equip-
ment purchased by firms with assets
of $50 million or less to be taken as
an expense.
All this won praise from some.
"From the small business perspective
I think it's an extraordinary deal,"
said Allen Neece, a lobbyist for sev-
eral small-business and venture-capi-
tal trade associations.
Some critics were worried, howev-
er. that the tax breaks would spawn
creation of many companies with
doubtful prospects solely to create
tax savings for wealthy investors.
The New Bork Times
NEW YORK, TUESDAY, OCTOBER 2, 1990
White House and Top Democrats
Take Budget Accord to Congress
Senate's Approval Is Likely; House's Is Uncertain
By DAVID E. ROSENBAUM
Special to The New York Times
WASHINGTON, Oct. 1 - Using the
heaviest weapons in their arsenal, the
White House and Congressional Demo-
Working the Hill
crats joined forces today to overcome
Five top Administration officials
spirited opposition from the rank and
spent the day lobbying on Capitol Hill:
file to the sweeping five-year budget
Mr. Quayle; Mr. Darman; Treasury
deal struck over the weekend.
Secretary Nicholas F. Brady; John H.
President Bush dispatched his top
Sununu, the White House chief of staff,
lieutenants, Vice President Dan Quayle
and Michael J. Boskin, chairman of the
and the Administration's chief eco-
Council of Economic Advisers.
nomic policy makers, to the Capitol to
At a luncheon meeting, they man-
quell a rebellion among conservative
aged to mollify most Republican sena-
Republican lawmakers by appealing to
tors. Afterward, Senator Warren B.
their party loyalty. Democratic leaders
Rudman of New Hampshire said he ex-
pected at least 30 of the 45 Republican
in the Senate and House called their
senators to vote for the package.
troops into separate meetings to try to
But House Republicans were a dif-
sell the plan to wary liberals.
ferent matter. "I think we will get a
Senate Likely, House Uncertain
majority of Republicans in the Senate,
but the House going to be more diffi-
At this stage, Senate approval of the
Darman said.
package, which is supposed to reduce
After meeting with Republican
the deficit by $40 billion in the fiscal
members of Congress this afternoon,
year that began today and by $500 bil-
Mr, Quayle said: "I felt a little bit like
lion over five years, appears likely. But
a friendly dentist applying a lot of
the outlook in the House of Representa-
Novocain and trying to extract a few
tives is uncertain and seems to depend
votes. We' not there yet."
largely on whether Mr. Bush can use
Mr. Bush and the Congressional lead-
personal appeals to persuade a ma-
ers bledged to provide the votes from a
jority of Republicans in the House to
majority of lawmakers of both parties
support him.
in both houses. That was done to pre-
vent either party from bearing too
Representative Robert H. Michel of
much of the political pain from voting
Illinois, the House Republican leader,
for unpopular measures like higher
suggested that the plan might well be
gasoline taxes, lower Medicare bene-
voted down in the House on the first try
fits and a reduction of payments to
but would eventually be enacted.
farmers.
The critical votes are not expected
until the week after next. Lawmakers
Enjoying the Fray
will probably be given the opportunity
In the House, Democratic leaders
only to vote for or against the entire
urged their troops to keep quiet while
package, not to amend it.
Republicans fought with the President.
Some liberals, like Representative
Richard G. Darman, the budget di-
Charles B. Rangel of Manhattan, an-
rector, said Mr. Bush planned to call
nounced their opposition. But most said
many lawmakers personally to solicit
they were still studying the details.
their support.
Democratic dissatisfaction is strong-
At a news conference in New York,
est over the $60 billion cut in Medicare
the President said: "I've had to com-
benefits over the next five years and
promise. The Democrats have had to
new excise taxes that would hit middle-
compromise.- And I hope that other
income taxpayers harder than the
voices who are troubled by one aspect
wealthy.
or another of this would also compro-
But the prevailing view is that if the
Republicans produce a majority of
mise. Every once in a while you come
their members, Democrats will go
to a time when you have to do that to
along.
get something done."
"Despite the grumbling and real con-
Supporters of the deficit-reduction
cerns," said Representative Charles E.
plan hope that a tighter fiscal policy
Schumer of Brooklyn, "there's a quiet
will encourage the Federal Reserve
undertone that we have to do some-
Board to lower interest rates. The Fed-
thing and that the leadership did the
eral Reserve's policy-making group
best it could under very difficult cir-
meets here Tuesday.
cumstances."
The main complaint of conservative
The 16 Democratic senators who are
Republicans is that the package would
up for re-election have been "given a
raise taxes by $134 billion over five
free pass," as one of them put it, to vote
years and would not lower the capital
against the measure. But most of the
gains tax.
other 39 are expected to support it.
A- comment from Representative
"The key committee chairmen have
Duncan Hunter of California was typi-
a responsibility to do all they can to
cal. The President," he said, "gave
help the leadership," said Senator Pat-
away the crown jewel of his campaign
rick J. Leahy of Vermont. He is chair-
man of the Agriculture Committee and
pramise to bring the Democrats to the
is upset about cuts in payments to
table. That was 'no new taxes.' The
farmers, but he said he would vote for
President was extorted."
the plan.
Two important Democrats, Senator
Lloyd Bentsen of Texas and Represent-
tion from interest groups and was
ative Dan Rostenkowski of Illinois, the
pushed jointly by a Republican Presi-
chairmen of the tax-writing commit-
dent and Democratic Congressional
tees, are annoyed about the package, in
leaders.
large part because they did not partici-
The tax bill was rejected the first
pate directly in the main tax decisions.
time it reached the House floor, but
Mr. Bentsen is said to be upset over
heavy lobbying by President Ronald
the size of the gasoline tax increase, a
Reagan turned enough votes around to
total of 12 cents a gallon over two
win passage on the second try.
years. Texans drive more than resi-
Across the Capitol and around Wash-
dents of more densely populated states
ington, experts examined the budget
and would thus be affected more than
compromise carefully for the first time
Easterners. On Sunday, Senator Bent-
today. They discovered items that
sen reopened the compromise to add a
could mean that the reduction in the
two-cent-a-gallon tax on home heating
deficit would be considerably smaller
oil, which would hit the Northeast hard-
than advertised.
est:
One was the $7.5 billion the Adminis-
The Bentsen-Rostenkowski Factor
tration expects to spend for military
operations in the Persian Gulf, which is
Among other items, Mr. Rostenkow-
not included in the deficit reduction cal-
ski is said to oppose a provision that
culations.
would require state and local govern-
Another was the $3 billion in addi-
ment workers to pay Social Security
tional revenue the Internal Revenue
taxes. That is important in Illinois,
Service is to collect by hiring more
where state employees have their own
agents and doing more tax audits. The
retirement system and are now ex-
increased enforcement effort should
empt from the Federal program.
indeed lead to more revenue in the
Mr. Bentsen and Mr. Rostenkowski
years ahead, specialists said. But it will
will be largely responsible for drafting
take more than a year to hire and train
the tax plan into law. The two chairmen,
the new agents.
can cause problems if they exercise
In an effort to convince the financial
their authority to make changes in the
markets that this agreement is serious
plan.
about lowering the deficit, the White
At a meeting Sunday night of Demo-
House and Congressional leaders
crats on the Ways and Means Commit-
agreed to the most rigid system ever
tee, Mr. Rostenkowski, who controls his
devised to control new spending or
committee with a firm hand, expressed
lower taxes.
his disappointment in the plan, accord-
For the first three years, the expend-
ing to a lawmaker who was there. The
iture side of the budget would be
chairman reportedly said he could not
divided into three categories: military
personally take on the Democratic
spending, domestic spending and inter-
leadership, but he gave his followers a
national spending.
free hand to do so.
Any measure that exceeded the
Representative William H. Gray 3d
spending ceilings set by the agreement
of Pennsylvania, who is in charge of
for each category would have to be off-
mobilizing Democrats behind the plan,
set by a spending reduction or tax in-
said that changes "on the margins"
crease within 15 days. Otherwise,
might be permissible but that funda-
across-the-board spending cuts would
mental changes would not.
go into place immediately in the cate-
Senator Jim Sasser of Tennessee,
gory where the increase fit.
chairman of the Budget Committee,
For instance, if a law were passed in-
made the same point. "This package is
creasing spending for education by $1
supposed to be non-amendable," he
billion and no spending cut or tax in-
said.
crease were enacted to balance it, all
Warding Off Amendments
domestic programs would be cut by the
percentage necessary to make up for
Under the agreement, if committee
the $1 billion.
chairmen like Mr. Bentsen and Mr.
Rostenkowski want to make changes,
they will have to clear them with the
party leaders, who in turn will have to
clear them with the White House be-
fore they can be authorized.
Floor amendments by back-bench-
ers will be nearly impossible.
In the House, the measure will come
up week after next under procedures
that prohibit or sharply limit amend-
ments.
In the Senate, the party leaders have
promised to mobilize opposition to all
amendments, even those they might
personally support.
"We who support this package are
going to have to vote against amend-
ments we might wish to sponsor or co-
sponsor ourselves," Senator Sasser
said.
Those procedures were employed
successfully in 1985 and 1986 to gain
enactment of the monumental Tax Re-
form Act of 1986.
There are other parallels to the tax
legislation, a measure like the new
budget package that had strong opposi-
The York Times
NEW YORK, TUESDAY, OCTOBER 2, 1990
Rebellion Flares Among Republicans Over Accord
By RICHARD L. BERKE
Special to The New York Times
"WASHINGTON, Oct. 1 - Civil war
As Representative Dan Burton, an
broke out among Republicans today as
Indiana Republican, said, "This is
dozens of House members insisted that
guerrilla war, and you may be rest as-
White House lobbying would not stop
sured that whatever it takes to scuttle
them from seeking to thwart the
this terrible budget package, we will do
budget package announced on Sunday.
it."
The rebellion against the plan, which
Representative Dick Armey, a Texas
includes major increases in taxes, was
Republican, was among several con-
particularly strong among conserva-
servatives who said the plan would
tive Republicans, whose strength was
touch off a recession. "The historians
magnified by the defection of a mem-
will look back and call this is pre-plum-
ber of the party leadership, Represent-
met summit," he said.
ative Newt Gingrich of Georgia, the
Although they were not as outspoken,
Republican whip.
some Republicans declared their sup-
"It is my conclusion that it will kill
port for the plan and emphasized that
the conservatives did not speak for the
jobs, weaken the economy, that the tax
their entire caucus.
increase will be counterproductive,"
Gingrich said as he emerged from
Representative Jerry Lewis of Cali-
a meeting at which top White House of-
fornia, who heads the House Republi-
ficials tried to persuade House Repub-
can Conference, said that among House
licans to support the plan. "And it is not
Republicans "my guess is there's 25
a-package that I can support. We need
percent on each end who have really
to do better than this."
made up their mind, but there's a siz-
As much as anything, the opposition
able number of the conference that are
was driven by elections that are five
kind of in neutral."
weeks away. To many Republicans,
"We're going to see movement back
voting for a plan calling for new taxes
and forth," he predicted. "My guess is
is tantamount to forfeiting the best
that a majority of our caucus will end
issue they have against Democrats. An
up supporting the package. I didn't
attempt to scuttle the agreement fits
say that yesterday.'
the strategy of some conservatives to
Another Republican, Representative
portray Congress as a corrupt institu-
Jim Leach of Iowa, was less hopeful.
tion controlled by liberals who want
"At the moment, it's not close to half,'
nothing but higher taxes.
he said. "What it symbolizes is there is
no more fun in legislating. The fun is in
'Unreasonable and Irresponsible'
giving tax breaks. The 90's are all
Democrats are also in the middle of
going to be about taking."
re-election campaigns, and are partic-
White House officials who fanned out
ularly sensitive about the political
across Capitol Hill to lobby reluctant
repercussions from voting for cuts in
Republicans were careful in their pub-
domestic programs. Representative
lic comments not to underestimate the
Henry A. Waxman, a liberal Democrat
resistance among their party's House
from California, vowed to oppose the
contingent, whose members were de-
package, asserting that increases in
scribed as courteous but cool at meet-
Medicare premiums and cuts in how
ings with Administration officials.
much doctors and hospitals would re-
"It's going to come slowly," Mr. Dar-
ceive from the Government were "un-
man said after appealing to House Re-
reasonable and irresponsible."
publicans' loyalty to the President.
"It's going to be difficult. It's going to
Representative Vin Weber of Minne-
be hard."
sota, a member of the Republican lead-
ership, offered this advice to his par-
ty's candidates: "The candidates
across the country who are listening to
us for some signals today, they should
take on this agreement, label it a
Democrat tax increase agreement that
was basically stuffed down our Presi-
dent's throat. They should oppose it out
in the hinterlands.'
But Vice President Dan Quayle;
John H. Sununu, the White House chief
of staff; Richard G. Darman, the
budget director, and other top officials
spent much of today seeking to per-
suade House Republicans that they
would look better at the polls having
supported a package that the President
strongly wanted to win approval.
Risks for Both Parties
"If they are thinking in strictly politi-
cal terms," Mr. Quayle said after
meeting with House Republicans, "I
think it would be politically risky not to
pass a good budget package. If, in fact,
a budget package is not passed, all are
going to suffer, the Republicans as well
as the Democrats."
White House officials said that be-
cause of the opposition of Mr. Gingrich
and the core of conservatives, the
toughest selling job would be among
House Republicans. And no one on ei-
ther side was willing to predict
whether the lobbying effort would be
successful, at least on a first pass.
The New Bork Times
NEW YORK, TUESDAY, OCTOBER 2, 1990
Capital Gains and Circles Within
Inner Circles: Behind the Budget Accord
By SUSAN F. RASKY
Special to The New York Times
tract a concession on Social Security to
WASHINGTON, Oct. 1 - Ten days of
balance the political heat Mr. Bush had
tedious and seemingly unproductive
already taken for agreeing to consider
bargaining at Andrews Air Force Base
tax increases. Their own strategy also
in early September laid the ground-
clarified. Match the Administration on
work. for the budget compromise that
spending cuts and isolate the tax issue
President Bush and Congressional
to embarras the White House.
leaders unveiled at the White House on
For two days, the top-level negotiat-
Sunday.
ing group circled around the issues,
They called it "Camp Runamuck," a
going nowhere. In Republican strategy
chaotic blur of days and nights in which
sessions, Senator Phil Gramm of
lawmakers from both parties postured,
Texas, part of the larger Republican
politicked and found little to agree on
negotiating team, argued that Demo-
except the high quality of the food. But,
crats would eventually accept a capital
according to interviews today that
gains cut because so many of their
gave.at least a partial picture of the
rank and file members actually fa-
long process that lead to the agree-
vored the reduction.
ment, two developments occurred that
Mr. Michel, convinced that restive
would eventually prove important in
House Republicans would never agree:
sealing the pact.
to any measure that could be construed
The House majority leader, Richard
as an increase in tax rates, counseled
otherwise. Mr. Dole and moderate Re-
A. Gephardt of Missouri, who was
heading the talks, and Richard G. Dar-
publicans who were not part of the ne-
man, the White House budget director,
gotiating group watched with mounting
established their own private sessions,
frustration as the press reported a
ostensibly meeting each day to plan
budget deadlock caused by the Presi-
logistics, but in fact spending hours dis-
dent's demand for tax breaks that
cussing areas in which the two sides
would help the rich.
might come together.
On Wednesday night, Sept. 19, Sena-
Core of Tax Plan
tor Dole reached the breaking point,
those close to the talks said. Separate
Al-the same time, members of the
the cuts in capital gains from the other
negoriating team who serve on the Con-
issues, he suggested at a late night bar-
gressional tax-writing committees
gaining session. If it worked, fine, he
were meeting separately from the
said. If it did not, at least Republicans
larger group. They slowly put together
would not be blamed for blocking an
a package of items to raise revenues,
agreement.
that unlike a tax on capital gains or a
Throughout the discussions, the capi-
limit on deductions for state and local
tal gains proposal advanced by Repub-
taxes, were relatively noncontrover-
licans called for reducing the rate to 15
sial.
percent. That was a more generous cut
When the talks at Andrews ended in
than the one proposed by President
deadlock on Sept. 17, Congressional
Bush in his January budget, which
Democrats and Republicans and the
would have lowered the rate to 19.6 per-
Administration had tentatively agreed
cent. Capital gains, the profits on sales
on $59 billion of such tax items. Those
of assets like stock or real estate, are
items would ultimately become the
currently taxed at the same rate as or-
core of a five-year plan to raise $134
dinary income, 28 percent for most tax-
billion in taxes.
payers.
"The exit offers we left with from
Among the negotiators, Mr. Dole's
Andrews were political documents,"
proposal went nowhere. Although
said one Democrat involved in the
Democrats had been privately ponder-
talks, explaining that the offers were
ing a similar notion, they were nearly
intended to show that neither side had
as surprised as the White House that
given ground on major issues but had
Mr. Dole had suggested it, and they
made a sincere effort. "They were de-
watched silently as Mr. Sununu blew
signed to cover our rear ends in case
up.
the whole thing blew up."
"We saw a Republican fissure and
A Smaller Group
we did our best to keep quiet," is how
one Democratic strategist explained it.
The negotiators agreed that if there
A day later, on Sept. 20, Mr. Dole made
was any hope of a compromise, the
his proposal public, and by Sunday.
talks would have to be confined to a
smaller group consisting of the top five
Sept. 23, when the Kansas Senator ap-
peared on a television news program
Congressional leaders and the Admin-
with Mr. Mitchell, both men were sug.
istration's three representatives, Mr.
gesting that if left to their own devices
Darman, Treasury Secretary Nicholas
F. Brady and the White House chief of
they could swiftly have an agreement.
In negotiations that night, Republi-
staff John H. Sununu.
In addition to Mr. Gephardt, the
cans offered two new proposals, one
that would address the Democratic de-
Democrats were represented by the
House Speaker Tom Foley of Washing-
mand to even out tax rates paid by the
wealthiest Americans and those with
ton and the Senate majority leader,
George J. Mitchell of Maine. The Sen-
incomes in the $100,000 to $200,000
range and provide a two-tier tax rate
ate minority leader Bob Dole of Kansas
on capital gains - a higher rate for old
and the House minority leader, Robert
assets and a lower one for newly ac-
H. Michel of Illinois represented Con-
quired assets. The other proposal
gressional Republicans.
would abandon any effort to change the
By the time the "Big Eight" re-
sumed deliberations on Capitol Hill on
capital gains tax if Democrats would
Sept. 18, it was clear that resolution of
drop their demand for higher taxes on
the deadlock hinged on two central
wealthy Americans.
issues: Would Democrats agree that
In addition, the Republicans sought
the Social Security program should
an extension of an expiring business
bear a share of the spending cuts and
tax credit for research and develop-
would Republicans abandon President
ment and various other tax breaks for
Bush's goal of a cut in the capital gains
smaller businesses. Stunned Demo-
tax rate or accept a Democratic de-
crats ignored the first offer and began
mand that tax rates be increased to
responding to the second, realizing that
pay for it.
the dike on capital gains had finally
Democrats say Mr. Sununu made
been broken.
clear that the White House had to ex-
By Monday night, Sept. 24, however
Republicans appeared to reverse
course, offering a proposal to exclude
from taxes the portion of capital gains
solely due to inflation.
Democrats said the indexing "pro"
posal, like a cut in the capital gains tax,
would require a tax increase on the
wealthy to balance out expected losses
in revenues and to keep the tax system
progressive. As the Democratic staff
members searched for tax alternative
that would accomplish that goal with
out running afoul of the Republican
stricture that rates not be increased,
Mr. Mitchell became increasingly. agi:
tated, one Democrat who was present
recalled.
Slamming down his yellow legal pad
he turned to other Democrats in a brb
vate party caucus and complained that
the situation seemed hopeless because
the most efficient method for raising
revenue and keeping the tax code pro,
gressive was a rate increase, and that
avenue was blocked.
At the White House, Administration
officials were coming to a similar con-
clusion about the Democratic insist-
ence that rates be increased. President
Bush began talking less about capital
gains in his public appearances and
referring instead to growth incen-
tives."
"You saw us backing away from
capital gains, or if not exactly backing
away from it, then recognizing that
there might be another way to skin the
cat in terms of capital incentives a cou-
ple of days before Dole's comments,"
one Administration official said. "Sig-
nals were being sent in public state-
ments and in private."
Visible Animosity
But by Tuesday, Sept. 25, the ani-
mosity between Congressional Repub-
licans and the White House was barely
disguised, and Mr. Michel began send-
ing some public signals of his own. He
told reporters that the price for capital
gains had simply become too high.
The negotiators worked through.the
night on Saturday, eventually finding
enough spending cuts elsewhere to
avoid any changes in the Social "Se-
curity program. Exhasuted staff mem-
bers rushed to put the final documents
together in time for a hastily convened
announcement in the White House
Rose Garden on Sunday afternoon.
"It's good to be back to life and tak
ing fluids again," Mr. Gephardt said to
day.
The New York Times
NEW YORK, TUESDAY, OCTOBER 2, 1990
Aches Aside, An Eclectic Accord
That Economists Say Seems to Fit
By PETER PASSELL
"There's a puff of smoke here and a
glint of mirrors there," said one grudg-
ingly satisfied Congressional staff
For political reasons this five-year
member. "But the budget deal is
plan, like many in the past, shows a
mostly made of beef."
zero deficit in the last year. That still
His sense of relief is shared by many
does not mean the deal will eliminate
economists, who have
the deficit by anyone's definition. But
been hoping for a compro-
to Benjamin Friedman, an economist
Economic
mise on the contentious
at Harvard and a leading critic of the
Analysis
issues that delayed the
fiscal policies of the 1980's, "there's
budget settlement until
nothing magic about a balanced budg-
the 11th hour. For while al-
et." Indeed, in the view of many econo-
most none are impressed by the hodge-
mists, there would be real mischief
podge of tax increases and spending
done is attempting to balance the
cuts, the size and timing of the pro-
budget too quickly.
jected deficit reduction seems about
For Mr. Hale, the $40 billion reduc-
right to all.
tion next year is "about right." Any
The agreement is perhaps most nota-
less restraint on national spending and
ble for what it does not contain. Presi-
the budget deal would lack political
dent Bush was forced to give way on
credibility; any more, and an already
his effort to reduce taxes on capital
sluggish economy could easily slip into
gains. Congressional Democrats lost
deep recession. In later years the defi-
their bid to raise income tax rates for
cit restraint would cut more deeply.
families making more than $200,000.
But by then, Mr. Friedman points out.
And reformers in both parties threw in
the Federal Reserve will have had time
the towel on a plan to trim Social Se-
to compensate with lower interest
curity payments to affluent benefici-
rates, "giving monetary policy a
aries.
chance to make a graceful transition.'
With a little luck, America will enter
A Little of This and That
the mid-1990's with a budget deficit of
What did emerge from the negotia-
about 1 percent of the Gross National
tions was a little of this and a little of
Product - roughly one-third the level
that - a mix of excise taxes, user
of the late 1980's. Is that good enough?
charges, limits on income tax deduc-
It would not displease Mr. Friedman,
tions, military spending and farm sub-
who despite his reputation as a "neo-
sidy cuts and Medicare trims. First-
Calvinist" economist, would be satis-
year deficit reduction amounts to $40
fied by any deal that allows a decline in
billion. But by the fifth year the savings
the ratio of the national debt to national
have grown to about $150 billion.
income. And it would probably also sat-
Budget definitions were juggled to
isfy economists who worry that Japa-
meet targets imposed by the Gramm-
nese and German investors are rapidly
Rudman-Hollings deficit reduction
losing their enthusiasm for lending
law: Roughly $100 billion needed for
money to the United States Treasury
the savings and loan bailout over the
"This is the first fiscal reform" Mr.
next three years will not be counted. So,
Hale notes, "which was driven by inter-
too, were assumptions about the econ-
national finance.
omy's midterm prospects - assump-
What it would not do, however, is
tions that David Hale, an economist at
make fiscal room for a surge in public
Kemper Financial Services calls "pure
and private investment - a surge that
fantasy.'
some economists believe is needed to
The budget brokers guessed, for ex-
cure ills ranging from chronic poverty
ample, that in 1995 the Treasury would
to lagging productivity growth. But as
be ablego borrow money at 4.2 percent
Mr. Hale suggests, it may be wiser to
interest (down from 7 percent today),
focus on "one deal at a time."
and that a combination of the highest
growth rate since the 1960's and the
lowest inflation rates since the 1950's
would jack up tax revenues and tame
spending.
But such political legerdemain, now
a routine of every budget crisis, is not
likely to upset economic analysts. Fis-
cal experts like Robert Litan of the
Brookings Institution have long in-
sisted that the savings and loan bailout
does not belong in the budget. Deficits
and surpluses, he argues, are useful as
indicators of the Government's impact
on on overall economic activity. And
spending on the bailout, money re-
turned to insured bank depositors, is
unlikely to affect their spending or sav-
ings behavior because they never
thought they lost the cash in the first
place.
Outlook on the Deficit
What is more, the budget negotiators
have actually weighted the deficit
game against themselves in the later
years by excluding a portion of what is
conventionally defined as the Social Se-
curity surplus. In 1994, for example, the
combined effect of excluding both So-
cial Security and the savings and loan
bailout increases the projected deficit
by $128 billion.
The New York Times
NEW YORK, TUESDAY, OCTOBER 2, 1990
Cost Increases for Medicare Recipients Stir Protests
By ROBERT PEAR
Special to The New York Times
WASHINGTON, Oct. 1 - A biparti-
san budget agreement that would sig-
nificantly increase costs for 33 million
Arthur S. Flemming, who served as
Medicare beneficiaries stirred angry
Secretary of Health, Education and
protests today from elderly people,
Welfare in the Eisenhower Administra-
who threatened to take political venge-
tion and now leads a coalition of advo-
ance against members of Congress
cates for the elderly, said, "If the
who support the measure.
budget summit agreement is put intc
The first stirrings of anger from the
effect, it's clear that Medicare bene-
elderly were felt on Capitol Hill, but it
ficiaries would be paying far more our
was unclear whether lobbyists for the
of their own pockets than has been the
elderly would succeed in blocking the
case up to the present."
changes, which were agreed on Sunday
$60 Billion in Savings
by the Bush Administration and Con-
gressional leaders.
The agreement would save $60 bill
Members of Congress who specialize
lion in Medicare over the next five
in health policy, including Representa-
years. That represents nearly one-fift)-
tives Pete Stark and Henry A. Wax-
of the $301 billion to be saved through
man, both California Democrats, criti-
cutbacks in Federal spending and half.
cized the Medicare provisions of the
of the $119 billion to be saved in Fed.:
agreement, saying they imposed a dis-
eral benefit programs.
proportionate burden on the elderly.
"That's an indefensible, inequitable
"To put such a burden on the backs
situation;" said Mr. Flemming, who is
of the elderly, while the budget summit
85 years old. "Older and disabled citi
agreement lowers the burden on the
zens are not going to tolerate it. People
rich, is obscene," said Mr. Stark, who is
at the grass roots are aroused and will
chairman of the House Ways and
express themselves in no uncertain-
Means Subcommittee on Health. Mr.
terms between now and the elections ir
Stark, one of the more liberal members
November."
of his party in Congress, said he would
About half the $60 billion to be saved
ask the Ways and Means Committee to
would come from restricting payments
approve an alternative that would in-
to doctors, hospitals and others whe
crease Medicare payroll taxes for the
provide health care services.
affluent.
Mr. Stark, who has served in the
Details of the budget agreement
have not yet been worked out, but the
House for 18 years, expressed irrita-
budget agreement would result in
tion with the Speaker of the House,
three other major changes in the Medi
Thomas S. Foley, saying he had been
care program. The Medicare premium
"too lenient" in negotiating with the
for insurance covering doctors' bills:
Administration.
now $343 a year, would rise to $651 ir-
"The Speaker is too willing to com-
1995 under the agreement. The Medi.
promise just to keep peace," Mr. Stark
care deductible, which must be paid byr
asserted. "That's not what the leader
beneficiaries before the Government
of the Democrats ought to be doing. He
starts to pay doctors' bill, would rise to
ought to be fighting for Democratic
$100 on Jan. 1, then to $125 in 1992 and
principles.
$150 in later years. The deductible has-
He added, "There's disillusionment
been $75 a year since 1982. The budge
with the Speaker among more than a
agreement would also require Medi-
few Democrats up here.'
care beneficiaries to pay 20 percent of
Mr. Waxman, the chairman of the
the cost of work done for them by medi-
Health Subcommittee of the Energy
cal laboratories. Under current law.
and Commerce Committee, said in an
Medicare now pays the entire cost of
interview that he would vote against
such work.
the deficit-reduction package because
"the elderly take an enormous hit
More Income Subject to Tax
X
under this agreement."
"The budget agreement would freeze
In addition, the agreement includes a
public health programs at current
related provision that would increase
levels," Mr. Waxman said. "Unfortu-
the amount of wages subject to the
nately, infectious diseases will not be
Medicare payroll tax. Currently, em,
frozen at current levels. There is a
ployer and employee each pay 1.45 per-
measies epidemic in the United States.
cent of the first $51,300 of a person's an-
Tuberculosis is growing, and AIDS con-
nual earnings. The agreement would:
tinues to increase, especially among
increase wages subject to the tax
those least able to pay for their own
$73,000 a year, effective Jan. 1, 1991.
care."
The extra tax, which Mr. Stark said
No Real Cut in Medicare
would generate $13 billion a year, is not
counted as part of the savings from
Representative Bill Gradison of
Medicare.
Ohio, the ranking Republican on the
Mr. Stark said he wanted to impose
Ways and Means Subcommittee or.
the Medicare payroll tax on earnings
Health, said he could "live with" the
up to $150,000 a year, so "the rich would
changes envisioned in the deficit-re-
bear more of the burden" of reducing
duction package. "We didn't write this
the Federal budget deficit.
budget agreement, but we have to offer
For most elderly people, Medicare
the House a means of implementing it
premiums are automatically deducted
so the House can work its will," Mr.
from monthly Social Security checks.
Gradison said. "I haven't decided how
I will vote on the overall package.'
Mr. Gradison said it was incorrect H
suggest that Medicare would be cut as
a result of the budget agreement. The
program, which cost more than $10C
billion in the fiscal year that just Sun-
day, would still grow at an annual rate
of 11 percent in the next five years, ht.
said. The agreement would make "a
modest cut in the rate of growth" of
12.6 percent a year envisioned under
current law, Mr. Gradison said.
The New York Times
NEW YORK, TUESDAY, OCTOBER 2, 1990
Tax Rises Seen Hitting Hard
At People of Moderate Means
By ROBERT D. HERSHEY Jr.
Special to The New York Times
WASHINGTON, Oct. 1 - The sub-
stantial tax increases agreed to by Ad-
ministration and Congressional nego-
to be a limitation on itemized deduc-
tiators over the weekend would be paid
tions for individuals or couples with ad-
justed gross incomes above $100,000 a
mostly by people of moderate means,
year, a move that has the effect of rais-
despite various provisions aimed
ing their tax bracket - either 28 per-
specifically at buyers of yachts and
cent or 33 percent - by as much as one
others with six-figure incomes, private
percentage point. This is to raise $18
specialists said today.
billion over the 1991-95 period.
The taxes, especially the 12-cent in-
With medical expenses and invest-
crease for gasoline to be phased in by
ment-related interest payments ex-
next summer, also appear to cut across
empted, such taxpayers would lose de-
economic lines to favor urban over
ductions equal to 3 percent of all in-
rural Americans and older taxpayers
come exceeding $100,000.
over younger ones.
Regressivity Balanced
According to a Government docu-
Other big revenue raisers, $13 billion
ment made available to The New York
and $11.7 billion respectively, are an in-
Times, taxpayers in the income ranges
crease, to $73,000, in the cap on wages
of $30,000 to $40,000 and $40,000 to
and self-employment income consid-
$50,000 would be hit hardest, paying an:
ered in calculating the tax for Medi-
average 3.3 percent more under the
care hospital insurance and a require-
ment that state and local government
plan. Those in the range of $20,000 to
workers not covered by a public em-
$30,000 would pay 3 percent more while
ployee retirement system join the So-
those in the ranges of $50,000 to $75,000
cial Security program and pay its
and $75,000 to $100,000 would see their
taxes.
total tax bills rise 2 percent, assuming
By including the deduction limitation
they do not alter their spending pat-
and raising the cap for health insur-
terns.
ance, which hit hardest at the better-
1.5 Percent More for Some
off, the negotiators seem to have
roughly balanced the regressivity that
Taxpayers with incomes of $100,000
attaches to the excise levies on ciga-
to $200,000 are to pay 1.5 percent more
rettes and alcohol, as well as gasoline.
and those reporting $200,000 and more
are expected to pay an extra three-
The package "doesn't seem to be
tenths of 1 percent.
highly regressive at all," said Isabel V.
Sawhill, an economist at the liberally
Only those in the lowest income
inclined Urban Institute.
rungs are expected to pay less. A 3.8
percent decline is forecast in overall
taxes for those in the $10,000-to-$20,000
According to the Congressional
Budget Office, American families
bracket and a drop of one-tenth of 1
spent 2.7 percent of after-tax income on
percent for those with less than $10,000
gasoline, 2 percent on liquor, wine and
a year. These taxpayers would benefit
beer and 1.1 percent on tobacco. The
heavily from an increase in the earned
poorest 20 percent, however, spent 6.9
income tax credit.
percent for gasoline, 3.7 percent for al-
Over all, Federal collections - sales
cohol and 4 percent on tobacco. The
as well as income taxes - are to rise
second-richest 20 percent, with in-
1.6 percent, the calculation showed.
comes averaging $38,000, spent 2.9 per-
Despite the reduction for those with
cent for gasoline, 2.2 percent for alco-
hol and 1.1 percent for tobacco.
the lowest incomes, economists gen-
erally. regarded the tax proposals as
The budget office also reported
mildly regressive. This means that the
earlier this year that families headed
burden would falls relatively more
by someone under 30 spent a greater
heavily on those of ordinary means -
portion of their incomes on all three of
though the dollar amount of their in-
these categories than did other age
creases may be no greater - than on
groups. Geographically, rural Amer-
the wealthy.
icans spent 29 percent more of their in-
Aft extra 12 cents for a gallon of gaso-
comes for gasoline than did those in the
urban Northeast.
line, for example, could be a serious
blow to a $350-a-week clerk who drives
Norman Ture, president of the Insti-
long distances to work while the addi-
tute for Research on the Economics of
tional amount would scarcely be felt by
Taxation and a former Treasury De-
a high-income corporate executive.
partment official in the Reagan Admin-
Unlike the major tax overhaul
istration, said, "My instinct tells me
enacted in 1986, when economic theory
this is more regressive than not." But
was served by a slash in income tax
he added that this was a highly com-
rates and an expansion in the types of
plex issue not amenable to quick analy-
revenue subject to taxation, this year's
sis. He observed, for example, that it
negotiations were driven by a need to
might be progressive to impose a lux-
cut the budget deficit in some politi-
ury tax on fur coats, as the budget
cally palatable way.
negotiators propose, but a thorough
analysis would also consider the fact
The only major assault on the princi-
that mink ranchers or the furriers who
ples governing the 1986 law appeared
sell the coats might lose their jobs if de-
mand fell, a result he called clearly re-
gressive.
Much analyses of progressivity and
regressivity, moreover, assume that
higher taxes will not induce people to
alter their behavior significantly - in-
deed, the proponents of the measures
are counting on people to buy nearly as
much gasoline. Otherwise, revenue tar-
gets would not be reached. Some
groups, however, will undoubtedly cut
purchases more than others, shifting
the regessivity-progressivity balance.
"The budget process focuses on 'the
deficit' to the exclusion of all other
issues. No rational policy will emerge
as long as this remains true."
Real estate tax and marketing ex-
perts suggested today that limits on de-
ductions for people with incomes over
$100,000 would probably have little im-
pact on the real estate market. M. Jack
Duksin, a partner with the law firm of
Berlack, Israels, Liberman, calculated
that the total additional Federal tax bill
to someone making $250,000 would be
about $1,260.
"Nobody making a quarter-million
dollars is going to base a big decision
about buying a new condo or vacation
home on a tax impact of $1,260," he
said, adding that he had already taken
several calls from clients wondering
about the impact of the budget compro-
mise on their real estate purchasing
plans.
"I think it's a step in the right direc-
tion," Mr. Duksin said, "because it's an
attempt to redistribute wealth without
seriously damaging the incentive to be
a high wage-earner."
The Washington Times
TUESDAY,
OCTOBER
2,
1990
House GOP leaders
buck Bush on budget
By Major Garrett
and Frank J. Murray
me more Republicans.'
THE WASHINGTON TIMES
But after separate private meet-
But, according to the ABC News
ings with fellow lawmakers from
The White House launched a
public poll, 32 percent of those ques-
their respective chambers, Senate
heavy lobbying effort yesterday for
tioned considered the pact good and
Majority Leader George Mitchell of
1 percent called it excellent. But 65
the proposed $500 billion bipartisan
Maine and Senate Minority Leader
budget deal, but the plan provoked
percent rated it unfavorably.
Robert Dole of Kansas took to the
open defiance from prominent
"The Republican Party has done
Senate floor to say they were moving
House Republicans, including Mi-
quite well for the last 10 years stand-
toward lining up majority support
ing for modest levels of taxation and
nority Whip Newt Gingrich.
for the budget compromise.
Despite heavy lobbying and some
regulation and championing eco-
"I feel optimistic we'll produce
veiled threats from the Bush admin-
nomic growth," said Rep. Vin Weber,
half or more from the Republicans,"
Minnesota Republican and secre-
said Mr. Dole.
istration, Mr. Gingrich and other
tary of the House Republican Con-
"All we can do is try," said House
GOP leaders announced they would
ference.
Majority Leader Richard Gephardt,
buck President Bush and oppose the
"And our candidates across the
Missouri Democrat. "This is a big
five-year budget plan offered Sun-
country who are listening to us for
decision for members. It's a very
day by congressional and White
some signals today should be aware
tough call and a close call."
House negotiators. The deal in-
they should take on this agreement,
Mr. Mitchell and House Speaker
cluded $134 billion in new taxes and
label it for what it is a Democratic
Thomas Foley of Washington ex-
servings of $366 billion,
tax agreement that was basically
pressed similar optimism yesterday.
"It is my conclusion that it will kill
shoved down our president throat."
An aide to Mr. Mitchell said many
jobs, weaken the economy. The taxes
Several Democrats also criticized
senators had questions about the
will be counterproductive, and that
the budget agreement, hammered
package and were withholding judg-
it is not a package that I can sup-
out over five months of negotiations
ment.
port," said Mr. Gingrich of Georgia,
between the White House and Con-
Numerous Democrats do not like
the No. 2 Republican in the House.
gress.
the package's $105 billion in spend-
"It's not good for America."
Congress must pass the first
ing reductions for benefit programs
Mr. Gingrich and members of the
stage of the budget agreement by
such as Medicare and the fact that
House Republican leadership met
Friday or risk more than $105 billion
many of the taxes - such as those
with reporters after a stormy meet-
in spending cuts under the Gramm-
on gasoline and alcohol - take a
ing with Bush administration offi-
Rudman-Hollings deficit-reduction
deep bite out of poor people's in-
cials.
law.
comes.
According to sources, White
The political fault lines splitting
"Obviously, it is not a proposal
House Chief of Staff John Sununu,
Republicans are familiar. Mr. Ging-
that most members of Congress
who helped craft the budget deal,
rich represents conservatives ada-
want to rush out screaming in the
warned that defectors would hurt
mantly opposed to higher taxes and
streets with joy about," Mr. Foley
their relations with President Bush.
higher spending.
said of the overall plan.
Many took the comment as a threat
On the other side is House Minor-
Mr. Bush, on his flight back to
and hooted Mr. Sununu, sources
ity Leader Robert Michel of Illinois,
Washington on Air Force One last
said.
who spent yesterday stitching to-
night, was asked about the $60 bil-
Mr. Bush and Vice President Dan
gether a coalition of moderate and
lion in Medicare cuts that would
Quayle, who canceled a scheduled
liberal Republicans he hopes will be
strike the elderly.
trip, telephoned GOP lawmakers in
large enough to beat back Mr. Ging-
"Well, what are you going to do?"
an effort to round up their support
rich's affront.
Mr. Bush said. You can't keep every-
for coming votes on the budget pack-
It is a crucial task for Mr. Michel,
body happy. I learned that long ago.
age.
one of two congressional Republi-
You've got to do what's right. That's
In New York, Mr. Bush brushed
cans involved in the budget talks.
what we're trying to do."
off questions about Mr. Gingrich's
The success of the budget deal de-
Democrats said yesterday that
defection, saying, "I'd expect all Re-
pends on a risky political compact:
the task of molding support for the
publicans and all Democrats to sup-
The deal must win with majority
package would be helped greatly if
port me, but that's not the way it
support of both parties in both
Mr. Bush would deliver a television
works in real life."
chambers.
address explaining to Americans
And moments after urging Con-
An aide to Mr. Gingrich said at
why the nation's ailing economy
gress to keep debate on the new bud-
least 100 of the 176 Republicans op-
needs such bitter budgetary medi-
get free of partisan politics, the
posed the package yesterday. To
cine.
president said that only the election
meet the political ground rules SO
"We in Congress can't prepare
of Republicans could control taxes.
far established, at least 89 Repub-
them," said Sen. Wyche Fowler,
"We must put aside partisanship
licans would have to support the
Georgia Democrat who participated
for the sake of our nation," Mr. Bush
package.
in most of the five months of budget
said during a signing ceremony for
"We represent a substantial num-
bargaining this year. "It is only the
the continuing resolution passed
ber of members who are deeply con-
president going on national TV who
Sunday to keep the government op-
cerned about avoiding a recession
can convince the public it is in their
erating while the budget plan is be-
and about preserving jobs," said Mr.
long-term best interest
If he con-
ing implemented.
Gingrich.
vinces them of that, it will pass."
"Now it's up to Congress," he said.
An aide to Mr. Michel said a for-
Democrats had asked Mr. Bush at
"It is balanced, it is fair."
mal vote count had not been taken
the White House Sunday to make the
But he quickly rose to the bait
and would not estimate the depth of
speech, according to meeting par-
when reporters asked what a $134
GOP support for the package.
ticipants. Mr. Bush told reporters in
billion tax increase and no reduction
New York that he had not yet decided
in capital gains taxes say about his
whether to go on television.
"read my lips" campaign promises.
"But if it would help, I would be
"It says you need more Republi-
glad to do that," the president said.
cans and then we'll do it exactly my
This article is based in part on
way," Mr. Bush said. "I'll be glad to
wire service reports.
take my case out [to the people] and
sav 'If you want all these things, give
The Washington Times
TUESDAY, OCTOBER 2, 1990
GOP candidates quick
to condemn 'bad' deal
By Donald Lambro
THE WASHINGTON TIMES
Republican officials, campaign
out politically is beyond me at the
strategists and candidates gave
moment."
President Bush's budget deal mixed
Yet, like his Texas counterpart,
reviews yesterday as they assessed
Mr. Shamie chose to blame "the
its likely political impact.
Democratic big spenders in Con-
While top GOP officials stressed
gress" for putting Mr. Bush in the
that Mr. Bush had grabbed the defi-
position of having to accept higher
cit problem by the horns and
taxes. "The answer is not to get mad
achieved the best compromise he
at the president, the answer is to
could with the Democrat-controlled
throw out of Congress the Demo-
Congress, some of the party's candi-
crats who opposed the spending re-
dates moved quickly to condemn the
ductions that brought about this
package's taxes and Medicare cuts.
budget compromise."
Illinois Rep. Lynn Martin, who is
Other state party officials from
challenging Democratic Sen. Paul
around the country were supportive
Simon, was one of two GOP sen-
atorial candidates who lashed out
of the White House budget deal with
against the agreement, saying it was
the Democrats, according to Mary
"bad for senior citizens, bad for tax-
Matalin, chief of staff at the Repub-
payers and bad for the state of Il-
lican National Committee.
linois."
"Nationally, our committee mem-
Similarly, Rep. Bill Scheutte of
bers and state parties are happy with
Michigan, who is opposing Demo-
the agreement," she said. "I think
cratic Sen. Carl Levin, said the bud-
they'l generally be supportive."
get plan. was "the wrong medicine
Miss Matalin suggested that more
for a soft economy."
was being made of the budget pack-
But other party leaders at both
age's taxes here in Washington than
the national and state level were gen-
"out there beyond the beltway. When
erally supportive of the agreement
you get outside the capital, you find
the president had reached with the
that people are saying we need defi-
Democrats and dismissed sugges-
cit reduction, so let's get on with it.
tions that the tax and spending pack-
They're saying 'raise some taxes,
age would hurt their party in the fall.
cut some spending and balance the
"I don't think this will do any dam-
budget.'
age to us in the near term," said Fred-
When the smoke clears from the
erick Meyer, chairman of the Repub-
congressional battle over whether or
lican Party in Texas.
not to approve the budget, she said,
Mr. Meyer acknowledged that the
"the American peple will support
package "can't help but blur" the dif-
the fact that George Bush had the
ferences between the two parties
tenacity to jam this thing through."
over taxes "for those who pay little
Party officials acknowledged yes-
attention to the particulars."
terday that there was growing oppo-
But he said the voters would give
sition among conservative Republi-
the president credit for trying to ex-
cans in the House, but aides to
tract "the best deal he could from a
Senate Republicans said they did not
Democratic Congress that would
detect any groundswell of opposition
have raised taxes more and spent
in their caucus.
more if it were not for this compro-
"There are going to be some votes
mise."
against it," said a Senate Republican
Ray Shamie, the GOP chairman in
Conference official. "But I don't see
Massachusetts where Republicans
somebody planting the flag and ral-
have mounted a major campaign of-
lying the troops against this side on
fensive against higher state taxes,
our side."
said "the idea that we're going to
Republican campaign consultant
increase taxes substantially is a
Eddie Mahe described the package's
cause for concern. How this plays
gas tax increases as "politically
mindless in the face of quadrupled
oil prices."
In the end, Mr. Mahe predicted
that the measure would end up pro-
tecting most incumbents "because
they'll have time to go home and tell
their constituents what would have
happened if we didn't have a compro-
mise and that triggered across the
board budget cuts.
"This goes into the history books
if it passes," he said.
The Washington Times
TUESDAY, OCTOBER 2, 1990
Critics of budget pact find
forum on call-in America
By Alan McConagha
THE WASHINGTON TIMES
Reaction from callers to radio talk
budget package, according to David
shows yesterday over tax increases
Rimmer, program director.
on gasoline, cigarettes and alcoholic
Susan Hanson, producer at KING
beverages ranged from apathy to
in Seattle, said: "Not a lot of reaction
outrage. There was, however, clear
yet.
People are waiting to see the
agreement on one point: Nobody is
fine print before they shoot their
for it.
congressman - or what."
Across the country, talk-radio
Mike Rosen, host of a talk pro-
hosts found no support for the bud-
gram at KOA in Denver, said: "Peo-
get agreement that has already
ple think it's bull. They think it is a
raised intense criticism from some
sham, that Congress is doing this to
members of Congress and other po-
be doing something. It's purely sym-
litical leaders.
bolic."
As they took calls from their lis-
teners, talk-radio stations also found
Tim Morrissey, station manager
criticism of both the Democrat-
of WTDY in Madison, Wis., said: "A
dominated Congress ("a, sham") and
lot of callers felt betrayed. They
used the word. They felt that Pres-
Republican President George Bush
("betrayal") over taxes.
ident Bush, with his 'Watch my lips,'
sold out the Republicans."
The callers were reacting to
agreement on a $500 billion deficit-
Listeners calling WABC in New
reduction package that includes
York also thought the GOP got "the
$134 billion in new taxes.
short end of the stick," according to
Harley Carnes, who does both news
Among the proposed measures
and talk shows. "There's resentment
are an increase of 10 cents on a gal-
lon of gasoline by July, a boost of 8
on gas, yes; beer and cigarettes, less
so."
cents over three years on a package
of cigarettes and a doubling of the
Joan Isabella, executive producer
tax on a six-pack of beer to 32 cents.
at Detroit's WXYT, said: "The big-
gest thing is gas. There is no public
In San Antonio, WOAI producer
Kevin Geiger said, "There was defi-
transportation here. They aren't real
angry, but after hour after hour of
nite opposition. One guy said, 'If I'm
sitting at home on a Saturday night
these calls, you know they are ticked
off."
smoking a cigarette and having a
beer, I'm really in trouble.'
In Cheyenne, Wyo., KFBC host Ed
"I would say that it [the agree-
Gezzi also reported gas is an issue:
ment] added fuel to the flames of the
"They don't think it's fair. They say,
anti-government, anti-incumbent
'What about a tax on rapid transit?
fire," Mr. Geiger said after the morn-
Let's get the big cities in on this.' Out
here people often drive 60, 70 miles
ing session with callers to his sta-
to work."
tion. "People are really ticked off."
On the other hand, Drew Hayes,
Brenda Vaughn, producer at
operations director of WLS in Chi-
KVOR in Colorado Springs, Colo.,
cago, said: "Are you ready for this?
said: "With gas prices already so
They hardly care. Hardly anybody
high anyway, the price is already
mentioned it. It's two-by-four mar-
$1.47 a gallon. There was lots of
grumbling about that."
keting out here. They haven't felt it
yet."
Ed Rich, news writer at KMOX in
Callers to WWDB in Philadelphia
St. Louis, one of the country's brew-
complained about the inability of
ing centers, said: "There is local con-
Congress and the White House to
cern for the beer industry. But the
"get their act together" earlier on a
reaction is hard to characterize. Out-
rage, no. Furor, no. More wait-and-
see."
In Philadelphia, Mr. Rimmer
found the day's single nugget of en-
thusiasm. It was for the so-called sin
taxes: "Some," he said, "thought peo-
ple OUGHT to pay more for beer and
cigarettes."
The Washington Times
TUESDAY,
OCTOBER 2, 1990
Yeas, nays spill out
after budget deal
By Carleton R. Bryant
THE WASHINGTON TIMES
BUDGET
Less than 24 hours after President
BACKLASH
Bush and Congress announced their
Since the president and
budget summit compromise, Wash-
Congress agreed to a budget
ington facsimile machines were al-
compromise Sunday, several
ready spewing out yards of favoring
special interest groups have
and opposing opinions.
weighed In on the plan.
Special interest groups from the
In favor:
American Association of Retired
American Federation of
Persons to the American Federation
Government Employees.
of Government Workers weighed in-
National Small Business
yesterday with faxed press releases
United
and instant news conferences. Even
the Postmaster General Anthony M.
Opposed:
Frank entered the fray.
American Association of
"Postal rates could be as much as
Retired Persons.
five cents higher by 1995 than they
American Council of the Blind.
would have been otherwise" because
Families United for Senior
of the budget agreement, Mr. Frank
Action
said in his faxed statement.
National Council of Senior
"The news media has been widely
Citizens
reporting that this budget agree-
ment will increase taxes for Amer-
National Council on the Aging.
icans who drink, smoke, fly or drive.
U.S. Chamber of Commerce.
Unfortunately, the same is true for
U.S. Postal Service.
those who mail," the statement
reads.
Undecided:
Mr. Frank said that although the
Action on Smoking and Health.
Postal Service will have to absorb
National Federation of Federal
more than $5 billion in new costs
Employees.
over the next five years, it will not
cut back on service.
The Washington Times
At a news conference yesterday,
Save Our Security, a coalition of
war on seniors and the disabled," Mr.
senior and disabled citizens groups,
Pollack said. "Those who wage bud-
attacked the proposed Medicare
get war against seniors and the dis-
cuts in the budget package.
abled shouldn't expect pacifism on
"President Bush and the budget
Election Day."
summiteers are asking one-eighth of
Federal workers unions were split
the population to shoulder one-half
on the budget compromise: the
of the cuts in the domestic spending
AFGE tepidly supported the budget
proposals," said Ron Pollack, execu-
proposal, while the National Feder-
tive director of Families United for
ation of Federal Employees was
Senior Action, a coalition member.
undecided.
"And that one-eighth represents the
"This is no time for political pos-
oldest, the sickest, the poorest adults
turing. It's time for everybody to ac-
- those least able to pay."
cept the necessary pain associated
The budget compromise calls for
with this deficit reduction," AFGE
a $60 billion cut in Medicare - half
President John N. Sturdivant said.
to be borne by doctors and hospitals,
"We were trapped between a rock
the other half by Medicare recipi-
and a hard place - either accept
ents.
furloughs or employee program
The coalition, calling the budget
cuts," NFFE spokesman Josh Nei-
agreement regressive taxation,
man said, adding that his organi-
called on Congress to use the income
zation is analyzing the entire budget
tax to correct the deficit. Other co-
package.
alition members include the AARP,
Thousands of federal workers
the American Association of the
faced lay-offs if a budget agreement
Blind, the National Council on the
had not been reached. AFGE rep-
Aging Inc. and the National Council
resents 700,000 government employ-
for Senior Citizens.
ees and NFFE represents about
"The summiteers have declared
150,000 federal workers.
The Washington Times
OCTOBER2, 1990
The voodoo. budget
OW at last we know why the federal govern-
rising. Maybe if Congress weren't spending so much
N
ment has been running such an enormous
more money SO fast, it wouldn't be tying itself in knots
budget deficit. It's not because lawmakers
over deficit reduction. But the new agreement allows
have been spending dough by the boatload.
overall spending on foreign aid and on domestic discre-
No, it's because the folks out there who drink an occa-
tionary programs - say, funding for all those Depart-
sional beer or glass of wine just haven't been paying
ment of Education programs we can't do without - to
enough in taxes. Same for the people who drive cars.
rise at the rate of inflation. Defense spending, mean-
Or smoke cigarettes. Or ride airplanes. Or buy furs or
while, would fall $67 billion behind inflation over three
cars. Or take deductions. So say the federal budge-
years.
teers.
Mr. Bush hopes to generate some of that reduction
Well, we at least are darn glad they brought the
by reining in spending. But some of the so-called cuts
matter up. There's no time like an election year to find
are less than a sure thing. Spending on farm subsidies,
out whether Joe Sixpack really thinks he is
for instance, are supposed to drop by $13 billion over
undertaxed. Here's Congress' big chance to make the
five years. But the budget agreement doesn't bother to
case that it's about time he and his fellow shirkers
say where. Postal Service changes are supposed to
started pulling their weight at budget time. President
save another $4.2 billion, but details have yet to be
Bush can take to the campaign trail for candidates with
worked out. And so on. No wonder big spenders prefer
his message that a tax increase "is what the United
this deal to Gramm-Rudman.
States of America needs at this point in its history."
Hopes for a capital gains cut to spur growth in the
Then let's see what happens Nov. 6.
face of an economic slowdown gave way to a handful
Already lawmakers are bracing themselves for crit-
of small, face-saving tax breaks that the president's
icism from "naysayers and nitpickers," as Senate Mi-
advisers could claim as a victory for the entrepreneur.
nority Leader Robert Dole describes them. This bud-
Rather than letting the market decide which sorts of
get: agreement, he says, should demonstrate to the
businesses should benefit from risk-taking invest-
American people, "who are sometimes somewhat cyni-
ment, the budget agreement decided that that respon-
cal," that Congress and the president can do the right
sibility should fall to government. Certain kinds of
thing for the country. Or at least their campaign sup-
companies would be allowed to "expense" certain
porters. While Mr. Dole and Co. were busy sticking it
kinds of investments. Some would get breaks on re-
to Mr. and Mrs. Sixpack, the senator was slipping tax
search and development. Only the government, in its
breaks worth $500 million into the accord to help his
wisdom, knows for sure now, but you can bet your last
buddies over at Archer-Daniels-Midland Co., the giant
tax dollar that an army of accountants and tax consul-
Illinois commodities company. He also arranged to
tants will be gearing up to find out.
keep private airplanes, which two major Kansas manu-
In all, this budget agreement represents for Mr.
facturers help produce, from being hit with the new
Bush a promise to break all promises. His no-new-tax
luxury tax applied to car and fur buyers.
pledge during his 1988 presidential campaign is in
Another aspect of the budget accord that may spur
shreds, this in the face of a looming recession. His
a certain amount of cynicism concerns gasoline taxes.
effort to win across-the-board tax relief for people who
Congress, after all, just got finished bashing oil com-
sell houses or stock is down the tubes. Across the sea,
panies for price hikes in the wake of the Iraqi invasion.
one Saddam Hussein must be looking on with interest
The budget agreement would raise the federal gasoline
to see what all this means for the Middle East: If Mr.
tax 12 cents a gallon. We'll let budgeteers explain why
Bush can sell out his own supporters, why not his
that increase isn't "gouging."
distant Arab allies?
But perhaps the most cynical aspect of the deal
involves federal spending levels, something no one
Yes. we'd say there's a lot of cynicism about the deal
seems interested in talking about very much. Total
out there, Mr. Dole's tut-tutting notwithstanding. If
federal outlays in fiscal 1987 were about $1.003 trillion.
lawmakers think it's such a good idea, they have a
Estimated outlays for fiscal 1991 are $1.233 trillion and
chance to bet their careers on it.
The Philabelphia Inquired
Tuesday. October 2. 1990
House GOP rebelling
at budget deal
By Helen Dewar
support, have demanded that a ma-
and Tom Kenworthy
jority of Republicans in both houses
Washington Post
vote for the budget plan - meaning
WASHINGTON - Senate leaders
that the package might be doomed if
expressed growing confidence yes-
at least 88 of the 176 GOP House
terday that the new bipartisan
members do not vote for it.
budget agreement will be approved
However, even some of the House
by the Senate, as the Bush adminis-
Republican leaders who oppose the
tration moved to quell a mounting
budget plan indicated that they
rebellion among House Republicans
thought Bush might be able to get at
that could endanger final passage of
least half of the House Republicans
the pact.
to support him. "I do not underesti-
"We feel very optimistic," said Sen-
mate the ability of the White House
ate Minority Leader Bob Dole (R.,
to get a majority based on appeals to
Kan.). Senate Majority Whip Alan
lovaltv." said Weber
Cranston (D., Calif.) added, "It won't
To accomplish this, the White
be easy, but the alternatives are so
House dispatched chief of staff John
grim I think it will be approved."
H. Sununu, Treasury Secretary Nich-
They spoke after party caucuses in
olas F. Brady and budget director
which most senators reportedly indi-
Richard G. Darman to meet with
cated that they could reluctantly sup-
Republicans in both houses. The
port the tax increases and spending
three senior administration officials
cuts endorsed Sunday by President
were joined by Quayle in courting
Bush and congressional leaders as
conservative Republicans in the
part of the largest deficit-reduction
House.
plan ever proposed.
The group, including Quayle, also
But prospects for the five-year,
met separately with at least two
$500 billion deficit-reduction plan
groups of House Republicans at the
were far less clear in the House,
White House, and cabinet members
where Minority Whip Newt Gingrich
were phoning wavering lawmakers.
(R., Ga.) and four other GOP leaders
Bush was expected to participate in
denounced the pact after an hour-
similar meetings at the White House
long Republican caucus attended by
today.
Vice President Quayle and other top
But White House officials ex-
administration officials as part of the
pressed misgivings about the idea of
administration's lobbying effort.
a nationally televised speech by the
"It is my conclusion it will kill
President to build public support for
jobs, weaken the economy and that
the budget plan, which some Demo-
the tax increase will be counterpro-
ductive and that it is not a package
crats have been urging as a key ele-
that I can support," said Gingrich.
ment in bringing pressure on Con-
"We need to do better than this."
gress to approve the plan. The
The budget agreement includes a
officials said timing was a problem
and indicated reluctance to risk the
politically painful combination of
spending cuts in popular domestic
President's political capital when the
outcome is uncertain.
programs, increased health care
In remarks at a ceremony in New
costs for the elderly in the Medicare
York to sign the stopgap spending
program, higher excise taxes on ciga-
bill approved by Congress Sunday,
rettes, liquor and wine, and a 12-cent
Bush used what aides said would be
increase in federal gasoline taxes
his major sell-the-budget theme.
that will affect virtually every Amer-
"This is a time for leadership," he
ican.
said. "We must put aside partisan-
Denunciation of the agreement by
ship for the sake of our nation. We
Gingrich and other members of the
must act now to solve this budget
House GOP leadership - Vin Weber
problem."
of Minnesota, Bill McCollum of Flor-
Democratic leaders in the House
ida, Duncan Hunter of California
and Senate met yesterday with Demo-
and Robert S. Walker of Pennsylva-
cratic lawmakers who have prob-
nia - underscored expectations that
lems with the package, including
the House will be the main battle-
conservatives and members of the
ground in the fight over approval of
black caucus.
the pact.
But Democratic aides insisted that
House Republicans appear to be
the primary burden for passing the
more hostile to the plan than Senate
Republicans in part because all of
agreement into law rests with Bush
them face the voters next month and
and his ability to win over dissidents
many feel that Bush's reversal on his
in his own party. Some Democrats
promise not to increase taxes has
privately expressed the hope that
exposed them politically.
Republican defections will kill the
The first test for the plan will come
plan. letting them off the hook. "Let
as early as tomorrow, when the
them screw it up," said one Demo-
House takes up a budget resolution
cratic member.
incorporating the deal cut by the
"I expect that we are going to get 50
President and leaders of both parties
percent plus one in each party,' said
in Congress after lengthy negotia-
House Speaker Thomas S. Foley (D.,
tions. Other equally critical votes
Wash.).
will follow to put the plan into effect
In both houses, leaders indicated
before Congress adjourns later this
that the package may be modified
month.
somewhat to satisfy complaints and
Democrats, as the price for their
win approval but cautioned that the
basic outlines of the agreement must
be retained.
The Tournal of Commerce
and Commercial
TUESDAY, OCTOBER 2, 1990
Property and Casualty Insurers
Say Tax Package Item Will Hurt
By KENNETH SILVERSTEIN
Journal of Commerce Staff
WASHINGTON - Property and
of the increased taxes.
casualty insurers are opposing a
"All taxes impact on the bottom
provision in the budget package
line of business and these changes
that would raise their taxes by a
will be no exception if passed," he
total of $1.1 billion over the next
said.
five fiscal years.
Mr. Pratt, while emphasizing his
The provision would require
group's opposition to the tax provi-
such insurers to estimate the sal-
sion, said insurers will offer an al-
vage and other future income they
ternate proposal.
are entitled to recover when they
Such a plan would make make
pay out losses.
the tax provision affect only future
The package, agreed to by Pres-
fiscal years so that taxes aren't
ident Bush and congressional lead-
paid on income that has already
ers Sunday, would increase those
been accounted for, Mr. Pratt said.
taxes by having insurers immedi-
If the proposal is accepted. he
ately recognize such future income,
estimated that the industry's tax
said David Pratt, vice president for
burden under the budget package
government affairs with the Amer-
could be reduced by as much as
ican Insurance Association. The
50% to $500 million.
Washington group represents larg-
Officials at the National Associ-
er property/casualty insurers.
ation of Independent Insurers, Des
For instance, an insurer could
Plaines, III., said that the tax provi-
reduce its losses by salvaging
sion is punitive and agreed that
something of value after a claim or
relief could only be provided by
by suing a third party. It could be
applying the provision to future fis-
some time before such money is
cal years.
collected, if at all. But under the
But a spokesman for the alli-
proposal, insurers would be re-
ance said they would remain op-
quired to predict those future in-
posed to the entire provision,
come streams and pay taxes on
maintaining that it could still be
them.
defeated because the congress is
Such a provision would allow
divided on the budget package.
the government to speed up the tax
The provision is bad, the alli-
payments it collects. The budget
ance said, because it would under-
agreement estimates that the addi-
mine the ability of state regulators
tional revenue from it would
to evaluate company financial
amount to $300 million in fiscal
statements accurately.
year 1991, which began Monday.
The current accounting system
Mr. Pratt said Monday that the
that insurers must use is consid-
1986 tax reform act already had
ered more appropriate and conser-
increased the taxes that property
vative, the association said,
and casualty companies pay by an
because it is solvency-based, not
additional $7.5 billion in the five
tax-based.
years since the act.
Furthermore, "Annual surveys
and current estimates show that
the industry is likely to overshoot
that by 20% or possibly more," Mr.
Pratt added.
David Farmer, vice president of
federal affairs for the Alliance of
American Insurers, Schaumburg,
III., said the industry is united in its
opposition to the provision because
Th Plabadelphia Inquire
Tuesday. October 2. 1990
Feared backlash
is slow to appear
By Edwin Chen
have concerns about some of the
Los Angeles Times
individual components of the agree-
WASHINGTON - The public back-
ment, we believe it is in the best
lash against the new White House-
interest of the nation to return to
congressional budget accord may be
fiscal responsibility."
less vehement than expected - at
But not everyone was ready to roll
least at the start.
over.
An informal survey of industries
Representatives of the elderly
and groups that would be hardest-hit
were outraged by the deficit-reduc-
by the proposed $134 billion in
tion package, which calls on the 34
higher taxes and $40 billion in
million Medicare beneficiaries to
spending cuts showed that many key
pay significantly more for the cover-
groups were either grudgingly going
age that helps pay physicians' bills.
along or being extremely cautious in
On Capitol Hill yesterday, a coali-
their responses.
tion of 125 organizations represent-
Despite direct hits on their pocket-
ing senior and disabled citizens vo-
books, groups such as the tobacco
ciferously expressed unhappiness
and alcohol industries, the American
with the deal.
Association of Retired Persons and
"Those who predict a firestorm of
even General Motors were all taking
protests across the country are abso-
wait-and-see positions.
lutely correct," said Ron Pollack, ex-
"With so many targets hit all at
ecutive director of Families USA, a
once and with so little time to influ-
senior-citizens advocacy group.
ence the debate, maybe there's a
Most other groups who would be
sense of resignation out there," said
hard-hit by the proposals were less
Gary Burtless, a Brookings Institu-
passionate. Peggy Laramie, a spokes-
tion economist.
woman for AARP, said that the or-
President Bush and the congres-
ganization of 32 million members
sional leadership have expressed the
was "relieved that Social Security
hope that Congress will pass the new
was not in the mix." She said that
budget by Friday.
AARP's board did not plan to take a
Burtless and other analysts said
public position until Friday.
that GM's stance, for one, was note-
A Tobacco Institute official said that
worthy because, in the past, the giant
the industry was "extremely disap-
automaker has vigorously opposed
pointed" by the package's call for a
any gasoline-tax increase earmarked
cigarette tax increase. But the magni-
for deficit reduction.
tude is certainly much better than the
William Noack, a company spokes-
previous proposals," said Tom Lauria.
man, explained: "This is a complex
"We may not have any choice but
package, and we are studying it.
to go along," he said.
We're not going to rush it."
Officials of the wine, beer and
The American Petroleum Institute,
hard-liquor industries said that they
facing two tax increases of 5 cents a
planned to study the proposals fur-
gallon each, seemed to support the
ther before adopting a position.
agreement. The institute is spon-
The agreement also would cut $13
sored by the oil industry.
billion from farm commodity subsi-
"We recognize that the nation
dies, but the American Farm Bureau
needs to reduce the U.S. budget defi-
Federation said it was not ready to
cit," an API official said. "While we
take a position.
The Plalabelphia Inquired
Tuesday. October 2. 1990
Lower-income families would feel
a bigger bite from tax increases
From Inquirer Wire Services
largest hit of any of the entitlement
Taxes. The current federal gaso-
WASHINGTON - Poorer, younger,
programs facing spending cuts.
line tax of 9 cents a gallon would rise
non-urban families - who generally
About half would come from recipi-
by 5 cents on Dec. 1 and another 5
spend a greater share of their earn-
ents, whose $28.60 monthly premium
cents on July 1. On Jan. 1, a 2-cent-
ings on gasoline, cigarettes and beer
for doctors' care would increase to
per-gallon tax on most refined petro-
than do other groups - would be hit
$34.30 next year, and whose $75 de-
leum products, including gasoline
hardest by tax increases in the new
ductible on doctors' bills would dou-
and home-heating oil, would take ef-
deficit-reduction plan.
ble by 1995.
fect. Almost 94 percent of families
Other parts of the plan target state
buy gasoline.
The other half would come from
and local government employees;
cutting back on reimbursements to
workers whose wages exceed $51,300;
The cigarette tax, now 16 cents per
hospitals and physicians. The 1.45
pack, would rise by 4 cents in 1991
taxpayers with incomes over
percent tax that helps support the
and by another 4 cents in 1993. Taxes
$100,000, and anyone with a taste for
Medicare program, which now ap-
on cigars, chewing tobacco and snuff
expensive cars, furs or jewels.
plies to the first $51,300 of income,
would be increased at each step by 25
There's also a new 2-cent-per-gal-
would be extended to the first
percent.
lon tax on all kinds of refined petro-
$73,000.
leum products - gasoline again,
About 71 percent of taxpayers
About two million employees of
home-heating oil, diesel fuel - that
would be affected by new taxes on
state and local government hired be-
are not used in farming or manufac-
alcohol. The tax on beer, now 16
fore April 1, 1986, who do not now
turing.
cents for a six-pack, would double.
pay for Medicare, would be required
The tax on hard liquor of 100 proof
But unlike the 13 other tax-in-
to pay the 1.45 percent tax.
would rise 30 cents for a fifth. Taxes
crease packages that have been en-
on lower-proof liquor would go up in
acted since 1981; the effect this pro-
Post office. Postmaster General
the same ratio. Most wines also
posal would have on individuals at
various income levels is hard to de-
would face higher taxes. The 3-cent
Anthony Frank says the price of
tax on a fifth of table wine would
stamps will go up more and sooner
termine. That is because it contains
rise to 25 cents.
than had been planned because the
no broad changes in income taxes
budget agreement calls on the Postal
but relies instead on a potpourri of
Cars costing more than $30,000,
Service to absorb about $5 billion in
excise taxes and on payroll taxes that
yachts exceeding $100,000, furs and
cuts over the next five years. "Post-
affect relatively few people.
jewelry exceeding $5,000 face a 10
age rates will be as much as 5 cents
There is little question, however,
percent tax on their costs exceeding
higher by 1995 than they otherwise
that excise taxes on such commed-
those levels. The tax applies to newly
would have been," Frank said. There
ities as fuel, alcohol and tobacco
manufactured items.
already is an increase scheduled for
have a greater impact on lower-in-
next February, expected to raise the
come people.
Itemized deductions. A couple
price of a first-class stamp to 30 cents.
Earlier this year, the Congres-
or individual with adjusted gross in-
sional Budget Office found that the
come above $100,000 could continue
Federal pensions. Part of the
poorest 20 percent, with after-tax in-
to deduct all allowable medical ex-
budget deal would eliminate the pop-
comes averaging $8,200, spent 6.9 per-
penses and investment interest ex-
ular lump-sum federal pension op-
cent for gasoline. 4 percent on to-
pense. But they would have to reduce
tion. Under the lump-sum option. re-
bacco and 3.7 percent for alcohol.
other deductions by $3 for each $100
tirees receive two payments - one
The budget office also determined
that their income exceeds $100,000. A
shortly after they retire and the sec-
that the 20 percent just below the
person with $120,000 income and
ond a year later - equal to the
richest, with incomes averaging
$20,000 in allowable deductions, for
amount they have contributed to the
$38,000 after taxes, spent 2.9 percent
example, could deduct only 97 per-
pension plan. Although between 85
for gasoline, 1.1 percent for tobacco
cent, or $19,400. About 2.5 million
and 95 percent of the payment is
and 2.2 percent for alcohol.
people would be affected.
taxable. nearly 70 percent of all retir-
Here are some major parts of the
ees have chosen to take the lump-
deficit-reduction proposal, which
Medicare. The federal health care
sum payments. In the Washington
congressional leaders hope will be-
program for 33 million elderly and
area. the average payment is about
come law this month:
disabled Americans would take the
$32,000.
The Journal of Commerce
and Commercial
TUESDAY, OCTOBER 2, 1990
Pact Includes Prior Maritime Proposals
Journal of Commerce Staff
The harbor maintenance fee on shippers will
WASHINGTON - In the maritime sector, the
increase to 0.125% of cargo value from 0.04%. The
five-year, half-trillion-dollar budget pact includes
increase is intended to offset the total cost of
revenue items that the president proposed in Janu-
harbor maintenance dredging by the Army Corps of
ary in his fiscal 1991 budget package.
Engineers.
Those proposals would raise $1.8 billion over
five-years through an increase in the harbor main-
Dena L. Wilson, vice president of legislative
tenance fee and $1 billion over the same period
affairs for American Waterways Operators, which
through a $25 yearly decal fee on recreational and
represents the inland and coastal tug and barge
commercial boaters using the nation's waterways.
industry, said the "cumulative effect" of the taxes
While the proposed motor fuels tax that starts
"hits tank barge operators and petroleum trans-
at 5 cents a gallon will not directly apply to bunker
porters hard."
fuel for ocean and inland waterway vessels, the
A House maritime committee source said it
additional 2-cent-a-gallon petroleum tax likely will
was unclear whether members will go along with
add to the cost of fueling ships and tug/barges.
the Coast Guard decal proposal. In the past the
The package also reinstates a 0.1-cent-a-gallon
House has resisted the idea.
"leaking underground storage tank" tax imposed on
If that resistance holds, then the House will
various categories of fuels, including fuel used on
have to devise an alternative proposal that raises
inland waterways.
comparable revenue.
The Journal of Commerce
and Commercial
TUESDAY, OCTOBER 2, 1990
Budget Tax Proposals
Anger Transport Sector
By LEO ABRUZZESE
Journal of Commerce Staff
would come from the 10 cents a
WASHINGTON - The transportation sec-
gallon increase in motor fuels. A
tor reacted angrily to proposed fuel and
five cents a gallon hike would take
ticket tax increases that make up more than
effect Dec. 1, the other five cents
half of the $134 billion in new taxes in the
next July. The two cents a gallon
government's controversial deficit reduction
petroleum products tax is effective
plan.
Jan. 1.
"The new taxes, on top of skyrocketing
The agreement also would ex-
fuel costs, seriously threaten the ability of
tend for five years the current 0.1
the airline industry" to move people and
cents a gallon fuel tax for leaking
freight, said Robert Aaronson, president of
underground storage tanks and in-
the Air Transport Association.
crease slightly the harbor mainte-
"A (fuel) tax is unfair," said Robert Far-
nance excise tax on commercial
ris, vice president for policy at American
cargoes, including petroleum.
Trucking Associations, "because it places a
All told, about $70 billion of the
disproportionate burden of the nation's debt
$134 billion in taxes would come
on highway users."
from transportation.
A 10-cent-a-gallon increase in the federal
In addition to the higher taxes,
tax on gasoline and diesel fuel is a center-
the overall budget package would
piece of the new budget summit agreement
cut benefits $119 billion and trim
that would reduce the federal budget deficit
defense and domestic programs to
$500 billion by 1995. The package, which is
make up the rest of the $500 billion
expected to draw some congressional opposi-
in savings.
tion, also calls for an additional 2-cent-a-gal-
Both Houses of Congress must
lon petroleum tax on motor fuels and avia-
approve the budget agreement in
tion jet fuels.
broad terms by Friday. Individual
"Every 1-cent-a-gallon increase in jet fuel
committees then will work up the
costs us $150 million a year," said an airline
legislation needed to fully imple-
industry lobbyist, "so the petroleum tax
ment the agreement.
means $300 million in new taxes."
Kenneth Simonson, chief economist for
"This is not going to be easy for
the trucking trade group, said truckers use
everyone, but it is necessary
24 billion gallons of diesel fuel a year. "A
House Speaker Tom. Foley, D-
12-cents-a-gallon increase works out to about
Wash., said Monday.
$3 billion a year in new taxes," he said.
Last week, the full House ap-
proved a resolution calling for all
The budget agreement, which faces its
highway and aviation user fees to
first test in Congress on Friday, also would
be channeled into the highway and
increase the airline passenger ticket tax to
airport trust funds, not deficit re-
10% from 8% and the domestic air cargo tax
duction.
to 6.25% from 5%. Both increases mirror
proposals first advanced in President Bush's
"At a time when we are facing a
budget in January.
growing infrastructure crisis, we
should not be considering diversion
"Cycling another $1 billion in user taxes
of transportation user fees to other
through the (aviation) trust
purposes," said Rep. Glenn Ander-
fund to offset the deficit breaks
son, chairman of the Publics Works
faith with the 'user-pays' principle
and Transportation Committee.
of financing infrastructure," said
The budget earmarks 50% of the
Drew Steketee, executive director
new motor fuels tax for deficit re-
of the 265,000-member Partnership
duction, the rest for the Highway
for Improved Air Travel.
Trust Fund. But in years when
A fight also looms over a pro-
posal by budget negotiators to
trust fund money is not spent, it
effectively reduces the size of the
raise the railroad industry's pay-
budget deficit. All funds from the
ments into its pension system by
$200 million over the next five
higher aviation tax rates would go
for deficit reduction.
years.
"It is not clear from the propos-
Another railroad-related propos-
al who would pay for the $200 mil-
al calls for the Federal Railroad
lion," David Lucci, legislative coun-
Administration to collect $20 mil-
cil for the Railroad Retirement
lion in fees from railroads for safe-
Board, said.
ty inspection programs in 1991 and
Of the $134 billion in new taxes
$170 million in fees over the next
over the next five years, $45 billion
five years.
Washington reporter Geoffrey
Brown also contributed to this
story.
Chicago Tribune
35c
Monday, October 1, 1990
11th-hour accord averts disruption in government
By Elaine S. Povich
and Mitchell Locin
Chicago Tribune
WASHINGTON-President
people in every way I can."
Bush and the leaders of Con-
Bush said he did not "welcome"
gress agreed Sunday on an un-
the tax increases, which he had
precedented $500 billion five-
campaigned against just two years
year deficit-reduction plan, aver-
ago. 'Sometimes you don't get it
ting at the 11th hour a massive
just the way you want, and this is
government shutdown.
such a time for me, and I expect
The plan drew almost immedi-
it's such a time for everybody
ate criticism from both Republi-
standing here," Bush continued.
cans and Democrats and is ex-
"But it's time we put the interest
pected to face angry debate in
of the United States of America
Congress over the next few
first and get this deficit under con-
trol."
weeks.
Agreement was reached after
While the package contains
Bush abandoned his demand for
many controversial items, negotia-
a reduction in the capital gains
tors decided to scrap two of the
tax and accepted additional
most difficult-the proposed cut
taxes on gasoline, cigarettes, liq-
in the capital gains tax and a com-
uor, airline tickets and luxury
mensurate increase in tax rates,
items such as autos over
and reductions in Social Security
benefits. While those items would
$30,000 and yachts and furs.
Medicare recipients would pay
have been big revenue-raisers, they
proved too hot to handle political-
higher deductibles and
ly. As a result, the bargainers were
premiums, and higher wage-ear-
forced to reduce their deficit-cut-
ners would be taxed more for
ting goal in the first year to $40
Medicare. While the income tax
billion from $50 billion.
rate remains unchanged,
wealthier taxpayers would expe-
Federal Reserve Chairman Alan
rience an increase: Deductions
Greenspan had indicated that the
would be reduced by 3 percent
Fed would reduce interest rates if
on incomes over $100,000.
$50 billion in deficit-reduction was
achieved. It was not known if $40
The agreement also cuts mili-
tary spending by $67.2 billion
billion would satisfy him.
over the next three years and by
The visibly haggard budget
a further amount to be deter-
negotiators reached final agree-
mined in fiscal 1994 and 1995,
ment on the package Sunday
up to a maximum of $182 bil-
morning after negotiating for 11
lion over five years. Another $13
days and nights and continuously
billion would be saved by cutting
from Saturday evening until nearly
agriculture support programs.
dawn. That followed 10 days of
negotiations at Andrews Air Force
The package contains some
Base and months of talks at the
tax breaks, which Republican
Capitol. White House Chief of
negotiators argued would spur
Staff John Sununu, budget director
economic growth. Companies
Richard Darman and Treasury
that explore for gas and oil, con-
Secretary Nicholas Brady repre-
duct research or do business in
sented Bush at the talks.
depressed areas would get tax
credits.
After the leaders announced the
Without a deal, 2.1 million
agreement, the House and Senate
federal employees would have
convened to approve a temporary
been furloughed at least one day a
spending bill that will keep the
week, disrupting air travel and a
government running through Fri-
wide range of vital government
day and avert government layoffs
under the Gramm-Rudman-Hol-
services. Government authorities
on Sunday told every federal em-
lings balanced budget law. That
bill also included $2 billion to
ployee to report for work Monday
morning.
sustain the Desert Shield military
operation in the Persian Gulf.
Bush and the congressional lead-
ers announced the deal in a cere-
The five-day delay will allow
mony in the Rose Garden of the
time for the deficit-cutting agree-
White House, but there were no
ment to be formally written into a
smiles on their faces. They agreed
budget, which will then have to be
the deal is painful and will be
passed by the Congress to avoid
tough to sell to the rank-and-file
another government fiscal crisis.
of Congress as well as the Ameri-
If the budget resolution suc-
can people.
ceeds, still more bills must be
"This is priority. This is priority
passed actually carrying out the
for our nation," Bush said. "I will
spending cuts and tax increases.
do everything I can to lay aside
As part of the agreement, congres-
partisanship here and to take the
sional leaders said they would
case for this deal to the American
complete all legislative action by
Oct. 19, two weeks later than
House Minority Whip Newt
Congress' scheduled adjournment
Gingrich (R-Ga.) refused to attend
date for the fall campaign.
the Rose Garden ceremony and
At each step along the way,
afterward grimly walked into a
there is bound to be controversy
caucus of House Republicans. The
because raising taxes and cutting
normally forthcoming Gingrich
spending are difficult actions for
said he was "still looking at" the
politicans just weeks away from
budget agreement and would have
election day. In addition, the
no further comment.
package may be changed in small
Other House Republicans, espe-
ways by each committee that stud-
cially conservatives, were more
ies it. For example, Sen. Lloyd
critical, especially about the tax
Bentsen (D-Texas), chairman of
increases and cuts in Medicare
the Senate Finance Committee,
subsidies.
said he reserves the right to make
Under the agreement, the
changes.
monthly $28.60 premium for doc-
The package cuts $182.4 billion
tors' bills would increase to about
from discretionary government
$34.30, although not for the
spending over the five-year period,
poorest people. Also, recipients
reduces mandatory payment pro-
would have to shoulder the first
grams such as Medicare and agri-
$150 in each year's doctors' bills,
culture by $119 billion, raises
up from $75 now.
$133.8 billion in taxes and saves
Liberal Democrats also attacked
$64.8 in interest payments that
the Medicare changes.
will not have to be made on gov-
"I'm tremendously offended that
ernment borrowing.
the elderly have been singled out
The deficit agreement re-writes
for taking such a hard hit," said
the Gramm-Rudman law to
Rep. Henry Waxman (D-Calif.).
stretch out its deficit targets for
He accused the negotiators of
the next five years. The federal
being "scared to touch" Social Se-
deficit now is projected at its high-
curity and going instead to Medi-
est level ever: $293.7 billion in fis-
care because they thought "maybe
cal 1991 without implementation
the elderly wouldn't notice."
of the deal. Under the agreement,
The elderly noticed. Within
the deficit is projected at $68.3
hours of the announcement of the
billion in fiscal 1995, which is
deal, The National Committee to
about $4 billion higher than the
Preserve Social Security and Medi-
deficit originally was supposed to
care was out with a statement call-
be this year, with a balanced budg-
ing the Medicare premium in-
et projected for fiscal 1996.
creases unfair "because it places a
There are some fragile elements
disproportionate amount of deficit
to the package, especially in the
reduction on the backs of older
economic assumptions on which it
Americans."
is based. For instance, it projects
Younger Americans will feel it,
oil prices at $21.15 a barrel this
too. The 1.45 percent tax taken
year and $24.15 a barrel next year.
out of paychecks to support the
Oil currently is priced at about
Medicare program would be levied
$40 a barrel and shows no signs of
up to $73,000 in annual earnings.
declining. The agreement projects
It now applies only up to $51,300.
inflation at 5.2 percent in 1990
Members of the negotiating
and interest rates measured by 10-
team reminded their critics that
year Treasury notes at 8.7 percent.
without deficit reduction, the
"Now comes the hard part,"
slowing economy would be worse
said Senate Majority Leader
off and there would be immediate
George Mitchell (D-Me.), referring
furloughs of federal employees and
to the leadership's attempt to sell
disruption of government services.
the deal to other senators and
"Balancing the budget is like
House members.
going to heaven; everybody wants
Mitchell reiterated that a majori-
to go there but no one wants to
ty of both Republicans and Demo-
do what you have to do to make
crats must support the package for
the trip,' said Sen. Phil Gramm
it to be enacted. Initial reactions
(R-Texas). "People have to decide
from both Democrats and Re-
if they want to govern or they
publicans were negative.
want to protest."
Chicago Tribune
35c
Monday, October 1, 1990
The political price of tax accord
GOP howls, but Democrats fear anger by voters most
By Steve Daley
ting package reaches the Senate.
of medical services.
Chicago Tribune
"There is a great deal of grum-
"The tax package is unconscion-
RALEIGH, N.C.-Incumbents
bling," said Rep. Phil Crane (R-III.)
able," Donnelly said. "It comes
in both parties, already skittish
of Sunday's meeting of the House
down on poor and middle-income
about an angry electorate, could
Republican Conference, where
people, with these so-called busi-
find little comfort in the federal
shouts of protest could be heard
ness incentives built in instead of a
budget-deficit deal fashioned Sun-
from behind closed doors.
capital gains cut for the wealthy."
day.
Democrats and Republicans alike
Incumbents do agree with House
Five weeks before the midterm
are concerned about anti-incum-
Speaker Tom Foley (D-Wash.) on
elections, rank-and-file Democrats
bent sentiment manifested this year
one of his assessments: that there is
and Republicans found differing
by voters in Massachusetts and
real pain in this budget agreement,
reasons for unhappiness with the
District of Columbia primary elec-
pain for taxpayers and pain for leg-
agreement.
tions, and by a growing movement
islators standing for re-election.
Democrats control the House
to limit legislative terms in several
The budget summiteers have
states.
called for sacrifice, and that is a
and Senate, the former by a wide
Despite Bush's vocal support for
message no member of Congress
margin. They understand that
the agreement, some Democrats re-
wants to take home in the closing
whatever the level of public distress
main worried they are being out-
weeks of a campaign.
with the tax increases and spending
cuts, it is primarily their party and
maneuvered by the White House.
"Right now, it's a coin flip on
how all this stuff will actually play
not President Bush that is facing
"The trick is in the income tax
the voters this autumn.
out politically," said one Demo-
rates," said one angry House Dem-
cratic political consultant. "With
Republicans, undercut on the tax
ocrat. "Republicans are going to
the situation in the Persian Gulf
issue when President Bush reneged
tell people that Democrats wanted
and the onset of a recession,
in June on his "no new taxes"
to raise income tax rates, but Bush
nobody is sure what happens
pledge, were in near revolt over the
stopped them."
next."
proposed boost in excise taxes and
"This is all based on the next
Some political cost seems cer-
the White House abandonment of
presidential campaign," said Rep.
tain, however, as the reality of
a cut in the capital gains tax rate.
Brian J. Donnelly (D-Mass.).
higher gasoline prices and costlier
Many Republicans, among them
Many Democrats felt compro-
Medicare benefits show up at the
Sen. Jesse Helms of North Caroli-
mised on the issue of burden-shar-
gas pumps and the doctor's office.
na, say that despite Bush's shift,
ing as well, contending that party
Where will the political blame be
they cannot retreat from longstan-
leaders should have pressed for an
placed?
ding opposition to tax increases.
increase in the top tax rate for the
"I think it's a pox on all incum-
Helms, in a close race against
wealthiest Americans.
bents, across the board," said Rep.
Democrat Harvey Gantt, told
Others are irate that half the do-
Donnelly. "But there are more
voters while campaigning over the
mestic budget cuts over five years
Democratic incumbents in Con-
weekend that he will seek to block
consist of shifting Medicare costs
gress that Republican, so the risks
the tax hikes when the deficit-cut-
to the beneficiaries and providers
for our party are obvious."
Chicago Tribune
35c
Monday, October 1, 1990
Fed under pressure to lower rates
By Terry Atlas
Both the White House and
"If you look at the bond mar-
Chicago Tribune
Congress will be watching closely
ket tomorrow, I think you will
Tuesday when members of the
see interest rates start to de-
WASHINGTON-With Presi-
dent Bush and congressional
Fed's powerful policymaking
cline," said Sen. Phil Gramm (R-
leaders in agreement on a $500
group, the Federal Open Market
Texas).
billion deficit-cutting plan, the
Committee, hold their regular
In fact, that process began Fri-
meeting.
day when bond prices rallied and
Federal Reserve will come under
increased political pressure to re-
"Politically, they will be under
yields declined as traders antici-
spond by giving the weakening
intense pressure to cut rates at
pated that the budget summit
economy a boost through lower
that meeting," said economist
would be successful.
interest rates.
Roger Brinner at Data Resources
Greenspan told the Joint Eco-
Inc. "If they don't, I believe that
nomic Committee of Congress
A number of economists and
congressmen and senators and
Sept. 19 that if the budget talks
fiscal experts Sunday reacted fa-
the president will cry foul."
succeeded and Congress enacted
vorably to the budget deal, say-
President Bush, giving his bless-
a "credible, long-term, enforce-
ing it goes a long way toward
ing Sunday to the budget deal
able budget agreement, I would
imposing the kind of fiscal disci-
that resulted from nearly five
expect long-term interest rates to
pline that the nation needs and
months of intensive negotiations,
decline.
that the Fed has long demanded
pointed to lower interest rates as
as a condition for eased credit.
one of the early benefits that
"In that context," he said, "I
"We may get interest rates
could be expected from the ac-
would presume that the Federal
Reserve would move toward
cord.
coming down now that the defi-
[lowering short-term rates] to ac-
cit is on the way to coming
"Long-term interest rates
commodate those changes in the
down," said economist Alice
should be able to come down,"
capital markets."
he said.
Rivlin, former director of the
What that means is that if in-
Congressional Budget Office and
But Carol Cox, head of the
vestors believe that the budget
now a senior fellow at The
Committee for a Responsible
deal will mean less federal bor-
Federal Budget, a reform group,
Brookings Institution.
rowing in the future, they would
said the Fed shouldn't act until
bid down interest rates and the
Both congressional and admin-
Congress puts the new deficit-re-
Fed would support that develop-
istration negotiators have antici-
duction agreement into law.
ment by cutting short-term rates.
pated that a credible demonstra-
Applauding the projected re-
Whether Sunday's budget deal
tion of fiscal responsibility
ductions as "big and real
can deliver what it promises re-
would be rewarded by the cen-
with a surprisingly small amount
sides partly on the Fed's actions.
tral bank.
of blue smoke and mirrors," she
All the numbers in the new
In fact, action by the Fed to
said the Fed should wait to see
stimulate the economy through
whether the members of Con-
budget plan are drawn from com-
easier credit is essential to offset
gress follow through.
puter projections of how the
economy is likely to perform,
the economic effects of the high-
"They have to produce a budg-
taking into account the expecta-
er taxes and curtailed govern-
et resolution, they have to pro-
tion that interest rates will fall
ment spending called for in the
duce a reconciliation bill, they
this year and next and spur eco-
deficit-reduction plan. Otherwise,
have to pass the reconciliation
nomic growth.
many economists agree, the plan
bill, the president has to sign it-
all of which is supposed to occur
A weaker-than-expected
could speed the nation's current
slide toward recession.
between now and the 19th of Oc-
economy would raise the deficit
Federal Reserve Chairman Alan
tober. And I think we all can
by reducing government tax reve-
Greenspan suggested as recently
wait until then for the Fed to act
nues; higher-than-expected inter-
and to keep a little pressure on
est rates would raise the deficit
as nine days ago that he would
us to do what is right.
by raising government financing
be willing to respond to a serious
costs.
deficit-reduction accord. But the
Perhaps the most important
Persian Gulf crisis has caused oil
measure of the budget deal will
prices to spiral, threatening a
come on Monday, when the fi-
new round of inflation that could
nancial markets have the first op-
restrain the Fed's ability to ease
portunity to react.
credit.
THE NATION'S NEWSPAPER
TODAY
TUESDAY, OCTOBER 2, 1990
Analysts: Poll reflects
cynicism on budget
By Sharen Shaw Johnson
major deficit reduction.
ferent reason for the lack of
USA TODAY
56% say the plan favors
enthusiasm: "the way the pack-
the rich; 28% say it doesn't.
age was presented.
More than half of Americans
But 52% say the new
"Almost the entire emphasis
reject the 1991 budget deal,
budget and taxes will have only
was on tax increases - even
saying it favors the rich but
minor impact on their lives.
though most of the package
won't curb the deficit, a USA
Most unpopular change:
deals with spending cuts.
It
TODAY Poll found Monday.
cutting Medicare, benefits,
comes across as trying to re-
"I would suspect this deficit
cited by 52% of those opposing
duce the deficit via tax in-
reduction process has become
the plan. Second most unpopu-
creases; people don't like that."
such a charade over the past
lar: gasoline tax hike, 24% -
Among the reasons: They've
couple of years that it's feeding
but only 2% disapprove most
seen "most tax increases result
the cynicism," says David
of the planned luxury tax.
in more spending rather than
Hensley of UCLA's Business
"People are cynical," said
really reducing the deficit."
Forecasting Project.
Norman Robertson, chief
Adding salt to the wound,
One result, he predicts: Pres-
economist at Mellon Bank,
Weidenbaum says: "The taxes
ident Bush and congressional
Pittsburgh. "We just keep push-
seem unfair." Example: "Peo-
leaders "have got their work
ing out the year when we're go-
ple still think of old folks as
cut out for them" trying to sell
ing to balance the budget. First
poor and hence the Medicare
the package to lawmakers..
it was going to be 1986
now
tax increase seems unfair."
The major findings:
it's going to be 1995."
The Gordon S. Black Corp.
52% disapprove of the
But Murray Weidenbaum,
telephone poll of 852 adults
plan; only 37% approve.
ex-chairman of the Council of
Monday night has an error
69% say it won't lead to
Economic Advisers, sees a dif-
margin of 3.5%.
THE NATION'S NEWSPAPER
TODA
TUESDAY, OCTOBER 2, 1990
Bush TV pitch on
budget deal urged
By Richard Benedetto
and Leslie Phillips
USA TODAY
"I felt a little like a friendly
dentist applying a lot of Novo-
As Republican and Demo-
cain and trying to extract a few
cratic carping over tax hikes
votes," quipped Quayle.
and program cuts creates a din
Senate Minority Leader
on Capitol Hill, there's talk of
Robert Dole, R-Kan., and Sen-
putting President Bush on TV
ate Budget Committee Chair-
to coax an alarmed public into
man James Sasser, D-Tenn.,
taking the bitter medicine.
said most senators from both
"Only the president
can
parties will back the plan.
convince the public it is in their
"Everyone knew this pack-
long-term best interest.
If he
age would be an ugly duckling
convinces them, it will pass,"
but it's greatly preferable to
said Sen. Wyche Fowler, D-Ga.
the artificial crisis of a seques-
Senate Majority Leader
ter," said Sasser.
George Mitchell, D-Maine, said
A sequester would have pro-
he hopes Bush can get public
duced $100 million in cuts, hit-
support and "encourage mem-
ting most federal programs.
bers of Congress to support the
Budget director Richard
president and Congress."
Darman foresees a big fight in
Congressional leaders and
the House, where all 435 seats
Bush settled on a package of
are up for election five weeks
spending cuts and tax in-
from today, and members are
creases Sunday to cut the defi-
more sensitive to voter and
cit by $40 billion next year,
special-interest pressure.
$500 billion through 1995.
"You try to persuade every-
Deadline: Oct. 19.
body to go along, but if you
Bush, at the United Nations
can't, you move lightly on those
Monday, said the compromise
in close election contests,
is painful, but takes major steps
which isn't very many," said
to reduce the deficit and boost
Republican National Commit-
an ailing economy.
tee spokesman Charles Black.
"Like most compromises, it's
Bush lost a powerful ally at
certainly not going to satisfy ev-
the outset when fiery House
eryone," he said. "But this is
Minority Whip Newt Gingrich,
the time to move beyond these
R-Ga., expected to line up GOP
individual concerns and exer-
votes, jumped ship. He's miffed
cise leadership for the good of
over tax hikes.
the country."
But many lawmakers pre-
A simple majority of the 535
dict the package will survive.
members of Congress is need-
"If you're floating in the wa-
ed to pass the budget - 218 in
ter and somebody throws you a
the House, 51 in the Senate.
life preserver, and it looks a lit-
Leaders will try to get a major-
tie shabby, you grab it," said
ity from each party to go along
Sen. Warren Rudman, R-N.H.
so neither side is blamed.
"The alternative is drowning."
Bush did his bit by phoning
six lawmakers to ask their sup-
Contributing: Jessica Lee and
port. Vice President Quayle
Richard Wolf
and a group of Bush aides were
on Capitol Hill making the
pitch Monday.
THE NATION'S NEWSPAPER
TODAY
TUESDAY, OCTOBER 2, 1990
Lobbyists get
set to descend
upon Congress
By Tracy Walmer
and Lori Sharn
USA TODAY
Most lobbying groups look at
of the National Association of
the federal budget deficit
Wheat Growers.
agreement and prepare for a
Senior citizens are crank-
tough fight.
ing up a nationwide network of
Only a handful may decide
activists to challenge changes
to swallow it.
in Medicare, says Ron Pollack,
Transportation and business
director of the lobbying group
groups, hurt by proposed tax
Families USA.
hikes on airline tickets and gas-
Their weapon: the vote.
oline, are geared up.
"Those that wage this war
"The conventional wisdom is
shouldn't expect older Ameri-
not good," says Bill Kelleher, a
cans to be pacifists on Election
lobbyist for the U.S. Chamber
Day," Pollack says.
of Commerce.
Douglas Metz of the Wine
But, says Kelleher, "We ex-
and Spirits Wholesalers of
pect to convince members (of
America says lobbying efforts
Congress) on the floor of the
already have reduced their tax
fundamental unfairness of gas
bite. "If this package is defeat-
taxes for deficit reduction."
ed, it could be worse," he says.
His target: members of the
"We're assessing it."
House Budget and Ways and
The National Beer Whole-
Means committees.
salers Association also is evalu-
The American Road and
ating it. "There is lobbying and
Transportation Builders Asso-
there is lobbying," says spokes-
ciation, fearing the gas hike,
man Jack Lewis. "Sometimes
has contacted 200 members of
you have to lobby to preserve
Congress and placed ads in
what you got."
Washington papers.
Among other lobbies:
The Tobacco Institute, fac-
ing tax hikes up to 50% on to-
bacco products, is cautious.
"No commercials, no full-page
ads
lobbying through our
regular channels," says spokes-
man Thomas Lauria.
Farmers, facing a $13 bil-
lion cut in subsidies, talk fair-
ness. "Our interest
will be in
seeing that they (cuts) are pro-
portionate among all farm pro-
grams," says Carl Schwensen
THE NATION'S NEWSPAPER
TODA
TUESDAY, OCTOBER 2, 1990
Execs: Budget deal not enough
By Daniel Kadlec
USA TODAY
The weekend deal to cut the
other provisions a Band-Aid ap-
federal budget deficit isn't bad,
proach to reducing the budget
but it isn't nearly enough, Wall
gap and says provisions that
Street leaders said Monday.
call. for fewer tax deductions
The deal is a step in the right
for the wealthy could backfire:
direction, they concede. In-
"Typically, the wealthy contin-
deed, stocks roared higher
ue to spend in a recession. This
Monday partly on positive feel-
may deter them and put an
ing that a deal was struck by a
added pinch on the economy."
Sunday deadline. But most bro-
William Schreyer, CEO
kerage industry leaders inter-
of Merrill Lynch & Co., says,
viewed Monday said they be-
"Increasing our personal sav-
lieve the deal by itself will not
ing is key to a prosperous
lead to significant progress in
America. Much more needs to
solving the deficit problem.
be done." He says the proposed
The deficit has emerged as a
family savings account or re-
key issue on Wall Street partly
stored deductibility for individ-
because it is hampering the
ual retirement accounts should
Fed's ability to push interest
have been part of the deal. But
rates lower and spur the econo-
it would have been worse, he
my. John Bachmann's re-
adds, had it included the once-
sponse was typical. "I wish
considered special tax on secu-
they would have done more,"
rities transactions. That "would
said the managing partner of
have been extremely harmful
Edward D. Jones & Co.
to our economy and our mar-
Other comments:
kets."
Raymond "Chip" Mason,
Bachmann criticizes the
chairman of Legg Mason Inc.,
deal for putting off most of the
likes the extra tax on gasoline,
cuts until near the end of the
saying it brings the USA closer
five-year plan. By then, who
to what consumers pay around
knows what the economy will
the world. But the 12-cents-a-
look like and if the savings will
gallon levy should have been at
be possible? he asks. "You're
least 25 cents, he says. That
not going to have the kind of
would take a meaningful bite
impact you need until you get
out of the deficit. "People un-
tougher on the spending pro-
derstand what this issue is all
grams. The most important is-
about," he says. "If you have to
sue is a stable economy that
drive a little less, then you're
people can believe in. You
just going to have to do it."
have to get your spending and
Jack Barbanel, president
your revenues more in sync."
of First Global Asset Manage-
ment in Princeton, N.J., says,
"The only thing positive about
the deal" is that the gasoline
tax might encourage the USA
to look closer at its energy poli-
cy. Long term, if the USA could
produce all the energy it con-
sumes, it would do wonders for
the economy, he says. He calls
THE NATION'S NEWSPAPER
TODA
TUESDAY, OCTOBER 2, 1990
Boost could further brake car sales
By Micheline Maynard
tor Co. officials, who've sup-
garnered because the package
fidence, thinks a deficit-fight-
USA TODAY
ported gasoline-tax hikes,
also calls for part of gasoline-
ing tax hike could cut already-
backed the deficit-reduction
tax revenues to be returned to
slow U.S. auto sales by 5% to
U.S. auto-industry officials
package Monday and say they
states for highway projects -
10% in the next year.
say a proposed 12-cents-a-gal-
will try to get lawmakers to
an idea GM has backed.
The hike in itself won't dis-
lon increase in the USA's gaso-
vote for it.
Even if overall sales totals
suade buyers, "but there are a
line tax might prompt some
"We think it will be very,
don't change, a shift away from
lot of things to make people a
buyers to shift from large cars
very tough (to win passage),
large cars and trucks could cut
lot more uncomfortable right
and trucks to smaller ones but
but we also think it's inevitable,
even more deeply into profits
now," he says.
won't cause a mass exodus
because there's no other policy
of the Big Three automakers,
Among them: worries about
from showrooms.
alternative," says Chrysler lob-
which were down 40% in the
the economy, concern over the
Analysts, however, fear that
byist Robert Perkins.
first half of 1990.
Iraq-Kuwait crisis and higher
a gasoline-tax hike will be one
He says Chrysler can build
Analyst Michael Luckey of
prices on 1991 cars and trucks.
more piece of bad news - on
700,000 more fuel-efficient
Luckey Consulting Group says
Buyers most likely to be
top of a series of economic
cars equipped with four-cylin-
buyers would barely notice a
scared by a gasoline-tax hike
blows - that will frighten car
der engines per year than it
10-cent tax hike in a healthy
include young, first-time home-
buyers further.
currently produces if consum-
economy. "In a weak environ-
buyers, retirees on fixed in-
The proposal would raise the
ers demand them.
ment, which we have now, the
comes and middle-level execu-
9-cents-per-gallon federal gaso-
General Motors, which has
gas-tax hike will certainly have
tives who are worried about
line tax 12 cents - 5 cents Dec.
strongly opposed gasoline taxes
more of an impact," he says.
corporate cutbacks, says Plog.
1, a 2-cent energy tax Jan. 1,
imposed solely as a deficit-
California psychologist Stan-
and another 5 cents July 1.
fighting tool, still is studying the
ley Plog, a marketing consul-
Chrysler Corp. and Ford Mo-
plan. But GM's support could be
tant who tracks car-buyer con-
THE NATION'S NEWSPAPER
TODA
TUESDAY, OCTOBER 2, 1990
Medicare offered expanding target
By Richard Wolf
USA TODAY
To federal budget cutters,
$65 annual hike - and double
Social Security remains a sa-
annual deductibles to $150.
cred cow, but Medicare is a pig
Negotiators bit the bullet on
worthy of poking.
Medicare for a simple reason:
The nation's health care pro-
despite a decade of cost-paring,
gram for 34 million elderly and
it continues to grow in double-
disabled persons takes the sec-
digit percentages.
ond biggest cut in the five-year,
"Medicare has been the fast-
$500 billion deficit-reduction
est rising cost of any govern-
agreement - topped only by
ment entitlement program,"
the Pentagon.
said House Speaker Thomas
Congress has been working
Foley, D-Wash.
to control rapidly rising Medi-
Without cost controls, Medi-
care costs. But this time recipi-
care is projected to cost $184
ents as well as doctors and hos-
billion by 1995, rising each
pitals are being asked to pay.
year by 11% to 14%. Premi-
"You save money
by go-
ums, which paid for 50% of
ing where the big spending is,"
doctor bills in 1965, now cover
said Sen. John Chafee, R-R.I.
only 25% of costs.
"And for a whole variety of
Reasons for the rapid rise: a
reasons, the other big spending
2% annual increase in the el-
program was left out."
derly and disabled population,
That program is Social Secu-
and a 7% to 8% annual in-
rity, the "third rail" of politics,
crease in what Medicare ana-
untouched by budget negotia-
lysts call program "volume."
tors for fear of political fallout.
Volume includes: more doc-
Proposals to limit cost-of-living
tor visits, longer hospital stays,
increases or raise taxes on
more intensive services, more
benefits were dropped at the
expensive technology and high-
11th hour.
er medical fees.
But Medicare enjoyed no
such reprieve. Negotiators de-
cided to cut $30 billion in pay-
ments to health-care providers
and reach into the pockets of
recipients for $29.9 billion.
The key provisions would
raise monthly premiums to
cover doctor bills by 20% - a
THE NATION'S NEWSPAPER
TODA
TUESDAY, OCTOBER 2, 1990
Elderly lament: 'It's not fair'
By Jeanne DeQuine
"Why should they fix the deficit on our
USA TODAY
backs?" says Joseph Fox, 68, who lives on
$391 a month in Miami Beach. "If I have to
MIAMI BEACH - When Kathleen Col
pay any more money, I'll be ruined.
heard about the proposed Medicare in-
"The ones that can pay should pay for
creases, she got busy.
the ones that can't," says Fox, who suffers
"I've been calling peo-
from arthritis.
pie all day with the num-
MEDICARE
Sam Staff, 73, who lives
bers to lobby Washing-
in an exclusive waterfront
ton," says Col, 64, a local
Pro: Scales back fastest
high-rise in Hollywood,
member of the Ameri-
growing part of budget.
Fla., agrees. "We need to
can Association of Re-
Con: Forces elderly to pay
balance the deficit, but
tired Persons.
more.
we're eating up the fixed
Many among AARP's
incomes of the poor."
500,000 members in south Florida com-
"We are already paying through the
plain about the proposed Medicare in-
nose," says Martha Bodner, "80-plus," who
creases, which would hike monthly insur-
lives on a fixed income in Miami Beach.
ance payments to $34.30 and increase the
"Rent, food - everything is higher now."
minimum payment on doctor bills by $75.
However, Jose Salzedo, 85, who is recu-
Together, the increases mean $143
perating from a cataract surgery, says he'll
more a year - a hefty sum for many el-
pay the increase. "I will find the money
derly who live on as little as $300 a month.
somewhere. I need to rest a lot. I don't
have the energy to fight it."
But Fox protests: "Where am I going to
come up with this money? I can't just take
it out of my pocket. It's not there."
THE NATION'S NEWSPAPER
TODA
TUESDAY, OCTOBER 2, 1990
'Sin' taxes fuel the fear of lost jobs
By Michelle Duell
Special for USA TODAY
ST. LOUIS - Beer drinkers
are fuming about the proposed
increase in the federal taxes on
beer - while beer makers
fear for their jobs.
"People are a little hot about
it," says Bob Hardy of
KMOX/CBS radio, who heard
plenty from his audience about
the agreement by congression-
al leaders and the White House
to raise so-called "sin" taxes:
Beer, from 16 to 32 cents a
six-pack.
Liquor to $14 a gallon,
from $12.50.
Cigarettes, now 16 cents
per pack, up 4 cents Jan. 1 and
another 4 cents in 1993.
Wine up 3 cents, to an av-
erage 22 cents a bottle.
"There were complaints
about hitting the little guy -
the middle class," says Hardy.
"Yet, Congress didn't eliminate
its upcoming pay raise."
Employees of Anheuser-
Busch Companies Inc., the
world's largest brewery, are
worried about labor cutbacks
and layoffs, though the compa-
ny says none are planned.
"That's the main thing," says
Al Lancaster, 51, an oiler for
Anheuser-Busch. "We will be
producing less. It's going to cost
us some jobs."
"Our beer is the most expen-
sive," says Mark Ries, 29, a
brewer for eight years. "An in-
crease in the excise taxes is go-
ing to make people buy beer
that costs less."
Salesman Andrew Platts, 24,
raises another point about
"sin" taxes: "You're penalizing
people for doing things that
others judge wrong."
The flap doesn't upset Lo-
cust Street Underground bar
patron Everett Kalkberenner,
46, vice president of marketing
for a St. Louis bank. "People
will complain," he says, "but
they'll keep drinking. St. Louis
is a beer-drinking town."
THE NATION'S NEWSPAPER
TODA
(R)
TUESDAY, OCTOBER 2, 1990
Car-pool drive may get lift
By Deeann Glamser
USA TODAY
SEATTLE - Beverly Tocci
appreciates the federal govern-
ment's timing of an announce-
ment of a higher gasoline tax.
Tocci, coordinator of the
city's commuter service, is
ready for a blitz starting Oct. 15
to promote ride sharing.
"The gas tax probably will
increase interest," says Tocci,
who will use radio ads and bill-
boards on Interstate 5 to sell
car pools in an area where 20
miles is a long commute.
But Tim Hamilton, head of a
600-member gas dealer associ-
ation, complains, "I've had the
phone ringing off the hook
from merchants all over who
are terribly upset.
"The government and oil
companies get all the money,
and we take the verbal abuse,"
Hamilton
says.
"We're
people,
too, other deal poses cents The and also per 5 to deficit cents we raise calls gallon don't July the agreement for Dec. like gas a 1, 2 1991. 1 it." cent tax and by pro- The per an- 5
gallon fuel tax starting Jan. 1.
The tax news comes as driv-
ers are furning over higher gas-
oline prices since Iraq's inva-
sion of Kuwait in August.
Says architect Dutch Dur-
ante, 39: "I do a lot of work out-
side the office, and I still have
to have my car."
Art gallery employee David
Davenport, 40, a bus rider, of-
fers no sympathy. "People
should pay for the mode of
transportation they use."
City Councilman Paul Kraa-
bel sees a blessing for car-pool
advocates.
"It's going to make public
transportation more appeal-
ing," Kraabel says.
THE NATION'S NEWSPAPER
TODA
TUESDAY,
OCTOBER 2, 1990
Budget accord targets
wallets of the wealthy
By Bill Montague
USA TODAY
"I've been poor and I've
$840 in extra tax. That's rough-
been rich - rich is better," ac-
ly a 3% tax hike for the richer
tress Sophie Tucker once said.
person and a 2% boost for the
But that won't necessarily be
less-affluent taxpayer. For
the case for taxpayers if Sun-
most wealthy taxpayers, it
day's budget deal is enacted.
would bei like raising their tax
Overall, the plan's tax in-
rate from 28% to nearly 29%.
creases would fall more heavi-
Harder hit, however: Mar-
ly on the poor because of high-
ried taxpayers who fall in the
er alcohol and gasoline levies.
"bubble," the 33% tax rate ap-
But the reverse is true of one
plied to taxable income from
part: a cut in itemized deduc-
$78,401 to $162,770 for couples
tions for wealthy taxpayers.
without children. If a couple's
The plan would cut itemized
adjusted gross is more than
deductions for about 2.5 mil-
$100,000 and taxable income is
lion households whose adjusted
gross income is more than
still in the bubble, each dollar
in lost deductions would add 33
$100,000 a year. Adjusted gross
income is total income minus
cents in taxes, VS. 28 cents for
taxpayers whose incomes es-
such things as contributions to
cape the bubble.
individual retirement ac-
counts. Affected taxpayers
The plan is slanted against
would have to subtract
married couples, says Tom
$100,000 from their adjusted
Ochsenschlager of accounting
firm Grant Thornton. Reduced
gross, multiply the result by
3%, then reduce their deduc-
deductions kick in at $100,000
tions by that amount.
in adjusted gross for couples as
The effect would be that the
well as singles even though two-
wealthier you are, the more
earner couples tend to have
you'll pay. A taxpayer with an
higher incomes - so they'd see
adjusted gross income of $1
bigger cuts in their deductions
million a year might have
than single taxpayers.
$200,000 in deductions. He
The plan also could increase
state tax bills. Most states let
would have to slash those
write-offs by $27,000 - $1 mil-
taxpayers use the same deduc-
tions for state income tax that
lion minus $100,000 multiplied
by 0.03. That would add $7,560
they take for federal tax. If fed-
to his tax bill. But someone
eral deductions are cut, state
with an adjusted gross income
taxes would go up.
of $200,000 a year, with $40,000
Charities, at least, would come
out better than if deductions
in deductions, would lose
$3,000 in write-offs and pay
were capped at a set level. The
plan doesn't discourage larger
donations because the amount of
additional tax is based on in-
come — not total deductions.
THE NATION'S NEWSPAPER
TODA
TUESDAY,
OCTOBER 2, 1990
Tax pact could hurt travelers
By Doug Carroll
firm. "It couldn't come at a worse time for the
USA TODAY
hotel industry."
The proposed increase in airline-ticket taxes
The new federal budget accord spells bad
- to 10% from 8% - comes at a time of rising
news for business travel.
airfares. Domestic fares have jumped almost
Proposed tax increases on gasoline, 'plane
10% since late August, and airlines have made
tickets, liquor and luxury automobiles will
discount fares harder for most business travel-
make corporate travel and entertainment
ers to get. Customs and other fees on interna-
more expensive. ravel managers will have
tional plane tickets are scheduled to rise by a
their work cut out for them," says Margie
still undetermined amount, and the Bush ad-
Crace, president of the National Business Trav-
ministration is pushing airport taxes that could
el Association.
cost fliers up to $12 for a round trip. Gripes Air
Most worrisome to some experts is the 12-
Transport Association spokesman William
cents-a-gallon increase in gasoline taxes - to
Jackman: "We think it's a disproportionate
21 cents a gallon from the current 9 cents - by
burden on air travelers."
July. Higher taxes, when gasoline prices al-
"We'll spend more time looking at whether
ready are up more than 20 cents a gallon since
trips are really necessary," says Michael
Aug. 1, can only discourage travel, they say. "If
Brooks, travel manager for Republic Mortgage
expect declines in business travel," says Thom-
Insurance in Winston-Salem, N.C. "I think we'll
as Lattin, national partner of Laventhol & Hor-
see a decline in business travel - more tele-
wath, an accounting and business-consulting
conferencing, that sort of thing"
THE NATION'S NEWSPAPER
TODA
TUESDAY, OCTOBER 2, 1990
Deficit-cutting plan may
benefit stock offerings
By Beth Belton
USA TODAY
The market for stock offer-
last year's rate. IPOs complet-
ings by small companies could
ed in the quarter totaled $1.6
get a boost from a tax break
billion, down 58% from $3.8
that's part of the proposed
billion in last year's third quar-
budget deficit-reduction plan.
ter, says Securities Data Co.
The proposed tax break
"The tax break will mean a
should lift a depressed market
lot more deals," says Glenn
for new stock issues, says in-
Cutler, portfolio manager of
vestment banker Robert Wil-
the Schield Progressive Envi-
lens of Shearson Lehman Bros.
ronmental Fund.
"It'll be a real positive for that
The tax break is for individ-
market."
uals, not institutional investors
Here's how the tax break
such as mutual funds. And the
would work: An investor who
stock of real-estate and invest-
buys stock from a company
ment management companies
with less than $50 million in eq-
and financial institutions such
uity - combined capital and
as banks aren't eligible for the
retained earnings - could de-
tax break. Newly issued stock
duct 25% of the investment up
from old and new companies,
to $50,000. An investment of
if they're small enough, can
$10,000 in a qualifying firm
qualify for the tax break.
would result in a $700 cut in
Industries that will gain the
taxes for someone in the 28%
most from the tax break in-
tax bracket.
clude biotechnology, pollution
Not all such small firms re-
control, high technology and
main no-names forever. For
health care, Cutler says. Anoth-
example, biotech powerhouse
er plus for investors in small
Genentech had less than $50
companies: If they hold the
million in equity when it first
stock for at least one year, they
sold stock to the public in 1979.
can adjust their initial invest-
One of the hardest sells in a
ment for inflation before deter-
bear market is stock in compa-
mining their gain when they
nies that don't have proven
sell, effectively cutting their
track records of earnings
capital-gains tax.
growth or brand-name prod-
ucts. In such markets, investors
shun stocks where the risk of
dramatic losses is high.
"General Motors can sell
stock in a bear market but not
mom-and-pop businesses," says
Glen Parker, publisher of New
Issues, a Fort Lauderdale, Fla.-
based newsletter.
Initial public offerings - a
company's first stock sale to
the public - plunged in the
third quarter this year from
THE NATION'S NEWSPAPER
TODA
TUESDAY, OCTOBER 2, 1990
Dow jumps 63.36 on
budget pact, oil slide
By Gary Strauss
USA TODAY
MARKET WATCH
USA TODAY'S DAILY STOCK REPORT
The budget deficit-reduction plan
and slumping crude oil prices Monday
$961/4, Gillette jumped 3½ to $543/8,
sparked big stock gains.
Procter & Gamble rose 41/8 to $77.
The Dow Jones industrial average
U.S. Surgical rose 27/₈ to $57 after
soared 63.36 points to 2515.84. The gain
the medical-products firm received
was second this year to the 78.71-point
Food and Drug Administration approv-
rise of Aug. 27. Broader indexes also
al to market a line of synthetic sutures.
surged. Winners outran losers 1,203 to
Drug stocks jumped: Merck rose
442 on the New York Stock Exchange on
41/8 to $801/4, Schering-Plough rose 27/8
heavy volume of 202.21 million shares.
to $46 and Syntex rose 23/₈ to $541/4.
UAL soared 6½ to $1033/8 on take-
Behind the market: Stocks
over talk and falling oil prices, which
opened higher as Wall
also lifted AMR 23/4
Street responded to
to $45 and Delta 2½
Sunday's budget agree-
The Dow Monday
to $571/8.
ment, which traders
2540
Chemical firms
hoped would soon
dependent on oil also
prompt the Federal Re-
2520
got a boost. Dow
serve to ease interest
Chemical jumped
rates. (Stories, 1B, 6B,
3½ to $421/4, Great
8B; Spotlight, above.)
2500
Lakes Chemical
Crude oil prices, off
rose 21/4 to $561/4,
sharply on news of a
2480
Friday's
Monsanto added 2½
possible diplomatic end
close
to $41 and Du Pont
to the Middle East cri-
2460
gained 11/8 to $35.
sis, also gave stocks a
Oil and oil-ser-
boost, igniting a spree
vices stocks slipped
of buy programs that
2440
10
12
2
3
on falling crude oil
pushed the Dow up
Source: Reuter
prices. Among the
more than 50 points by
losers: Atlantic
12:15 p.m. The 50-point jump triggered
Richfield, off 23/₈ at $132; Schlum-
a NYSE collar on program-related or-
berger, off 1 ⁷/₈ at $59; and Apache,
ders, briefly stifling program activity.
down 23/4 to $17.
Jack Cantwell, manager of block
Easing Middle East tensions also
trading for Dean Witter Reynolds, says
clipped bullion prices, pushing down
the market also got a boost from Shear-
Newmont Gold, off 37/8 at $411/2; ASA,
son Lehman Bros. strategist Elaine Gar-
off 17/8 at $471/2; and FMC Gold, off 1 at
zarelli, who told clients that stock prices
$101/2.
had bottomed and could rally 10% to
Hewlett-Packard fell 2 to $311/2 af-
12% by the fourth quarter's close.
ter Sanford C. Bernstein cut 1990-91 earn-
ings estimates. Microsoft surged 41/8 to
Market highlights: Among
$67 1/8 on positive Shearson comments.
Dow 30 stocks, IBM jumped 25/₈ to $109,
Koger Properties lost 2½ to $9 af-
GE rose 13/4 to $561/4, AT&T added 13/₈
ter the office developer said it would
to $321/4, Eastman Kodak gained 1½ to
cut its 70-cent quarterly dividend to 25
$395/8 and Boeing rose 25/8 to $441/4.
cents in January. Koger Equities, a
Philip Morris, helped by a reiterated
real-estate investment trust, fell 15/₈ to
buy recommendation from Goldman
$11 after saying it would cut its quarter-
Sachs, jumped 2½ to $473/4.
ly dividend from 45 cents to 32.5 cents.
Consumer stocks, many of which
AmBase, one of the third quarter's
received positive comments from Mer-
biggest losers, sank ⁷/₈ to $7/8 after an-
rill Lynch, were among the day's big-
nouncing plans to sell its insurance sub-
gest winners. Disney surged 55/8 to
sidiary in a deal worth $970 million.
The Journal of Commerce
and Commercial
TUESDAY, OCTOBER 2, 1990
Crippled EPA
Benefits No One
By BRUCE HARRISON
Gramm-Rudman-Hollings is
an already troublesome personnel
hanging over the environmental
situation at the agency. Some pro-
the timeliness and efficiency of in-
grams are shorthanded as it is. The
dustrial planning and operations.
presidency like the sword of Damo-
cles. A Congress that has shown
furloughs, which represent pay
This capacity will be influenced
nearly boundless commitment to
cuts, will pressure many employees
by the managerial means EPA
environmental causes might allow
- especially legal staffers watch-
picks to achieve its cutbacks. Will
the Environmental Protection
ing their private-sector colleagues
it be shorter work weeks for every-
advance to ever-higher salary lev-
one throughout the agency or will
Agency to slip into a budgetary
freeze. That would critically handi-
els - to leave EPA.
selected offices be shut down?
cap the agency and prevent it from
Because industry is yoked to-
Even trivial line-item cuts will
carrying out many of its mandates.
gether with EPA in implementing
have their effect. If travel budgets
environmental programs, like part-
are slashed to near zero, EPA
That outcome would not, howev-
staffers will be unable to make site
er, lift a burden from industry's
ners in a sack race, the hamstring-
ing of EPA will extend to industry.
visits or interact as effectively
shoulders. In fact, businesses would
Personnel cutbacks will retard the
with corporate officials.
suffer from a seriously crippled
rate of promulgation of regula-
While EPA's manpower cut-
EPA as they try to comply with the
tions, delay the registration and
backs conceivably could relax en-
many permitting and enforcement
safety investigations of pesticides
forcement pressures, for instance
provisions integral to current and
and other chemicals - and create
by reducing the number of lawyers
pending environmental protection
laws.
a potentially disastrous processing
available to pursue litigation, it is
bottleneck for permits needed un-
more likely that the agency will
The nation faces other economic
der the provisions of clean air and
beef up its enforcement function to
challenges from oil wars and reces-
clean water laws.
offset the loss of program funds.
sion, but Gramm-Rudman looms
These delays will affect a wider
Even if that is not feasible, lax
the largest of the immediate
range of businesses than ever be-
enforcement is not a boon to indus-
threats. Though the congressional
fore, if the proposed Clean Air Act
try. If companies should succumb
leadership and the White House
amendments survive. Dry cleaners,
to temptation and ease up on their
have reached a budget compro-
auto body shops and a host of other
environmental initiatives in the
mise, the full Congress must act by
small businesses will be drawn into
face of relaxed compliance pres-
Oct. 5 or the Gramm-Rudman se-
the permitting loop. This loop is
sure, environmentalists will be able
questration is triggered. If reach-
really more of a maze: depending
to press hard for an even stronger
ing a compromise takes several
on what version of the Clean Air
and more rigid command-and-con-
months, the annualized net reduc-
Act amendments is passed, EPA
trol system when EPA's budget is
tion could slash hundreds of mil-
may face the Herculean task of
back to normal - and'industry will
lions from a yearly budget of $5.5
reviewing all State Implementation
be shackled more painfully than
ever.
billion dollars.
Plans, drawing up their own back-
up versions if the SIPs don't meas-
Companies have locked in on the
Program funds will be some of
the earliest line-items to go. Super-
ure up, and writing roughly 20,000
longer-term business benefits of
fund, corrective action plans under
pages of regulations to implement
the environmental programs put in
the Resource Conservation and Re-
the amendments - all within one
place during the last two decades.
Industrial commitments and activi-
covery Act, wastewater treatment
to three years of passage. EPA
grants, clean air monitoring and
staffers are as conscientious and
ty are paired with predictable co-
action by the public sector. If EPA
research, and many others could
dedicated as any in government,
all be gutted. New programs pro-
but the agency is just now issuing
is put on a budgetary respirator,
clean air regulations that by law
industry might as well resign itself
moting recycling, waste minimiza-
tion and pollution prevention will
were due in 1983.
to a lengthy bedside vigil. There
will be plenty of time for it, while
go unfunded.
The firms newly required to
waiting for permits.
There also will be personnel
comply with clean air laws will
cuts. EPA has had a hiring freeze
join the tens of thousands of firms
in effect since Aug. 10 in anticipa-
already seeking permits for dis-
tion of losing funds. Agency staff-
charges, plant siting, waste dispos-
ers have been warned of the possi-
al, introduction of new pesticides
bility of furloughs of more than 20
and many other industrial activi-
ties. In every instance, EPA's ca-
unpaid days off. This would be
pacity, or incapacity, to evaluate
equal to at least an 8% reduction in
and process permits determines
manpower.
Staff furloughs will aggravate
The Journal of Commerce
and Commercial
TUESDAY, OCTOBER 2, 1990
Pretty Good Deal
THE UNPOPULARITY OF THE budget package
worked out in Washington over the weekend is the best
testimonial to its soundness. The revenue increases it pro-
vides for are modest, perhaps too modest. But they have a
singular virtue: Almost without exception, the provisions
upon which congressional leaders and the Bush administra-
tion have agreed increase the tax burden on consumption,
not on savings or-investment.
Excessive consumption and inadequate investment lie
at the root of America's economic malaise. The federal
government's fiscal policy has encouraged that trend for
decades. Borrowing for home mortgages and, until the 1986
Tax Reform Act, for other personal uses has been subsi-
dized through tax deductions for interest payments. Even
as federal spending on transportation, education and re-
search has been squeezed over the past decade, a growing
share of revenue has been given to the elderly, regardless
of need, in the form of cash payments and subsidized
medical care.
The 1986 tax act began to reverse that trend by elimi-
nating certain personal income tax deductions. The new
budget package continues it. Every substantial source of
new revenue - the 12-cent-a-gallon hike in motor fuel
taxes; the increase in cigarette, beer and wine taxes; the
excise taxes on expensive cars and furs; and the limits on
income tax deductions for families earning over $100,000 a
year - all hit consumption. So do the proposed increases in
premiums for Medicare, the health care program for the
elderly, as well as cuts in spending on Medicare.
Congressional Democrats deserve credit for withstand-
ing administration pressure to gut the basic compromise
struck in the 1986 law, which lowered marginal rates but
exposed a greater share of personal income to the tax
collector. President Bush had sought both a lower tax rate
for capital gains, which would have opened the door anew
to many of the tax shelters eliminated in 1986, and special
treatment for the energy industry. He came away only with
a minor tax break for investment in companies with less
than $50 million in equity - not a desirable provision, to be
sure, but one far less subject to abuse than a lower rate for
all capital gains.
However President Bush should be praised for standing
up to Democratic demands that the package simply tax the
rich. Admittedly, working-class taxpayers have not fared
well in recent years, and the nation's income distribution is
becoming more skewed. But the Democrats' alternatives,
such as a 5 percentage point increase in the top tax rate for
many upper-income families, were unsatisfactory answers.
They would have cut into discretionary savings while leav-
ing the incentives for consumption unchanged. and would
have led to renewed political pressure for tax breaks to
offset the higher rates.
The process wasn't pretty, and the result doesn't go far
enough. Having taken the political risk of raising the gaso-
line tax over two years, Congress should provide for addi-
tional increases farther in the future. And having reduced
the tax benefit that high-income families receive from
buying the most expensive homes they can afford, Congress
should rein in the mortgage interest deduction even further.
But in tax policy, the best is often the enemy of the
good. Given where they started, the deal Congress and the
administration struck looks pretty good.
THE
WALL STREET JOURNAL.
TUESDAY. OCTOBER 2, 1990
BushCampaigns For the Passage Of Budget Pact
By DAVID ROGERS
And MICHEL MCQUEEN
Staff Reporters of THE WALL STREET JOURNAL
WASHINGTON-President Bush began
ship and the politics of his committee. New
an aggressive campaign to win congres-
business tax incentives in the agreement
sional passage of the bipartisan budget ac-
are "convoluted" and a "weak link in the
cord. as the administration sought to shore
whole operation," said Mr. Rostenkowski,
up support in its own party ranks before
and he open the possibility of re-ex-
the first critical votes this week.
amining the distribution of proposed lux-
"I'll be selling it to everybody I can get
ury taxes. "I'm not saying I'm on the war-
to listen to me," said the president, and se-
path, but I'm not saying I won't put on
nior White House aides accompanied Vice
some paint if I'm not given some lati-
President Dan Quayle to the Capitol in an
tude."
effort to isolate Republican dissent.
Administration officials, like cowboys
Senate Minority Leader Robert Dole
steering a skittish herd, are trying to keep
(R., Kan. ) expressed confidence the GOP
Republicans in line by using sometimes
can deliver its share of votes for the reso-
heavy-handed warnings against crossing
lution this week. But in sometimes testy
the president. They also hope to counter
exchanges. officials met resistance from
Mr. Gingrich by finding Republican law-
House Republicans, whose conservative
makers and private interests who will step
whip, Rep. Newt Gingrich (R., Ga.), de-
out front in support of the budget package.
nounced the package as a threat to the
The praise heaped on Sen. Gramm was
economy.
part of this strategy. Similarly, Rep. Clay
"It is my conclusion that it will kill
Shaw, a Florida Republican and member
jobs," said the Georgia Republican, who
of the Ways and Means panel, was the tar-
sought to portray the plan to reduced the
get of sudden attention yesterday from Mr.
deficit by $500 billion over five years as a
Sununu and Vice President Quayle.
"Democratic budget package." Mr. Gin-
The White House hopes that supporters
grich, who was flanked by junior members
such as the electronics and broadcasting
of the Republican leadership outside a
industries and venture capital interests, all
party caucus, is the most prominent sym-
of which won concessions in the agree-
bol of rank-and-file GOP resentment to-
ment, can offset Republican defections
ward the accord.
driven by conservative organizations like
Mr. Quayle, who attended the same
the Heritage Foundation. The foundation, a
meeting, likened himself to a "friendly
conservative think tank, issued a blistering
dentist" appearing before his former col-
memorandum warning that the agreement
leagues trying to extract votes.
would lower living standards for Ameri-
White House Chief of Staff John Sununu
cans and "damage the economy very seri-
was described as bluntly warning Republi-
ously."
cans that the president has a heavy politi-
Electronic and venture capital organi-
cal investment in the success of the pack-
zations, with their corporate members,
age. In an implicit slap at Mr. Gingrich,
have leverage with the large California
Mr. Sununu pointedly praised Sen. Phil
delegation.
Gramm (R., Texas who has endorsed the
And Rep. Sherwood Boehlert (R., N.Y.)
plan, as a conservative leader.
expressed satisfaction that the negotiators
The first test of strength for the admin-
had heeded his concerns and decided
istration could come as early as tomorrow,
against a provision designed specifically to
when the House is scheduled to consider a
limit deductions for state income taxes.
revised budget resolution incorporating the
That is an issue important to New York. "I
outlines of the tax and spending plan and
feel my voice was heard," said Rep. Boeh-
setting out a series of deadlines for legisla-
lert.
tive action during the next few weeks. By
Moderate northern Republicans will be
around Oct. 12. House and Senate commit-
crucial to the administration's effort, a
tees would be required to report legislation
fact that has heightened political sensitiv-
to achieve the promised savings and reve-
ity about the budget negotiators' failure to
nue. The ambitious schedule builds toward
exempt home-heating oil from a proposed
a major fight a week after that over final
two-cents-per-gallon tax on petroleum
passage of a bill putting the budget
products. There was some confusion about
changes into effect.
that issue, and initial administration docu-
Republicans may seek to delay the first
ments describing the accord said such an
votes until Thursday. but the Democratic
exemption had been approved. Rep. Silvio
leadership is anxious to move quickly in
Conte (R., Mass. ) was infuriated when the
order to head off pressure from labor and
exemption was removed after pressure
groups representing the elderly, both im-
from Senate Finance Committee Chairman
portant constituencies to the party. The
Lloyd Bentsen (D., Texas)
AFL-CIO is expected to announce its oppo-
While a stopgap spending bill averted
sition to the package today, and the pro-
the immediate prospect of across-the-
posed Medicare savings touch a sensitive
board spending cuts under the Gramm-
nerve after Congress retreated last year
Rudman law, the legislative schedule over
from a catastrophic health insurance
the coming weeks is designed to keep the
law.
threat of such cuts alive as a means to
"I'm reasonably confident," said House
push reluctant members to approve the
Speaker Thomas Foley (D., Wash. ), refer-
package.
ring to the vote this week. Most observers
"I don't know what choice we have,
agree that the greater political tests for
we're stuck," said Rep. Robert Matsui (D.,
the administration will come at the subse-
Calif.). As the majority party in Congress,
quent two stages, when the plan takes
Democrats have more of an institutional
form in legislation. Wholesale changes in
investment than Republicans in moving
the sensitive tax portion of the package
the process forward. "I think we did the
would jeopardize the pact. but the Demo-
best we can, and we're telling members
cratic leadership said congressional com-
it's better than the alternative," said
mittees would be left some flexibility to
House Majority Leader Richard Gephardt
make adjustments.
(D., Mo.).
As chairman of the budget talks, Rep.
"I'm not pleased with the outcome, but
Gephardt hasn't hidden his personal frus-
then again I can swallow hard,' said
House Ways and Means Committee Chair-
man Dan Rostenkowski (D., Ill.), who
walks a line between loyalty to the leader-
tration. In a speech to his party caucus
But after Mr. Bush's retreat, the talks
Sunday night, the Missouri Democrat
stalemated again over which taxes to
spoke of being depressed during the final
raise. After Labor Day, negotiators moved
days of the talks, and he seemed to wel-
from the Capitol to the seclusion of nearby
come the chance his old committee, Ways
Andrews Air Force Base with the goal of
and Means, will at least tamper at the
reaching agreement over a weekend. After
edges of the tax agreement.
11 days, the weary, mutually suspicious ne-
"I think it is all a matter of degree," he
gotiators disbanded.
said. "Modifications by the committees
But a smaller group consisting of three
will be made.'
administration officials- White House
The agreement bears the clear imprint
Chief of Staff Sununu, Treasury Secretary
of Senate Appropriations Committee Chair-
Nicholas Brady and budget chief Richard
man Robert Byrd (D., W.Va.), who suc-
Darman-and the five top congressional
cessfully protected his ability to increase
leaders began meeting privately in the
discretionary domestic spending over the
Capitol. For 12 days, they rehashed the
next five years. The 29-member appropria-
same arguments, with Mr. Sununu leading
tions committee he heads is a potent force
the fight for a capital gains tax cut and
in building bipartisan support for the pack-
Senate Majority Leader George Mitchell
age in the Senate.
(D., Maine) equally adamant that the
Pro-defense Republicans on the appro-
price would be higher rates on the rich.
priations panel were pleased by the alloca-
As automatic cuts and a government
tion promised for the Pentagon. While the
shutdown loomed with the Oct. 1 fiscal new
military share of spending in the budget
year, both congressional GOP. negotia-
package would crimp the growth in do-
tors-Sen. Robert Dole of Kansas and Rep.
mestic programs, the agreement in some
Bob Michel of Illinois-indicated that they
respects is more generous to such pro-
grams than the Senate had been in legisla-
preferred a deficit-cutting agreement to a
capital-gains tax cut. Finally, last Friday
tion it approved earlier this year. Do-
mestic discretionary spending would grow
the president came to the same conclu-
sion.
to $182.7 billion in fiscal year 1991, which
Looking back at the budget negotia-
began yesterday, and to $198.3 billion in
tions, Democrats acknowledged yesterday
fiscal 1993-an 8.5% increase that is criti-
that they paid a price for their own sym-
cal to such major science projects as space
bolic stands. From the outset, the party
exploration and the super-conducting su-
sought to craft a package that would shift
percollider in Mr. Gramm's home state of
the tax burden more to higher income fam-
Texas.
ilies, but they were reluctant as well to
The budget agreement is the product of
tamper with Social Security. In the final
prolonged, often rancorous negotiations
days, negotiators chose to scrap a proposal
over the past four-and-a-half months. Pres-
to tax more of Social Security benefits, but
ident Bush called for the talks last May in
this made the package more dependent on
response to signs of a weakening economy
gasoline taxes, which fall on working and
and worsening deficits, and in an effort to
middle-class families who will also be af-
put his stamp on the fiscal 1991 budget. On
fected by a variety of excise increases for
June 26, with the talks near collapse as a
beer and cigarettes.
result of a deadlock over whether to raise
-Jackie Calmes contributed to this ar-
taxes, Mr. Bush retreated from his 1988
ticle.
campaign pledge for no new taxes.
Many GOP conservatives consider both
Mr. Bush's call to a summit and his tax
statement serious blunders. But adminis-
tration officials gambled that if the result
were a big deficit-cutting deal, the presi-
dent would reap a windfall of credit, nudge
the Federal Reserve to ease credit and
avert the feared recession that could
threaten his 1992 re-election hopes. Less
credibly, they wagered that a budget pack-
age that left income-tax rates unchanged
would allow Mr. Bush to claim his cam-
paign promise was intact.
THE WALL STREET JOURNAL.
TUESDAY, OCTOBER 2, 1990
Budget Agreement,
Unlike Pacts Past
May Be for Real
By JACKIE CALMES
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON - Budget-cutting agree-
ments typically promise far more austerity
than they deliver, but even cynics believe
the new accord between President Bush
and congressional leaders may produce
real savings.
That's not to suggest that the $500 bil-
lion five-year pact is airtight. It includes a
number of perennial proposals that turf-
conscious congressional committees annu-
ally ignore, and a few of the same fiscal
dodges that led to such criticism of last
year's more modest "Rose Garden" agree-
ment.
"It's much more real than any agree-
ment that we've had for many years,' said
Rudolph Penner, former director of the
Congressional Budget Office. "There's
some smoke in it, but not near as much as
in past years."
Says Carol Cox, head of the Committee
for a Responsible Federal Budget and typi-
cally a hard critic of federal. budgets:
"The deficit may not go down as much as
projected because there's no telling what
the economy will look like in five years.
But for the most part these are real spend-
ing cuts and real tax increases."
The credibility of the bipartisan pack-
age is crucial because that will help deter-
mine whether the Federal Reserve eases
credit in coming months.
And the agreement does fudge on a
number of figures.
Officials predict that the S&L clean up
will require at least $120 billion in the next
year, but the budget package doesn't spec-
ify its target amount. It says only that the
thrift-bailout spending would be counted to-
ward the budget deficit, but not for pur-
poses of determining compliance with the
Gramm-Rudman law, which threatens
across-the-board cuts if deficit targets are
exceeded. Regulators expect about half of
next year's spending to be recouped
through the sales of assets seized from
S&Ls.
First-year savings fall from the prom-
ised $40.1 billion to $34.4 billion when the
net costs of the Persian Gulf deployment
are counted. Beyond that. nearly all ana-
lysts dismiss claims to get S3 billion, or
$9.4 billion over five years. from changes
at the Internal Revenue Service designed
to increase tax collections.
The next most widely derided idea calls
for ending federal retirees' option of taking
their pension in two lump sums. The esti-
mated savings. $8.1 billion through 1995,
are considered real in the short run since
the government won't have to pay retirees
their full benefits at once. But over time.
costs are higher as many beneficiaries live
longer and thus draw pension payments
longer.
The accord vaguely attributes $2 billion
through 1995 to "certain business tax pro-
visions." Another $3 billion over the five-
year period is linked to "miscellaneous
fees
to be determined.'
The agreement proposes the usual as-
sortment of user fees-$14.2 billion over
five years-though typically only a fraction
become reality. Among the retread ideas
were several that the pertinent congres-
sional committees annually ignore or re-
ject, such as an S25-a-year fee on boat
owners to cover Coast Guard services.
THE
WALL STREET JOURNAL.
TUESDAY. OCTOBER 2, 1990
Enterprise Zones Are Close to Reality
As Part of Federal Budget Agreement
By JOE DAVIDSON
"lobbied, cajoled, begged and pleaded for
Staff Reporter of THE WALL STREET JOURNAL
enterprise zones with everybody for over
WASHINGTON A federal program for
the last 10 years."
enterprise zones, pushed by Housing and
Although enterprise zones were closely
Urban Development Secretary Jack Kemp
identified with Mr. Kemp as a congress-
for a decade, finally is on the verge of real-
man and as HUD's secretary, a break-
ity as part of the budget summit agree-
through in gaining wider acceptance for
ment.
the idea came in June when a former zone
This past weekend's agreement between
opponent, House Ways and Means Commit-
President Bush and the congressional lead-
tee Chairman Dan Rostenkowski (D., Ill.
ership calls for a $1 billion, five-year pro-
introduced legislation that would create 25
gram "to provide tax incentives to spe-
zones and cap federal incentives at $20 mil-
cially designated areas in need of eco-
lion a zone annually.
nomic assistance."
Mr. Rostenkowski, as well as officials in
That's smaller than the $1.8 billion, 50-
the Treasury and the White House budget
zone program over five years that Mr.
office, had argued that enterprise zones
Kemp had been
would be a revenue loser that couldn't be
pushing as part of
afforded during a time of deficit. But oth-
President Bush's fis-
ers, including Mr. Kemp and Rep. Charles
cal 1991 budget pro-
Rangel (D., N.Y.), argued that the zones
posal. The budget
would boost employment and business ac-
agreement does,
tivity SO much that tax revenues would in-
however, greatly in-
crease over the long run.
crease the likelihood
that what had long
With 600 zones created by state govern-
been a concept now
ments in nearly every congressional dis-
will be realized.
trict, "a grass roots movement has
Congress is under a
brought even Rosty around," Mr. Cowden
Friday deadline to
said of the Ways and Means chairman.
vote on the budget
Once the federal zone program is en-
package.
acted, "it's going to have, we think, a pro-
"It's a good
Jack Kemp
found effect on the way cities approach de-
start," said Dick Cowden, executive direc-
velopment planning,' he added. "They'll
tor of the American Association of Enter-
know they aren't doing it alone."
prise Zones. "We're overjoyed to see it, es-
Mr. Cowden expects the enterprise-zone
pecially at a time when so many other
measure to include a feature called "eq-
things are being cut."
uity expensing," which would provide per-
Enterprise zones would provide tax and
sonal tax incentives for private invest-
other incentives to companies locating or
ments in small businesses. "We think that
expanding their operations in areas of high
would flush a lot of lower-level investment
unemployment. The $1 billion for the zones
into those companies," he said.
wouldn't be an expenditure, but an esti-
But Mr. Rangel, a sponsor of enter-
mated loss in federal revenue because of
prise-zone legislation, warned that "enter-
tax breaks under the program.
prise zones standing alone mean absolutely
Regarding just how the program would
nothing. Nothing in the [budget summit
work, or the number of zones to be funded,
bill would encourage businesses to relocate
"we have absolutely no details on that
in inner cities as long as they are festering
right now," said Mary Brunette, Mr.
with homelessness. crime and high dropout
Kemp's chief aide. She said Mr. Kemp had
rates."
THE WALL STREET JOURNAL.
TUESDAY, OCTOBER 2. 1990
Low-Cost Loans
For Home Buyers
Cut in Budget Pact
By JAMES A. WHITE
Staff Reporter of THE WALL STREET JOURNAL
Federal tax breaks that provided low-
cost loans to some first-time home buyers
and to small manufacturers expired as ex-
tensions of the programs were omitted
from the proposed budget compromise.
Under the programs, state and local
agencies were able to issue tax-exempt
revenue bonds providing below-market-
rate loans for single-family home buyers
and for small industrial development proj-
ects under $10 million.
Tax breaks to assist low-income housing
and to bolster research and development
spending, also expired, but were listed for
renewal in the Washington budget compro-
mise.
Some $5.6 billion in the mortgage reve-
nue bonds and $3.2 billion in the manufac-
turers' revenue bonds were issued last
year. "It's a big business, S0 people are
concerned," said Mark Moore, director of
policy analysis for Public Securities Asso-
ciation, a bond-industry trade group that is
based in New York.
In the weeks leading up to the weekend
agreement, Wall Street lobbying groups
had placed highest emphasis on keeping a
proposed securities transfer tax out of the
budget accord. While chalking up that vic-
tory, at least for the moment, some securi-
ties industry officials were surprised to
lose on tax-exempt bonds. "It was a cliff-
hanger," one Wall Street official said.
Tax breaks for programs such as that
reducing mortgage costs for first-time
home buyers have been under fire for a
decade. They were sharply curtailed in the
1986 tax overhaul, and have faced repeat-
ed expiration deadlines. Until the latest
compromise, they were always given new
life.
Advocates said the provisions may still
survive. "We don't consider the game was
ended when the budget agreement was
reached," said John McEvoy. executive di-
rector of the National Council of State
Housing Agencies, which is based in Wash-
ington. "We're not going to oppose this
agreement, but we know things are going
to be added to this, and we want to be one
of them.'
Mr. McEvoy said mortgage revenue
bonds cost federal taxpayers about $10 mil-
lion in the first year of their issuance.
About one million home buyers have ob-
tained lower-cost mortgages in the past 20
years through the program. he said.
THE WALL STREET JOURNAL.
TUESDAY, OCTOBER 2, 1990
Consolation Prize
Tax Shelters for Rich Could Return in Plan To Aid Small Business
By DAVID WESSEL
And JEFFREY H. BIRNBAUM
Staff Reporters of THE WALL STREET JOURNAL
The most generous of the proposed tax
WASHINGTON-President Bush calls
incentives-and the one that caught even
them "important new incentives to stimu-
close budget observers by surprise-is a
late economic growth." But they could
provision that would allow investors to de-
turn out to be the newest tax dodges for
duct 25% of their investment, in newly is-
the rich.
sued stock in eligible small companies, up
A surprise package of so-called growth
to a maximum deduction of $50,000. In
incentives slipped into Sunday's budget ac-
other words, an investor who sinks $200,000
cord at the last minute is billed as a way of
into an eligible company would get an im-
encouraging investment in the small com-
mediate tax break of about $14,000.
panies that drive the engine of economic
Investors in a stunning 2.3 million cor-
growth. It was a consolation prize to the
porations would qualify, representing 63%
president, who lost out on his effort to fos-
of all companies in the U.S., according to
ter economic expansion with a reduced tax
the Treasury. These would be distinctly
rate on capital gains.
small businesses on the whole, however;
But look again. Depending on how the
they together hold only 4% of the assets in
rules are written, the growth incentives
the U.S.
may have the unintended effect of reviving
More Incentives
tax shelters for wealthy investors. Experts
say the law could spawn a new class of
Additional tax breaks would become
companies that give investors up-front
available when the shares were sold. Al-
write-offs and other tax goodies that could
though the text of the bipartisan agree-
benefit them-not to mention tax lawyers.
ment carefully avoids describing these as
accountants and syndicators-more than
a capital-gains tax break. that's what they
they help the economy.
are. If an investor holds the shares for five
"These could be the seeds for the tax
years, he or she would be permitted to
shelters of the 1990s," says David Brock-
choose the more favorable of the following
way, former chief of staff of the bipartisan
two choices:
congressional Joint Committee on Taxation
Pay tax at the ordinary tax rate-28%
and now a tax lawyer at Dewey Ballantine
for the highest-income taxpayers-on ex-
Bushby Palmer & Wood. "They could be
actly half of the sales price, regardless of
enormous."
the amount of the initial investment;
Pay tax at the ordinary rate on the in-
Syndicators Return
vestment profit, adjusted for inflation as
Indeed, Marvin Dickman, a partner at
well as for the initial deduction. (See ac-
the accounting firm of Arthur Andersen
companying chart for an illustration.
in Chicago who specializes in closely-held
The Treasury says this option would be
companies, is already studying the possi-
offered not only to investors who buy
bilities. "You will see syndications of in-
newly issued stock, but to investors trading
vestments like this," he predicts.
in the secondary market-shares that have
That's just what worries tax experts in
been issued in the past. But congressional
the private sector and in Congress, which
aides say this particular point wasn't set-
essentially killed off shelters in the Tax
tled by the budget negotiators and remains
Reform Act of 1986. "It's highly doubtful
to be resolved.
policy," Donald Alexander, commissioner
Eligible companies are those with paid-
of the Internal Revenue Service in the
in capital and retained earnings of less
Nixon administration, says of the proposed
than S50 million-except finance, insur-
new tax breaks. "There's a good question
ance, securities, real-estate and personal
of whether benefits of these massive types
service companies.
are really in the national economic inter-
The fabled computer start-up would be
est."
covered. of course. So would more prosaic
Mr. Bush, in announcing the budget ac-
enterprises-cleaners, restaurants and
cord Sunday, said that the small-business
boutiques, for instance. Investors in Gen-
tax breaks would provide "powerful new
eral Motors Corp. and International Busi-
incentives for productive investment in the
ness Machines Corp. wouldn't benefit. In-
kinds of companies that account for much
deed, one risk is that the plan would draw
of America's job growth." Small-business
money away from big companies and shift
enthusiasts add that besides stimulating a
it to smaller ones without increasing the
sluggish economy the provisions could also
capital available to business as a whole.
invigorate the market for initial public of-
Treasury officials and congressional tax
ferings.
staffers swear that several potential loop-
Defending the Plan
holes would be closed before the provision
The Treasury Department, now moving
is enacted. They say, for instance, that
to sell the budget accord to a skeptical
they will prevent big companies from set-
Congress, insists that concerns over abuse
ting up small affiliates to reap the small-
of the new proposal are ill-founded. "Some
business tax breaks. They also say they
people see any tax incentive as a tax shel-
will prevent bigger companies and take-
ter," says Roger Bolton, assistant Treas-
over artists from subdividing big compa-
ury secretary for public affairs. "This is
nies into smaller ones to capitalize on the
clearly a tax incentive."
new incentives.
He says that the law creating these new
But some outside tax specialists are
tax breaks, still being drafted, will preyent
skeptical. "How they're going to police it
abuse. Regulators who will draft the fine
has got to be one of the most serious con-
print of the law will do likewise. "The in-
cerns," says James Gould, a former staff
centives will do what they are intended to
director of the Senate Finance Committee
do," Mr. Bolton says. "They will direct
now at the law firm of Vinson & Elkins.
new investment to small companies that
"There's no question that this will pro-
are growing and creating jobs."
vide work for legions of accountants and
lawyers to find out how to structure the
deals and find out how to deal with the IRS
and Treasury in SO doing," he adds.
The entire package of incentives was all
but an afterthought in the $500 billion, five-
year deficit-reduction accord.
Congressional staffers say the portfolio
of tax incentives surfaced only Saturday as
But Treasury Secretary Brady says that
the Bush administration struggled to find a
was exactly the point. "We are trying to
substitute for the broad capital-gains tax
make it forceful enough so that it has some
cuts. When the administration concluded it
effect on the economy," he explained.
was unable to win a lower capital-gains tax
The Treasury estimates that the new
cut for all investments, Treasury Secre-
deduction would reduce tax revenues by
tary Nicholas Brady explains, it decided,
about $7.3 billion over the next five years,
"Why not shift the incentive to those com-
about one-third the cost of Mr. Bush's ear-
panies who produce the most growth?"
lier proposal to slash the top capital-gains
Although pieces of the proposal were
tax rate to 15% from the current 33%.
drawn from initiatives floating around for
Overall, the administration estimates that
years. the package was assembled SO hast-
the package of growth incentives outlined
ily that administration negotiators didn't
in the budget agreement would cost $12.1
initially have anything put down on paper
billion over five years.
to show the Democrats. Kenneth Gideon,
The costs could rise substantially, un-
the Treasury's top tax official, rushed to
dercutting the deficit-reduction goals of the
the talks to explain the incentives. "They
agreement, should investors, accountants,
were air-dropped in," says a congressional
tax lawyers and syndicators exploit the
aide.
new tax breaks more than the administra-
As a result, details were still fuzzy even
tion figures anticipate.
yesterday, 24 hours after the agreement
Clearly, the debate over the little-under-
was announced. Some specifics won't be
stood elements in the deficit-reduction plan
clear until congressional tax-writing com-
is just beginning.
mittees turn the proposals into legislative
"The administration needs to show us
language.
that this is more than just expensive win-
Tax experts say that a clever investor.
dow dressing and that it won't open the
with a: sharp accountant. could borrow
door to abuse-the sheltering of income for
money, to make the initial investment, de-
purposes that are either nonproductive or
duct the interest, deduct 25% of his invest-
would have occurred anyway," says Rep.
ment on top of that and then later benefit
Sander Levin, Democrat of Michigan, a
from the favorable tax treatment when he
member of the House Ways and Means
or she sells the stock.
Committee.
Even House Majority Leader Richard
And the committee's chairman, Dan
Gephardt, the Missouri Democrat who
Rostenkowski, Democrat of Illinois, says
served on the eight-member team that put
that the plan would be "devastating" to
together Sunday's budget package, ex-
the tax code-a hint that the plan may be
pressed concerns about the effects. "I am
altered before it reaches the House floor.
worried about what is finally written and
But supporters of the package dismiss
whether it can be abused and used as tax
the hand-wringing over rip-offs and tax
shelters." he said.
breaks as SO much rhetoric, saying it
Some tax experts say the law and regu-
misses the point of these new incentives.
lations can be written tightly enough to
Robert Pavey, a partner in Morgenth-
prevent a tax-shelter boondoggle. "I really
aler Ventures of Cleveland and president
don't think it's going to open up any stam-
of the National Venture Capital Associa-
pede of tax shelters," says William Raby,
tion, says the incentives "will provide sig-
an accounting professor at Arizona State
nificant encouragement for early invest-
University in Tempe.
ment by individuals in the new enterprises
And the Treasury promises the rules
that make the U.S. more competitive."
will keep abuse to a minimum. The agree-
The American Business Conference, com-
ment states, for instance, the estate of any-
prising chief executives of successful, fast-
one who dies within two years of taking
growing companies, hails the tax breaks
this new deduction will have to pay it back,
and says they "will spur creation of a
an attempt to prevent deathbed tax
whole new generation" of similar compa-
dodges.
nies.
And Secretary Brady says he is con-
But history suggests that lawyers and
vinced that assisting small business is vital
accountants always find loopholes no mat-
to the economy. "The purity that is always
ter how tough the rule-writers think they
alluded to in the Tax Reform Act of 1986
are being. "You never really know all the
doesn't exactly exist," he says. "I don't
things people will think up to get around
think we ought to get hung up over that ar-
your rules," says Randall Weiss, a former
gument while we try to do something to
deputy chief of staff at the Joint Tax Com-
stimulate the economy, which we abso-
mittee and now at the accounting firm of
lutely think this will. I believe in the small-
Deloitte & Touche.
businessmen of this country."
And even if the abuse is kept to a mini-
mum, others say, the tax break is ex-
tremely liberal-particularly the provision
that allows an immediate, up-front deduc-
tion for investing in eligible companies.
Even Sen. Dale Bumpers. the Arkansas
Democrat who chairs the Senate Small
Business Committee, is taken aback. "This
is a gigantic incentive for people to invest
in small business," he says. "It's going to
be a bonanza. The question is: Is it too
generous?
"It ain't peanuts," he adds.
THE WALL STREET JOURNAL.
TUESDAY, OCTOBER 2. 1990
Liquor Lobbyists Assaulting Tax Plan;
Complaints Are Unlikely to Affect Vote
By TIMOTHY NOAH
Milwaukee district includes Miller Brewing
And RODNEY FERGUSON
Co., said he found the proposed excise-tax
Staff Reporters of THE WALL STREET JOURNAL
increase on beer reasonable, but conceded
WASHINGTON-Liquor industry lobby-
that "in a perfect world" the brewing com-
ists have already begun to hit the hust-
panies would have "liked no increase at
ings-and each other-over the excise tax
all."
increases proposed by the budget summi-
But the proposal is a defeat to lobbyists
teers. But their complaints are unlikely to
for the distilled-spirits industry, many of
have much effect on the proposal's out-
whom believe that the 1985 excise-tax in-
come in Congress this week.
crease on liquor should have exempted
The proposed new taxes are "brutally
them from the current round of tax in-
unfair," according to Douglas Metz, man-
creases. "We can't live with $1.50 a bot-
aging director of the Wine and Spirits
tle," said Geoffrey Peterson, government
Wholesalers of America. Mr. Metz said the
relations director for the Distilled Spirits
tax increases would "SOW consumer confu-
Council of the United States.
sion during our industry's busiest season.
Mr. Peterson complained that it was
New Year's Eve is no time to change
"an historical anomaly" that beer and
prices and take inventory."
wine are taxed at a lower rate than hard
But the opposition is fragmented among
liquor. And Mr. Metz predicted that the
producers of different types of alcoholic
beer and wine industries wouldn't unite
beverages. and even those members of
with the makers of distilled spirits on this
Congress who represent producers are in-
issue: "Each party's going to gain the best
clined to support the tax increase. "If
advantage it can."
you're going to tax something, sin is a
The tax proposal isn't endorsed by ev-
pretty good place to start," said Rep. Jim
ery beer-industry supporter in Congress.
Cooper (D., Tenn. ), whose district includes
Rep. Steve Neal (D., N.C.), whose district
Lynchburg, home of Jack Daniels Brewing
includes two small breweries, said an in-
crease in beer taxes would "hurt our local
Politicians eager to raise taxes on alco-
economy." Nor is everyone in the wine in-
hol products think they have a compelling
dustry flush with victory. "We think it's
lease. Federal taxes on beer and wine
extremely unfair and will do some nasty
haven't increased since 1951, and the fed-
things to the wine industry," said Simon
eral excise tax is only three cents for a 750-
Siegl, executive director of the Washington
"III bottle of wine and 16 cents for a six:
Wine Institute in Washington state.
pack of beer. Taxes on distilled spirits
Traditionally, liquor excise-tax in-
such as vodka or gin traditionally have
creases have posed a political problem.
been higher.
Republicans avoided the issue out of dis-
The new proposal would double the tax
taste for raising taxes in general. Mean-
while, Democrats saw beer-tax increases
on beer to 32 cents per six-pack and in-
crease the tax on table wine to 25 cents.
as a regressive and self-defeating assault
The tax on distilled spirits, last increased
on a key constituency: urban blue-collar
workers often referred to as "Joe Six-
in 1985, would rise by $1.50 per "proof gal-
lon" to $14. A proof gallon is 50% alcohol
Pack." According to Beer Institute spokes-
by volume.
man Jeff Becker, 60% of all beer drinkers
earn less than $35,000.
The agreement represents something of
Beer drinkers even have their own con-
a triumph for the beer and wine industries,
sumer's lobby-th California-based Beer
which managed to derail an initial, Repub-
Drinkers of America, which last year
lican-sponsored proposal to raise the ex-
opened an office here. The group has been
cise tax on beer and wine to the level of
lobbying vigorously against a tax increase,
distilled spirits. Industry sources credit
and compiled thousands of grass-roots peti-
Rep. Richard Gephardt (D., Mo. 1. a
tions to send to Rep. Gephardt and other
budget summiteer whose St. Louis district
members of Congress.
includes Anheuser-Busch Cos., with limit-
The liquor excise tax puts Democrats in
ing the tax increase on beer.
a further bind because the "yuppie" con-
While the tax increase was being con-
noisseurs that the wine industry is seen as
sidered by the summiteers, lobbyists for
catering to are Joe Six-Pack's class en-
the beer companies mounted a vigorous
emy. Yet the industry is largely repre-
campaign against it. "What's the differ-
sented in Congress by such liberal Califor-
ence between a diamond bracelet and a
nia Democrats as Rep. Vic Fazio.
can of beer." asked a print advertisement
The tension between these groups is re-
placed by the Washington-based Beer Insti-
flected in the attitudes of their respective
tute. You pay more excise tax on the
lobbyists. "It's grapes VS. grain." says Ar-
beer.'
chie Smith, president of the Virginia Win-
Rep. Gerald Kleczka (D., Wis. ), whose
eries Association.
THE WALL STREET JOURNAL.
TUESDAY, OCTOBER 2, 1990
Budget Dealers
What the Budget Deal
Must Like Utah,
Costs You, State by State
Fiscal Year 1991
Hate Wyoming
PRE-
POST- ADDITIONAL
SUMMIT
SUMMIT
PER CAPITA
BURDEN
BURDEN
BURDEN
By PAUL MERSKI
AVERAGE
$4,596.80
$4,685.02
$88.22
President Bush and congressional lead-
Alabama
3,343.33
3,418.84
75.51
ers have unveiled their budget agreement.
Alaska
5,633.07
5,726.07
93.00
They hope to extract a total of $162 billion
Arizona
3,958.44
4,044.26
85.81
in extra revenue for the federal govern-
Arkansas
3,126.37
3,208.28
81.91
ment over the next five years-$22 billion
California
5,102.64
5,195.29
92.65
of it in the current fiscal year, which
Colorado
4,378.67
4,468.89
88.22
started yesterday. That works out to an av-
Connecticut
7,440.38
7,551.04
116.67
erage tax hit this year of $88 for every
Delaware
5,434.65
5,536.33
101.68
man, woman and child.
Florida
4,640.79
4,731.54
90.75
Georgia
4,059.60
4,150.20
90.60
The effect of the federal government's
Hawaii
4,495.82
4,573.47
77.65
tax increases will not be felt evenly in ev-
Idaho
3,166.84
3,244.13
77.29
ery state: states that are heavy consumers
Illinois
5,170.50
5,257.43
86.93
of motor fuels, cigarettes, alcohol and lux-
Indiana
4,018.62
4,101.54
82.93
ury goods will pay more, as will states
lows
3,836.41
3,919.05
82.64
with relatively affluent populations.
Kansas
4,282.67
4,373.27
90.60
Kentucky
3,297.89
3,369.65
71.76
Thus, while there are no winners from
Louisiana
3,231.56
3,305.69
74.13
the president's deal with Congress, some
Maine
3,945.40
4,034.67
89.26
states will clearly lose less. Wyoming, Con-
Maryland
5,544.29
5,641.40
97.12
necticut, New Jersey, Delaware, Massa-
Massachusetts
6,101.04
6,201.01
99.97
chusetts and the District of Columbia will
Michigan
4,669.59
4,756.09
86.50
face the largest per-capita increases. By
Minnesota
4,597.17
4,685.91
88.74
contrast, Kentucky, Utah, West Virginia,
Mississippi
2,700.37
2,774.18
73.81
Mississippi, Louisiana and Alabama will
Missouri
4,206.34
4,298.07
91.72
suffer the least. Residents of Wyoming will
Montana
3,318.68
3,406.95
88.27
pay $115 on average more; by contrast,
Nebraska
3,872.97
3,955.62
82.65
residents of Kentucky will pay $72 on aver-
Nevada
4,812.22
4,907.34
95.12
age more. The table below calculates the
New Hampshire
5,576.24
5,674.73
98.49
state-by-state effect of virtually all of the
New Jersey
6,869.74
6,979.82
110.08
revenue raising measures in the budget
New Mexico
3,220.42
3,301.75
81.33
New York
5,668.10
5,759.33
91.22
agreement, including the reduction of de-
North Carolina
3,826.95
3,910.62
83.67
ductibility, the fuel tax and the excise
North Dakota
3,423.90
3,509.04
85.14
taxes. It does not include the additional
Ohio
4,349.09
4,432.33
83.25
Medicare premiums.
Oklahoma
3,638.97
3,623.63
84.67
This year, the average American will
Oregon
3,984.90
4,072.51
87.61
spend 82 days working to pay his share of
Pennsylvania
4,567.85
4,653.54
85.69
federal taxes. With the $22 billion tax in-
Rhode Island
4,958.60
5,047.80
89.19
crease now proposed for next year-and
South Carolina
3,360.30
3,437.50
77.20
South Dakota
3,218.88
3,300.74
81.87
the billions of dollars more to come-every
Tennessee
3,758.12
3,840.85
82.72
American will be working longer for Uncle
Texas
4,067.65
4,152.11
84.46
Sam. Unfortunately, some citizens will
Utah
3,055.09
3,127.48
72.38
shoulder a disproportionate share of the
Vermont
4,113.18
4,200.94
87.76
load.
Virginia
4,808.28
4,900.35
92.07
Washington
4,536.43
4,624.71
88.28
West Virginia
3,012.51
3,085.44
72.93
Mr. Merski is director of fiscal affairs
Wisconsin
4,170.03
4,256.02
85.99
at the Tax Foundation in Washington,
Wyoming
3,783.37
3,898.55
115.19
D.C.
Dist. of Columbia 6,379.52
6,477.90
98.39
Figures may not add because of rounding
Source: Tax Foundation Federal Tax Burden by State model
THE WALL STREET JOURNAL.
TUESDAY. OCTOBER 2. 1990
Liquor, Luxury Levies Trouble Firms
A STREET JOURNAL News Roundup
The bipartisan budget plan calls for
new and higher consumer excise taxes to
For producers and sellers of hard liq-
narrow the deficit. The proposed levies on
uor, who endured significant tax in-
alcohol, cigarettes and luxury goods are
creases five years ago, the new legisla-
bringing loud complaints from most pro-
tion only adds to the burden. "We're reel-
ducers of such items, although the to-
ing under any kind of increase in our in-
bacco industry believes it is getting off
relatively easy. Here's a rundown of mar-
dustry," says a spokesman for Heublein
keters' reactions to the plan.
Inc., producer and importer of spirits in-
cluding Smirnoff and Finlandia vodka.
BEER
"We've been besieged the last three or
four years, SO this is not welcome
The beer industry, which waged a pub-
news.'
lic battle against increases in alcohol
Wine retailers, who haven't faced a
taxes, isn't going to give up the fight now.
tax increase since the 1950s, acknowledge
The budget plan would more than double
that passing on tax increases will hurt
the federal excise tax on beer to 36 cents
sales, but they are unsure to what extent.
a six-pack from 16 cents, raising about
"Most wines we sell are generally in a
$10 billion over five years through in-
price category where an extra 10 or 20
creases on beer, wine and liquor. Beer
cents won't make much of a difference,"
company and industry estimates had pre-
says Michael Aaron, chairman of Sherry-
dicted that a doubling of the beer tax
Lehmann Inc., a retailer in New York
could cut domestic beer consumption by
City. But at some stores, increased whole-
2% to 4%.
sale costs may mean reduced volume,
The Beer Institute, which sponsored a
translating into fewer product lines avail-
$1 million campaign comparing the excise
able to the consumer.
taxes paid on a can of beer and a dia-
The biggest losers may be the neigh-
mond bracelet, hasn't decided yet
borhood stores and large supermarket-
whether to continue the campaign or pur-
type retailers who sell a high volume of
sue the issue differently. But "we will
cheaper wines, on which the tax increase.
work with Congress" to change the beer
would amount to a bigger percentage.
tax provisions, says a spokesman for the
The Distilled Spirits Council of the
industry-supported institute.
U.S., speaking for liquor producers and
Anheuser-Busch Cos., which sponsored
marketers, sent a letter to Congress yes-
a "Can the Beer Tax" advertising cam-
terday opposing the tax increase on dis-
paign, says it too will lobby Congress this
tilled spirits, to $14 a "proof gallon" from
week "to seek a fair deficit-reduction"
$12.50. A proof gallon is 50% alcohol by
package that won't include the increase
volume. The industry said it "took the
on beer. Anheuser's campaign garnered
full blow of a $2 tax increase in 1985" and
about 2.2 million petition signatures, 1.5
argued that the latest increase is out of
million letters to Congress and 400,000
line in comparison with taxes on beer and
calls to an industry-sponsored toll-free
wine.
hot line. The ads stopped running in most
The 1985 tax increase, the council said,
of the nation after Labor Day, but petit-
"caused over a 5% decline in sales, from
ions are still in circulation, and point-of-
which we are still trying to recover. Addi-
sale advertising remains in place listing
tionally, there have been over 100 tax in-
the toll-free number consumers can call
creases on distilled spirits at the state
to oppose the taxes.
level in the past five years.
Other beer companies are pledging to
work to keep the increase from appearing
CIGARETTES
in the final budget. "It's not a done deal
at this point," says a spokesman at
The tobacco industry, though less than
Adolph Coors Co. He argues that the in-
pleased with a tax increase of any kind. IS
crease in the beer tax places "more than
heaving a sigh of relief over the proposed
a fair share" of the burden of solving the
rise in the cigarette tax. only the second
national budget problems on beer con-
since the Korean War.
sumers.
In recent weeks. as word filtered out
A spokesman for Miller Brewing Co., a
of Washington that budget planners might
unit of Philip Morris Cos., says the com-
double the current 16-cent-a-pack tax. in-
pany "remains opposed to excise taxes"
bacco companies and investors were
of any kind because they are regressive.
bracing for the worst. But even amid
But because the budget compromise was
growing anti-tobacco sentiment. and the
supported by "both sides" of Congress,
increasing effectiveness of anti-smoking
"it appears there's not much we can do at
crusaders. legislators hammered out only
this time" about the beer increase.
a tiny increase: four cents a pack next
year. and another four cents a pack in
WINE AND LIQUOR
1993.
A spokesman for the Tobacco Insti-
Higher taxes would increase pressure
on already declining wine and spirits
tute. the industry trade group. calls the
sales, industry officials say.
tax a "substantial improvement" over
The budget plan calls for an increase
some of the pricier proposals under con-
in the federal excise tax on a bottle of
sideration. He says the industry has no
wine to 25 cents from three cents, and in
intention of launching any advertising
the tax on a 750-milliliter bottle of 80-
campaign to fight the excise tax hike. "If
we were going to do that. we'd have done
proof liquor to about $2.22 from the cur-
it before now, he says.
rent $1.98.
Though the increase is small. some to-
While companies scramble to analyze
bacco analysts think it may be enough to
the effect of the budget proposal, the out-
reduce consumption slightly. On a prod-
look is clearly pessimistic. Guido Contini,
uct that many people admit they'd like to
manager of Garnet Wines and Liquors, a
quit using anyway, higher prices don't
retailer in New York City, estimates that
help. Cigarette consumption is expected
industry sales of wine and spirits have
to decline 2% to 3% this year. But after
dropped 15% in the past year and says
the first part of the excise tax increase
the new taxes would cause a further de-
takes effect next year, consumption could
cline of as much as 20%
drop 3% to 4%. some analysts estimate.
What won't happen, they agree, IS an-
other California. Last year, the state
raised its excise tax to 35 cents a pack
from 10 cents-and sales of cigarettes
Furriers who specialize in more expen-
sive coats believe their market is safe.
plunged 14%. Such price jolts are what
lead more people to try to quit or not to
With sable coats costing $40,000 and up.
pick up the habit in the first place, to-
"I don't think someone who can spend that
bacco industry researchers say. "The
much for a coat will oppose buying it" be-
market tends to tolerate a moderate in-
cause of the tax. says Martin Paswall of
crease better than a sharp one," says Di-
Martin Paswall Inc., a New York furrier
ana Temple, a tobacco analyst with Salo-
specializing in duxury coats such as sable,
lynx and chinchilla.
mon Brothers Inc.
Also, many experts say there is plenty
of room for cigarette prices to climb be-
YACHTS
fore there would be a widespread con-
The proposal to tax expensive yachts
sumer revolt. Smokers, partly because
could spell even rougher waters for a boat
they are addicted to their habit, show a
business already slowed by a sagging econ-
remarkable toleration for price increases.
omy. boating industry officials say.
By the end of last year, the price of ciga-
"No question sales will sink. says Jeff
rettes had more than doubled since 1980,
Napier. president of the National Marine
while the rest of the U.S. Consumer Price
Manufacturers Association, about the pro-
Index rose less than 50%.
posed 10% tax on the amount by which
Higher prices. however. may push more
boats and yachts exceed $100.000 or more
people to buy low-price, generic cigarettes.
in price. To those who think that the rich
Already accounting for nearly 18% of ciga-
don't count pennies when buying yachts,
rette sales, generic smokes can cost as lit-
Mr. Napier says. "That's a myth. How do
tle as 90 cents to S1 a pack, compared with
you think they got rich""
$1.65 for full-price brands such as Marl-
But the tax hoist would crimp not only
boro or Winston. As a result of the tax in-
the rich, adds John Keim, president of
crease, generics could make up 20% of the
Chris Craft Boats. a manufacturer in Sara-
market next year, Ms. Temple estimates.
sota. Fla. "It's going to hit that hard-work-
But Roy Burry. an analyst with Kidder,
ing executive as well, not just the idle
Peabody & Co., says sales of generic ciga-
rich."
rettes could suffer. Smokers of generic cig-
The boat makers' association. whose
arettes. he says, are more price-sensitive
membership includes 1,800 builders, says
and more apt to notice any increase.
business could fall by 20% if the tax pro-
posal is passed. The estimate is based
FURS AND JEWELRY
partly on the fact that historically every
Retailers of fine jewelry worry that the
price increase of one percentage point over
proposed 10% luxury tax, which would ap-
inflation has resulted in a sales decline of
ply to the amount by which their wares
2%. the group says.
exceed $5,000 in price, will drive affluent
The trade group, which has testified
customers out of the U.S.
against the tax increase, also complains
"Many businesses will be hurt because
that the proposal comes at time when boat
the affluent will go overseas and buy" jew-
building has been battered by a soft econ-
elry and watches, says Michael Roman,
omy. A slowing boat economy has led to a
chairman of Jewelers of America, an in-
loss of about 100,000 jobs among builders of
dustry group representing 13,000 retailers.
all types of boats. repairmen and parts
The U.S. market for fine jewelry is about
makers, it notes. The tax could lead to a
$20 billion, Mr. Roman estimates.
loss of 5,000 more jobs.
Moreover, industry sources are con-
"The unfortunate thing about a rich
cerned about the psychological impact of
man's tax is they going to put a lot of
a luxury tax, which could chill sales of
poor people out of work," says Jim
items priced under $5,000 as well. "In any
Schaefer, executive vice president of Rich-
luxury market with a recession looming,
ard Bertram & Co., a Miami boat
luxury purchases are often the first to be
builder.
dropped, and with an excise tax, that cer-
Last year. about $6 billion of pleasure
tainly doesn't help" to encourage buying,
boats, from yachts to canoes, were sold in
says Carol Wynne, executive director of
the U.S. More than $1 billion of that came
the Fur Information Council of America,
from sales of vessels costing $100,000 or
a trade group. But Ms. Wynne and other
more. That was down about 25% from the
furriers appear less concerned than jew-
year-earlier level, which in turn was 15%
elers because most fur coats sell for less
lower than a year earlier, the trade group
than $5,000.
says.
Retailers may benefit this Christmas
Boat builders say for $100.000, buyers
from a last-minute rush to buy luxury
can get a 35-foot to 40- foot cruiser "that's
items. "There is likely to be some antici-
not quite oceanworthy.' says Michael Kel-
patory buying before the tax laws go into
sey, chairman of Palmer Johnson, a Stur-
effect," says Sandra Shaber, a consumer
geon, Wis., builder of top-of-the-line
economist at Futures Group, a Washing-
yachts. "I'd say for $100,000, you'll get the
ton, D.C.; think tank.
equivalent of a middle-class boat.
Fortunoff Inc., a New York-based re-
tailer with about one-fifth of its sales
in jewelry priced above $5,000, plans to
compensate for the luxury tax by targeting
"a lot more merchandise to end up retail-
ing under $5,000," says Helene Fortunoff,
one of the owners. That would include
"lightening the weight of certain items SO
they will come in for $4,900," she says.
Because of a saturated market and
sluggish sales, fur prices have dropped sig-
nificantly in the past two years, SO 80%
to 85% of furs already cost under $5,000,
says Sandy Parker, co-publisher of Fur
World. a trade publication. "Today's $5,000
coat is comparable to the $7.500 coat of two
years ago." he says. noting that the "tax
won't affect most furs.' The fur market in
the U.S. is about $1.9 billion.
THE WALL STREET JOURNAL.
TUESDAY. OCTOBER 2, 1990
REVIEW & OUTLOOK
Back at Gucci Gulch
"And by flattening effective tax
soon stretch its meaning. Big compa-
rates
it encourages investment de-
nies will spin off multiple "qualified
cisions on the basis of business
small" subsidiaries. Tax-shelter syn-
malysis of markets, more than calcu-
dicates will flourish. This is Republi-
lations of how best to game the tax
can industrial policy.
system.'
The irony is that this deduction is
-Richard Darman. Nov. 24. 1986
supposed to substitute for a capital-
That's how the current White
gains tax cut killed because it helped
House budget director once described
"the rich." In our view, a capital-
the benefits of the tax reform he
gains differential is justified to com-
helped pass while at the Treasury De-
pensate for the fact that capital losses
partment. Mr. Darman seems to have
aren't deductible. Its benefits also go
forgotten this lesson, because his new
to anyone who sells an asset for a
budget agreement starts the nation
gain. But Dick Darman's "small"
climbing back up the ladder to higher
company deduction has no such eco-
tax rates. We are on the return road
nomic justification, and its benefits
to Gucci Gulch.
will go mainly to people rich enough
The gulch is the wonderfully pe-
to hire tax attorneys.
jorative term given to the hallway
With low tax rates the economic
outside rooms of the congressional
harm isn't all that great, but politi-
tax-writing committees. That's where
cally the new loopholes will create
Gucci-clad lobbyists and lawyers con-
new pressure to raise rates. Demo-
gregate to make sure they can "game
crats have made higher marginal
the tax system" with loopholes and
rates a political Holy Grail, and the
made-to-order deductions. The 1986
Bush White House seems intellectu-
Tax Reform cost them their loafers
ally incapable of arguing against it.
by trading lower tax rates for fewer
Sooner or later we can expect Mr.
loopholes, but Mr. Darman's budget
Darman to tell George Bush he has no
accord is about to buy them a new clo-
choice but to raise the top rate to 33%
setful. Happy Beltway lawyers are do-
or higher to "pay for" all of these spe-
ing handstands and cartwheels all
cial "pro-growth" tax favors.
along K. Street.
That Democrats should like the
The White House denies any such
Gucci tax system isn't surprising,
thing, and it's true that this accord in-
since it gives them the best of both
cludes no explicit marginal tax rate
worlds. They can run as populists
increase. But note well the so-called
against "the rich," even as they do fa-
Pease plan (named for liberal Ohio
vors for business and special interests
Democrat Don Pease) to limit item-
through the tax code. It's no accident
ized deductions for Americans who
that parts of Sunday's budget agree-
earn more than $100,000. effect this
ment will pass through Dan Rosten-
amounts to a surtax of one percentage
kowski's Ways and Means Committee,
point added to the highest marginal
no doubt to be festooned with "transi-
rate for millions of taxpayers.
tion rules."
On the tax-loophole side, mean-
Astonishingly, Mr. Darman and the
while, the politically well connected
Republicans are playing along. Mr.
are already winning favors. GOP defi-
Darman has even enshrined
cit-worrier Bob Dole walked away
static-revenue analysis into this ac-
with $500 million worth of tax breaks
cord. From now on any tax proposal
for ethanol monopolist, Dwayne An-
that Democratic forecasting models
dreas of Archer-Daniels-Midland.
say "lose" revenue will have to be
(Mr. Dole says it's for farmers in
"paid for" by higher taxes elsewhere.
Kansas. ) Oil and gas drillers slipped
Changes in real-world taxpayer be-
out of the summit with $4 billion
havior are irrelevant. This means
worth of "incentives." The low-in-
Democrats can continue to propose
come housing credit is a $1.7 billion
new social programs to be paid for by
sop to the housing industry.
taxes on "the rich." Republicans for
Even these pale beside the ac-
their part will be frozen into a deficit
cord's loophole bonanza, a 25% tax
paralysis reminiscent of the 1960s and
"deduction" against investments in
1970s.
"qualified small corporations." This
The 1980s brought us lower tax
could be Gucci Canyon. The White
rates, less political meddling in the
House says the provision is supposed
economy and a record economic ex-
to apply only for small, entrepreneur-
pansion. The 1990s are giving it all
ial companies with less than $50 mil-
back to the lawyers and lobbyists. The
lion in equity, but tax lawyers will
Beltway club is intact.
THE WALL STREET JOURNAL.
TUESDAY, OCTOBER 2. 1990
Honor Thy Pledge
"I pledge to the taxpayers of the
effect. To date, 101 Republicans and
District of the State of and to
two Democrats in the House have
the American people that I will:
signed statements saying they will
"ONE, Oppose any effort to in-
honor the anti-tax pledge. Only 75
crease marginal tax rates from the
House Republicans have not signed
15% and 28% rates for individuals and
the pledge. The White House must
the 34% top rate for businesses; and
persuade at least 14 House Republi-
"TWO, Oppose any further reduc-
cans to break a sworn promise or risk
tion or elimination of deductions and
defeat of the agreement.
credits, unless matched dollar for dol-
Grover Norquist, the head of
lar by further reducing tax rates."
Americans for Tax Reform, says that
everyone who signed the pledge was
*
*
told at the time that they would be
For the past few years, the Wash-
held to it. "Any politician who took
ington-based Americans for Tax Re-
the pledge and votes for the present
form has circulated the above pledge
budget package was elected on a
as an insurance policy that the 1986
falsehood," he says. "We will hand
tax reform would not be easily sub-
their opponents their signed pledges
verted. Well, the budget deal is sub-
SO that the voters can decide whether
verting that reform, so it's time to re-
there was some justification for their
visit the tax pledge.
vote in favor of the second largest tax
The pledge's importance is simple.
increase in American history." Half a
The budget agreement includes an ef-
dozen other tax groups announced
fective increase in marginal tax rates
yesterday that they will publicize the
by forcing taxpayers to reduce their
names of those who break the
itemized deductions by $300 for every
pledge.
$10,000 in income over $100,000. In ef-
A great many Members will have
fect, it blows the so-called "bubble"
reasons to support the "bipartisan"
up higher and longer SO that more tax-
budget agreement. Voters deserve to
payers pay higher marginal tax rates
know whether or not their representa-
over more of their income.
tive earlier promised, without any
The budget agreement stipulates
qualifications, to hold the line on in-
that a majority of the Members of
come taxes. Here is the list of Mem-
each party in both Houses must vote
bers who have taken the pledge
for the entire agreement for it to take
against higher taxes:
Dick Armey (R., Texas)
Fred Grandy (R., lowa)
Tom Petri (R., Wis.)
Richard Baker (R., La.)
Steve Gunderson (R., Wis.)
John Porter (R., III.)
Cass Ballenger (R., N.C.)
John Hammerschmidt (R., Ark.)
James Quillen (R., Tenn.)
Doug Barnard (D., Ga.)
Mel Hancock (R., Mo.)
Arthur Ravenel (R., S.C.)
Steve Bartlett (R., Texas)
James Hansen (R., Utah)
John Rhodes (R., Ariz.)
Joe Barton (R., Texas)
Dennis Hastert (R., III.)
Matt Rinaldo (R., N.J.)
Michael Bilirakis (R., Fla.)
Joel Hefley (R., Colo.)
Don Ritter (R, Pa.)
Thomas Bliley (R., Va.)
Wally Herger (R., Calif.)
Pat Roberts (R., Kan.)
William Broomfield (R., Mich.)
John Hiler (R., Ind.)
Tommy Robinson (R., Ark.)
Hank Brown (R., Colo.)
Clyde Holloway (R., La.)
Dana Rohrabacher (R., Calif.)
Jack Buechner (R., Mo.)
Duncan Hunter (R., Calif.)
Toby Roth (R., Wis.)
Jim Bunning (R., Ky.)
Henry Hyde (R., III.)
Jim Saxton (R.. N.J.)
Dan Burton (R., Ind.)
Jim Inhofe (R., Okla.)
Dan Schaefer (R., Colo.)
Sonny Callahan (R., Ala.)
Andy Ireland (R., Fla.)
Bill Schuette (R., Mich.)
Howard Coble (R., N.C.)
Jim Kolbe (R., Ariz.)
Clay Shaw (R., Fla.)
Larry Combest (R., Texas)
Jon Kyl (R., Ariz.)
Norman Shumway (R., Calif.)
Jim Courter (R., N.J.)
Bob Lagomarsino (R., Calif.)
Bud Shuster (R., Pa.)
Chris Cox (R., Calif.)
Norm Lent (R., N.Y.)
Chris Smith (R., N.J.)
Larry Craig (R., Idaho)
Jerry Lewis (R., Calif.)
Denny Smith (R., Ore.)
Phil Crane (R., III.)
Jim Lighttoot (R., lowa)
Lamar Smith (R., Texas)
Bill Dannemeyer (R., Calif.)
Bob Livingston (R., La.)
Peter Smith (R., Vf.)
Kika de la Garza (D., Texas)
Bill Lowery (R., Calif.)
Robert Smith (R., N.H.)
Tom DeLay (R., Texas)
Buz Lukens (R., Ohio)
Gerald Soloman (R., N.Y.)
Bob Dornan (R., Calif.)
Ron Marlenee (R., Mont.)
Floyd Spence (R., S.C.)
Chuck Douglas (R., N.H.)
Lynn Martin (R., III.)
Arian Stangeland (R., Minn.)
David Dreier (R., Calif.)
AI McCandless (R., Calif.)
Bob Stump (R., Ariz.)
Mickey Edwards (R., Okla.)
Bill McCollum (R., Fla.)
Don Sundquist (R., Tenn.)
Bill Emerson (R., Mo)
Bob McEwen (R., Ohio)
Guv Vander Jagt (R., Mich.)
Jack Fields (R., Texas)
Carlos Moorhead (R., Calif.)
Barbara Vucanovich (R., Nev.)
Elton Gallegly (R., Calif.,
Howard Nielson (R., Ufah)
Bob Walker (R., Pa.)
Dean Gallo (R., N.J.)
Michael Oxley (R., Ohio)
Vin Weber (R., Minn.)
George Gekas (R., Pa.)
Ron Packard (R., Calif.)
Bob Whittaker (R., Kan.)
Newt Gingrich (R., Ga.)
Stan Parris (R., Va.)
Bill Young (R., Fla.)
Bill Goodling (R., Pa.)
Bill Paxon (R., N.Y.)
Don Young (R., Alaska)
Porter Goss (R., Fla.)
THE
WALL STREET JOURNAL.
© 1990 Dou Jones & Company, Inc. All Rights Reserved.
MONDAY, OCTOBER 1, 1990
Major Elements of the Agreement
Where New and Increased Taxes Will Hit
Raise the gasoline tax, currently nine cents a gallon, by five cents on Dec.
1 and another five cents on July 1, 1991.
Impose an additional two-cent a gallon tax on petroleum products,
including gasoline, on Jan. 1, 1991.
Increase the current 16-cent-a-pack cigarette tax by four cents in 1991 and
another four cents in 1993.
Increase beer, wine and liquor taxes by a total of $10 billion over the next
five years.
Impose a new 10% tax on autos over $30,000, yachts over $100,000,
jewelry over $5,000 and furs over $5,000.
Limit income tax deductions for individuals and couples with incomes
above $100,000 a year.
Apply the 1.45% Medicare payroll tax to wages up to $73,000, up from the
current $51,300 ceiling.
Increase the airplane ticket tax by a total of $11.8 billion over the next five
years.
Where Government Spending Will Be Cut
Cut defense and possibly other discretionary spending by $182.4 billion
over the next five years.
Cut Medicare payments to hospitals and doctors by about $30 billion and
charge beneficiaries about $30 billion more, including increasing the
current $75 deductible to $100 next year, $125 in 1992 and $150 in 1993;
increasing the Medicare Part B monthly premium, now $28.60, to an
estimated $33.50 next year and $55 by 1993; and increasing the share of
lab bills paid by Medicare beneficiaries to 20%.
Cut farm subsidies by $13 billion over the next five years.
Hold increases for other domestic-spending programs to the rate of
inflation for three years.
Economic Assumptions Underlying the Accord
All data are for calendar years
'90
'91
'92
'93
'94
'95
Real GNP Growth1
0.7%
1.3%
3.8%
4.1%
3.7%
3.5%
GNP Deflator¹
5.2
4.6
3.4
3.2
3.0
2.8
Unemployment Rate
5.6
6.1
6.4
5.6
5.3
5.1
Interest rates:
3-Month Treasury Bills
7.7
7.2
5.7
4.9
4.4
4.2
10-Year Treasury Notes
8.7
8.3
7.1
6.1
5.6
5.3
Oil prices² ($/barrel)
$21.15
$24.15
$21.10
$21.79
$22.41
$23.02
14th quarter to 4th quarter change.
2Domestic price.
Source: Office of Management & Budget
THE
WALL STREET JOURNAL.
© 1990 Dou Jones & Company, Inc. All Rights Reserved.
MONDAY, OCTOBER 1, 1990
Cutting the Deficit: How They Want to Do It
Spending cuts and increased taxes proposed by lawmakers to cut the federal budget deficit,
in billions of dollars
Fiscal 1991
Total= $40.1
Fiscal 1991-95
Total= $500.0
Defense cuts*
Defense cuts*
Interest savings
Interest savings
$2.0
$64.8
Increased
$133.8
$9.8
Increased
$16.2
taxes
Taxes
$182.4
$5.9
$58.0
$4.9
$48.0
Agriculture
Agriculture
subsidy cuts
subsidy cuts
$13.0
Medicare cuts
$1.3
Medicare cuts
Cuts in entitlements and increased
Cuts in entitlements and
user fees
increased user fees
*The defense figures don't reflect the approximately $5.7 billion the government anticipates spending on
Operation Desert Shield in fiscal 1991, which would reduce estimated savings to $4.1 billion.
Source: Office of Management and Budget
THE
WALL STREET JOURNAL.
1990 Dou Jones & Company, Inc. All Rights Reserved.
MONDAY, OCTOBER 1, 1990
Fiscal Foray
Deficit Plan Will Face
Can They Sell It?
Dicey Fate in Congress,
The immediate challenge is political.
President Bush and the congressional lead-
ership must persuade the rank-and-file to
And Isn't a Cure-All
vote for a package that heaps pain on gas-
oline users, elderly people, beer drinkers,
farmers and many other constituencies. It
But in Long Run, the Package
won't be easy.
The only political pleasure in the pack-
Should Help Economy,
age comes from what was left out: Repub-
licans can claim they prevented a rise in
If Politicians Can Sell It
income-tax rates (although one provision
is, in effect, a 1% rate rise for high-income
taxpayers ). And Democrats can claim they
Red Ink Is Set to Rise Anyway
blocked a tax giveaway to the rich by stop-
ping a cut in the capital-gains tax rate (al-
though provisions in the package would
By DAVID WESSEL and ALAN MURRAY
give even more generous tax breaks to in-
Staff Reporters of THE WALL STREET JOURNAL
vestors in certain small and medium-size
WASHINGTON - President Bush and
companies).
the leaders of Congress have agreed on a
Both parties can also claim credit for
radical redirection of fiscal policy: the
protecting the popular Social Security pro-
largest package of tax increases and
gram from cuts.
spending cuts ever.
In short, it's not a package that politi-
But even after four months of scuffling,
cians would die for. "This isn't the kind of
the conflict is far from concluded. It must
thing that the political system wants to go
now go through a tortuous ratification
racing out in the streets and saying. 'Joy!
route in Congress, testing the willingness
Joy!' House Speaker Thomas Foley said.
of politicians to vote for severe pain on the
"There are going to be some increased
eve of a congressional election. "This is
taxes. There are going to be some re-
only the third inning," says one top con-
straints on spending. There are going to
gressional aide.
be some limitations on services.'
The bipartisan plan calls for $34.4 bil-
More New Taxes
lion in spending cuts and tax increases in
the fiscal year beginning today, and much
Mr. Bush yesterday tried to put the best
face on the package, which represents the
greater amounts in the following four
abandonment of his campaign pledges of
years. The biggest items in the package
"no new taxes" and a cut in the tax on
are a 12-cent rise in the federal gasoline
capital gains. "It is balanced. it is fair,
tax, cuts in defense spending, and substan-
and in my view it is what the United States
tial reductions in the Medicare program
of America needs at this point in its his-
for the elderly. The agreement averted a
tory," the president said in a ceremony
shutdown of government that could have
begun this morning.
with the budget negotiators in the White
House rose garden.
While major portions of the package are
Then he added: "Sometimes you don't
likely to survive the coming battles, the
get it the way you want. and this is such a
deficit cuts could be engulfed over the next
time for me. And I suspect it's such a time
few years if the economy continues to
for everybody standing here. But it's time
slump. Economic weakness could still push
we put the interests of the United States of
the budget deficit to unprecedented size.
America here and get this deficit under
Even if the U.S. escapes recession, as the
control."
plan assumes, the deficit is projected to
Democrats were also restrained in their
reach a record S254 billion in fiscal 1991.
enthusiasm. They had vowed to make cer-
And if a recession does occur, as many
economists now predict, that number could
tain the package put more of the tax bur-
rise to $300 billion or more.
ten on the wealthy. But with half the tax
Over the long run, many economists be-
increase coming from higher taxes on gas-
lieve the package will help the economy.
pline. alcohol and tobacco, the middle
The package. which is projected to reduce
class appears to have taken a heavy blow.
the deficit by $500 billion from what would
"It is a disappointment that the tax burden
occur if current policies were continued,
will not be as fairly shared as I would have
will free up money for private investment,
preferred." said Senate Majority Leader
and could help reduce the nation's reliance
George Mitchell, a Democrat from
on borrowing from abroad.
Maine.
Despite President Bush's insistence on
With so little enthusiasm and so much
a "pro-growth" package, however, there is
potential opposition, lawmakers face a
little in the way of specific measures to
mammoth task enacting the package into
help the economy over the next 12 to 24
law by Oct. 19, when Congress is scheduled
months. Indeed. the combination of spend-
to adjourn. Already, the lobbyists are gear-
ing cuts and tax rises is likely to have a
ing up for the attack. The National Associ-
damping effect on economic growth.
ation of Counties, for instance, fired out a
The only benefit the package holds for
press release vowing to defeat the proposal
the economy in the near term is indirect:
because it would modestly trim tax deduc-
It is likely to prompt the Federal Reserve
tions for state and local income and prop-
to ease credit somewhat in the coming
erty taxes and increase the federal gaso-
weeks. That. in turn, could give a modest
line tax.
boost to the economy.
"Is it going to pass?" asked Senate Fi-
nance Committee Chairman Lloyd Bentsen
rhetorically. "It's going to be tough."
The greatest opposition may come from
Republicans in the House of Representa-
tives, many of whom feel betrayed by the
Though less than envisioned, the $34.4
White House. "It's a disaster for the tax-
billion total remains a big number-big
payer," New Hampshire Republican Rep.
enough, certainly, to become a drag on the
Chuck Douglas said yesterday. "The big-
economy.
gest tax increase in history. A sell-out.'
White House economist Michael Boskin
And Rep. Mickey Edwards of Oklahoma,
yesterday defended the assumptions under-
the fourth-ranking Republican in the
lying the plans, which suggest the economy
House, said, "There are enough demerits
will continue to grow this year and next.
to advocate defeat."
After yesterday's ceremony, White
"The economic assumptions represent our
House Chief of Staff John Sununu listed for
best judgment," he said. "The administra-
reporters reasons why Newt Gingrich, for
tion and the Congressional Budget Office
one, should support the plan. But Mr. Gin-
were very close in their analysis. But obvi-
grich, the GOP whip and a leader of a
ously there is a great deal of uncertainty,
right-wing faction in the House, wasn't
due to the Mideast situation."
talking. He skipped the rose garden cere-
Under the negotiators' assumptions, the
mony and refused to talk to reporters; a
plan would eliminate the deficit by fiscal
spokesman said he hasn't taken a position
1994. But if the economy goes into a serious
yet on the package.
Many Congressional liberals are also up
recession, or the savings and loan problem
in arms. Rep. Henry Waxman, a California
continues to worsen, or the package isn't
Democrat, said he will oppose the package
enacted in its entirety, the balanced
because of its cuts in Medicare and its
budget would become a chimera.
"overall regressivity.' The House Demo-
The agreement substantially changes
cratic Caucus met late into the evening to
the Gramm-Rudman deficit-reduction law,
discuss members' concerns about whether
lifting the law's deficit targets and allow-
the plan placed too much of the tax burden
ing new targets to be set next March. The
on the poor and middle class, and too little,
costs of cleaning up the savings. and loan
on the wealthy.
industry will be applied to the deficit in all
Fill In the Blanks
official reports, but they won't count
Even before it reaches the floor, the
against the new Gramm-Rudman deficit
plan faces considerable uncertainty as it
targets. Under the new Gramm-Rudman
makes its way through individual commit-
rules, the Social Security surplus won't be
tees of Congress. Some of the major sav-
counted either.
ings in spending programs are unspecified,
with wide discretion left to congressional
Budget negotiators from the White
committees. The agriculture committees,
House and Congress are clearly looking to
for- instance,-appear-to-have-been given
the Federal Reserve to give the economy a
little detail on how to achieve the $13 bil-
lift now by bringing down interest rates.
lion in cuts over five years required from
"This ought to be something that gets the
farm programs. And some cuts in Medi-
Federal Reserve to ease up on interest
care and Medicaid are also left unspeci-
rates to stimulate the economy," Sen.
fied. That opens the door for the commit-
Bentsen said.
tees to adopt savings that are more imag-
ined than real.
Market Reaction
For those who face tough re-election
Fed Chairman Alan Greenspan has said
campaigns this fall, the package poses a
a "credible" budget agreement could lead
special problem. "This opens them up for
to lower rates. But he has also indicated he
all kinds of populist attacks," says Gary
will leave it up to the credit markets to de-
Orren, a public-opinion specialist at Har-
vard University.
termine whether the package is "credi-
The big rise in the gasoline tax is sure
ble."
to attract much public criticism, especially
Thus, if bond traders today bid down
coming on top of the fuel price jump
the interest yields on long-term bonds, the
driven by the Persian Gulf crisis. A Wall
Federal Reserve is likely to follow with a
Street Journal/NBC News poll in July
reduction in short-term interest rates. But
showed that even before the crisis, 59% of
if the bond markets react to the budget
voters opposed a rise in the gasoline tax.
Alcohol taxes are also certain to stir up
deal with a yawn, Mr. Greenspan may
plenty of opposition. not only from individ-
stand pat. The Fed's policy committee
ual consumers but regionally. GOP Sen.
meets tomorrow to set interest rate poli-
Pete Wilson, running for governor in Cali-
cies for the coming weeks.
fornia, has already said he won't support
In any event, the White House is un-
what appears to be "a draconian increase
likely to get the aggressive easing in inter-
in the excise tax on spirits." He says it
est rates that it hopes for. It would like
would have "a crippling effect on the wine
to see the key federal funds rate, which the
industry in California.
Harrison Hickman, a Democratic politi-
Fed largely controls, fall by a full percent-
cal pollster, predicts members of Congress
age point in the coming months. But with
will find that "defending necessity" (defi-
higher oil prices raising the threat of infla-
cit reduction is far more difficult than
tion, Mr. Greenspan is likely to move
"defending pleasure.'
much more cautiously.
Effects on Economy
As a result, some economists say the
President Bush had originally de-
Fed will be unable to do much to offset the
manded that negotiators cut $50 billion
economically negative effects of restrain-
from the deficit for the fiscal year begin-
ing the budget over the next 12 months.
ning today. But they eventually scaled that
"I'm a big proponent of budget cutting,"
back-partly because of a need to come up
says Harvard economist Benjamin Fried-
with $5.7 billion to fund operation Desert
man. "But it's simply wrong to think that
Shield in the Mideast, partly because of
monetary policy works fast enough to
their desire to phase in the gasoline-tax in-
avoid any contractionary effect of raising.
crease, and partly because they dropped
the proposal to cut the capital-gains tax,
taxes and cutting spending."
which was projected to raise billions of dol-
-Jackie Calmes and Hilary Stout con-
lars in the first year.
tributed to this article.
The budget negotiators claimed their
plan cuts $40.1 billion from the projected
deficit. But that excludes the cost of Desert
Shield. Factoring in what the U.S. must
pay for its Persian Gulf operation, the
package provides for $16.2 billion in in-
creased taxes and $18.2 billion in spending
cuts.
THE
WALL STREET JOURNAL.
© 1990 Dou Jones & Company, Inc. All Rights Reserved.
MONDAY, OCTOBER 1, 1990
Democrats Display
New Savvy in Fight
The Democrats drove home their de-
Over Capital Gains
mand with a simple drumbeat. As Senate
Majority Leader George Mitchell of Maine
*
*
*
said time and again, "We simply can't ac-
Bush Retreats as Opponents
cept the proposal that says you' re going to
cut the tax burden for those making over
Propose Trade to Secure
$200,000 and raise it for everyone else."
Higher Income-Tax Rates
A critical moment occurred in mid-Sep-
tember, when the Democrats leaked a con-
fidential analysis from the summit negotia-
tions putting the Republican tax cuts in
By JACKIE CALMES
stark terms-showing that they would re-
Staff Reporter of THE WALL STREET JOURNAL
sult in an overall cut for the richest Ameri-
WASHINGTON After getting clob-
cans and an increase for everyone else,
bered by Republicans on tax issues for a
thanks largely to the impact of capital
decade, the Democrats scored big by van-
gains.
quishing the president on his demand for a
The soak-the-rich theme proved to be a
cut in the capital gains rate.
message with resonance, as poll after poll
Their victory is due not only to the
registered public disgust with the greed
changing politics of the tax issue, but also
that voters associated with the 1980s-the
to their new-found shrewdness in dealing
junk-bond, insider-trading, S&L-ripoff dec-
with it.
ade. "This was an easy issue because of
Publicly, the Democrats repeatedly
the way the public is feeling these days,"
knocked down the Republicans' pro-growth
said Robert McIntyre. director of Citizens
arguments as mere cover for yet another
for Tax Justice, a labor-backed lobbying
tax break for fat cats. But instead of
group. The Democrats even got an assist
merely opposing the cut, the Democrats
from a well-known Republican, political
said the beneficiaries of capital gains
consultant Kevin Phillips, whose book,
treatment would have to pay for it-with
"The Politics of Rich and Poor," provided
higher income-tax rates. The price was SO
intellectual ballast for their arguments.
high that in the end Mr. Bush and his party
At the same time, Republicans were left
had to give up.
without a catchy theme. "We acted like
"The Democrats have hammered us as
we're embarrassed to make the pro-capital
a party of the rich very effectively," GOP
gains arguments," said Mark Bloomfield,
political strategist Ed Rollins conceded.
president of the American Council for Cap-
"They have really forced the debate on fa-
ital Formation, a corporate-backed organi-
voring the wealthy versus not favoring the
zation lobbying for a capital gains tax cut.
wealthy, as opposed to spending versus
Senate GOP Leader Bob Dole of Kansas,
taxes, where we win.'
asked recently why the tax cut was SO im-
Concern was heavy among Democrats
portant, mentioned the need to fulfill Mr.
last night that the package as a whole
Bush's 1988 campaign promise and to at-
failed to shift the tax burden higher up the
tract House Republicans' votes for the
income scale. But where the defeat of capi-
budget package-and not a word about
tal gains was concerned, the party was
economic growth.
delighted to take the credit. "The Demo-
"It's the fault of the White House," said
crats have been able to clearly articulate
Rep. Mickey Edwards of Oklahoma, a
what this fight is about," Ron Brown, the
House GOP leader. "They allowed Demo-
party chairman, said over the weekend.
crats to dominate the press as far as defin-
"It's about who pays the tab."
ing what capital gains is all about. The
The victory is bigger than even many
Democrats had a message that they kept
Democrats expected when the year began.
repeating over and over. We did not have a
Last year, they defeated an earlier White
central theme, and the president never
House effort to cut the rate only on a par-
really wanted to get confrontational. The
liamentary motion, after test votes showed
guy with the big microphone never wanted
majorities of both the House and Senate-
to use it."
including a critical block of Democratic
In recent days, Republicans in Congress
conservatives-in favor of the tax cut. This
privately began pleading for the party to
year's strategy, in fact, was premised on
back off the capital gains issue. Rep. Bill
the likelihood of the White House winning
Green. a Manhattan Republican, button-
on capital gains, which is why the Demo-
holed House Minority Leader Bob Michel
crats, from the beginning, demanded eq-
of Illinois last week to pass on a message:
uity-an offsetting tax bite from the rich.
Yet another business group had urged an
The party remained unified on the is-
end to the capital-gains campaign. It was
sue, repairing fissures that broke out in
holding up the deficit-reduction package.
last year's fight over capital gains. Some
he explained-and worse. threatening
Democrats who favor the cuts in principle
higher income tax rates.
remained silent this round in the interest
Mr. Michel didn't have to be told. "I'm
of cutting the deficit. Other Democrat pro-
hearing all the time from people in the
ponents of the cut joined their leadership
business community-we want a budget
in the strategy of linking the cut to higher
agreement more than we want capital
income-tax rates.
gains." he said after being approached by
Mr. Green. In the end, Messrs. Michel and
Dole. the only GOP lawmakers in the final
bargaining group, publicly backed away
from capital gains in an effort to get a def-
icit-reduction deal.
Republicans are left the consolation
prize of having fended off an increase in
income-tax rates. which will help them ar-
gue that that President Bush's no-new-
taxes promise remains technically intact.
despite billions of dollars in miscellaneous
tax increases in the compromisè budget.
THE
WALL STREET JOURNAL.
© 1990 Dou Jones & Company, Inc. All Rights Reserved.
MONDAY, OCTOBER 1, 1990
Mr. Gephardt's dilemma is one felt
force the other side to tip its hand. Demo-
Gephardt Walking
sharply by Congress today amid the
crats had more success in framing the
budget brinksmanship here. His fellow
public debate. but the party felt too vulner-
Political High Wire
Democrats are most torn. because of their
able to walk away from the table. The Mid-
dual roles as both the "opposition party"
east crisis stole precious momentum. and
On Deficit Accord
and the legislative majority in Congress.
for a time in the capital-gains fight. Demo-
But Rep. Gephardt's roots in the Ways and
crats appeared captives of their own sym-
Means Committee are a reminder too that
*
bolism. The president first wanted the cap-
*
the fiscal crisis is also an institutional
ital-gains tax reduction to fulfill his
Young Democrat Faces Test
crisis that challenges Congress's constitu-
agenda. But the dynamics changed when
In Persuading Colleagues
tional powers over taxes and spending.
Democrats sought to keep the issue alive
An early star among a generation of
for a period in hopes of setting up a trade
That He Made Right Deal
lawmakers elected in the 1970s. Mr. Gep-
for their goal of higher personal rates on
hardt found his voice after going outside
wealthy taxpayers.
the House as a presidential candidate. Now
The gamble for Mr. Gephardt-and his
By DAVID ROGERS
that he has returned in a greater leader-
party-is that the agreement reached yes-
Staff Reporter of TIME WALL STREET JOURNAL
ship role, his challenge is to preserve that
terday will at least establish a fixed play-
WASHINGTON-" your fight too"
identity-and anger-not only for himself
ing field in which new battles can be
was the rallying cry of Richard Gephardt's
but to give renewed direction to the cham-
fought over priorities in the coming dec-
1988 presidential campaign. Now the young
ber once dubbed "the people's house.'
ade. "We have fundamental differences
House majority leader must convince his
"He has to get the institution angry."
with Republicans." said the Democratic
Democratic colleagues the deficit-reduc-
says Kevin Phillips. a conservative theo-
leader in a Capitol hailway one evening
tion accord he helped strike with President
rist and writer. "So he can give voice as a
outside the budget meeting room. "I see it
Bush is their "deal" too.
leader for Middle America and not just a
now more clearly than ever."
The massive package would not only re-
Washington institution."
shape the federal budget but the political
His task is that much more difficult be-
landscape over the next five years. Middle-
cause of the suddenness of his rise to
and working-class families will share in
power last year, when scandals forced the
the pain. and Rep. Gephardt walked a
resignation of top Democratic leaders. Un-
tightrope between finding a compromise
like Speaker Thomas Foley (D., Wash.
and giving up his political profile-and that
a committee chairman before climbing the
of the Democrats-ir future elections.
leadership ladder, Mr. Gephardt is almost
"It is his baptism by fire," says former
wholly the product of the Democratic
Democratic House Whip Tony Coelho, and
caucus and has the soft underbelly of a
a portrait too of an
man without a fixed power base to fall
emerging leader
back on if he should fail.
coming to terms
Probably no relationship is more com-
with power. Success
plicated-or critical-for Mr. Gephardt
will give the Mis-
than that with Ways and Means Committee
souri congressman
Chairman Dan Rostenkowski. In style and
new credibility as a
temperament, the 62-year-old Chicago
major force in a
Democrat is from another eΓa, but as his
Democratic leader-
own leadership opportunities have slipped
ship still struggling
away. he wants most to be needed. He
to establish itself.
can't resist slapping down the younger
But as chairman of
man but also smiles with satisfaction at
the talks between
seeing him learn. When President Bush
Congress and the
personally called the chairman to test
White House. the 49-
Richard Gephardt
Democratic loyalty on resisting a capital-
year-old Mr. Gep-
gains tax cut, Rep. Rostenkowski held.
hardt has been pulled away from his popu-
The muscular economic populism of his
list past and become party to concessions
presidential campaign must grow the very
on taxes and defense spending that will an-
different muscles of an institutional in-
-ger rank-and-file Democrats.
sider. "He did a masterful job," says Sen-
In terms of national politics, this is
ate Appropriations Committee Chairman
very high risk for him," says Edward
Robert Byrd (D., W.Va.). but this praise
Reilly. a New York political consultant and
is interspersed with cuffs and bruises from
veteran of Mr. Gephardt's presidential
other chairmen who find the majority
campaign. "There will be some things in
leader too timid.
this package people will be able to pick
apart and say veer from the liberal
Instead of a partisan rabble-rouser. the
agenda."
administration faced a Midwest Eagle
As a presidential candidate. stumping
Scout. Mr. Gephardt paid a price for per-
across the South and Midwest. Mr. Gep-
mitting the talks to drift without resolu-
hardt vowed to stand up for workers
tion, but the process gave him time to
against a "Yuppie, Harvard' elite that
build bonds with other lawmakers. even as
would "anesthetize us" amid America's
the more abrasive White House team
economic decline. As majority leader, Mr.
seemed to wear out its welcome.
Gephardt. a former St. Louis alderman.
Rep. Gephardt walked between compet-
has been sitting for weeks across a mahog-
ing regional interests. among the negotia-
any table from Harvard-educated Richard
tors themselves, on energy taxes. And with
Darman, the ambitious White House
Anheuser-Busch Cos. headquartered in his
budget director. Class and economic divi-
St. Louis "congressional district, he had
sions colored the negotiations between the
both a parochial stake in beer taxes-
two men, but at a time of rising voter an-
which the White House played on behind
ger. Rep. Gephardt's leadership position
the scenes-and a political need to show he
seemed to muffle his voice on the very
was sacrificing as well.
themes he was early to advance.
On bigger issues, the budget negotia-
"I find it very hard," he said last week.
tions resembled less a legislative confer-
"I tell my wife every night that divided
ence than a game of cards. Each side
government doesn't work."
made offers-not to be accepted but to
THE
WALL STREET JOURNAL.
© 1990 Dow Jones & Company, Inc. All Rights Reserved.
MONDAY, OCTOBER 1, 1990
Democrats Failin Top Goal:
Shifting Tax Burden to Rich
By JEFFREY H. BIRNBAUM
it became tyranny by revenue chart.
Staff Reporter of THE JOURNAL
Ever since the budget talks began in
WASHINGTON The budget accord ap-
May. computers have been whirring in a
parently fails to achieve what the Demo-
converted hotel near the Capitol. produc-
crats said was their highest goal in the def-
ing more than 200 income-distribution ta-
icit-reduction talks: to make the tax code
bles detailing how the latest deficit-cutting
more progressive by shifting more of the
proposals would affect taxpayers catego-
burden to upper-income individuals.
rized by income groups.
According to lawmakers and others
But by the time the tax talks ended yes-
close to the negotiations. taxpayers in the
terday the tables had turned. Aides said
top categories of income would suffer less
the latest income-distribution charts didn't
of a tax increase in percentage terms than
look the way most Democratic strategists
some of those taxpayers in lower-income
had hoped.
categories.
The reason is that most of the revenue
In particular. according to one congres-
raised in the package would come from in-
sional aide, the after-tax income of the top
creases in excise taxes. which are regres-
1% of earners, or those who make more
sive-disproportionately burdensome on
than $200,000 a year, would decline by a
lower-income taxpayers. This would mark
smaller percentage than that of lower-in-
the first time in recent memory that law-
come taxpayers. A progressive system
makers are considering a plan that would
would take a larger percentage cut from
raise most of its revenue through excise-
the upper-income taxpayers.
tax increases, rather than through the
A caucus of House Democrats last eve-
more progressive income tax.
ning produced some shrill complaints
The biggest excise-tax increase would
about the tax plan's lack of progressivity.
be applied to energy. The plan would raise
Democratic leaders acknowledged the
nearly $57 billion over five years from a
problems but said the compromise was the
boost of 10 cents a gallon in the tax on gas-
best they could do.
oline and other motor fuels, plus an in-
In addition. they said they were still
crease of two cents a gallon on all petro-
working on final income-distribution data.
leum products, gasoline included. Also re-
Usually Democrats insist on including an
gressive are proposed increases in excise
income-distribution chart with any group
taxes on tobacco, beer. wine and distilled
of tax changes. But this time the tax pack-
spirits.
age omitted the chart. and Democrats
weren't making one available. Aides hoped
A sure-fire way to offset these regres-
that some of the reassessments would
sive taxes would have been to increase in-
make the tax package appear more pro-
come tax rates on the wealthy. But Repub-
gressive.
licans refused. So instead, the tax plan in-
The package "has not corrected the re-
cludes a variety of whacks at the wealthy
gressivity which has stormed through the
aimed at smoothing out the income-distri-
tax structure over the last 12 years, said
bution chart. including a new tax on "lux-
Sen. James Sasser D.. Tenn. chairman
ury items." which are presumably pur-
of the Senate Budget Committee. In fact,
chased more frequently by rich people.
he added. "There has been some increase
One progressive provision, proposed by
in regressivity due to the Republican insis-
Rep. Donald Pease (D., Ohio) would place
tence on higher gasoline taxes" and other
a limit on the itemized deductions taken by
excise taxes.
people with incomes above $100,000-the
"That will be the single biggest problem
higher the income, the higher the limit.
in securing Democratic support for this
For the upper-income people to whom it
package.' he said.
applies. the Pease plan is really not much
Ironically, it was the Democrats who in-
different from a tax-rate increase.
sisted that the drive to make rich people
Other proposals also would help reduce
carry more of the tax burden be the guid-
the regressive nature of the package. One
ing principle of the talks.
would raise the earnings limit that is cur-
In private. the two sides shouted about
rently applied to the 1.45% payroll tax that
it. Republicans once even threatened to
goes to Medicare. The income subject to
quit the talks over it. For Democrats. it
the tax would increase to $73,000 from $51,-
was a matter of fairness. For Republicans.
300.
THE
WALL STREET JOURNAL.
© 1990 Dow Jones & Company, Inc. All Rights Reserved.
MONDAY, OCTOBER 1, 1990
Bush Gets Leverage on Spending Caps
By DAVID ROGERS
and $221.7 billion in fiscal 1993. If the White
ment. But by establishing caps, the Presi-
Staff Reporter of THE WALL STREET JOURNAL
House Office of Management and Budget
dent and Republicans have set targets for
WASHINGTON-President Bush failed
found that future appropriations bills broke
themselves through the 1992 elections. An
to win the sweeping power he sought over
these caps, cuts would be ordered within
estimated $67.2 billion in Pentagon savings
federal spending, but his budget agree-
weeks, and this certainty would add to the
are assumed under the proposal. But as a
ment with Congress includes a set of en-
pressure on all sides to stay within lim-
practical matter, annual military appropri-
forcement measures that give the White
its.
ations would be effectively frozen in the
House added leverage both to set priorities
Similarly, if a future benefit program
range of $288.5 billion to $291.1 billion over
and to curb future expenditures.
were adopted, it would be subject to the
the next three years.
The agreement sets five-year ceilings
same requirement. Child-care legislation,
Though much smaller, the more imme-
for annual appropriations bills, and the
now pending in Congress, could be a first
diate issue may be the level set for inter-
House and Senate Appropriations Commit-
test, as the sponsors are proposing to pay
national affairs, which would grow to $19.6
tees are given specific caps for defense,
for the new program by extending the 3%
billion by fiscal 1993. Special provisions
domestic, and international affairs spend-
excise tax on long-distance telephone calls.
were made to meet the cost of forgiving
ing through fiscal 1993. Any new benefit
Assuming the bill is enacted into law, OMB
Egypt's military debt to the U.S., but the
programs will be subject to a pay-as-you-
would match the costs against the offset-
spending cap serves as a check of sorts on
go requirement. and across-the-board cuts
ting revenue, and cuts would be applied to
demands from other nations affected by
would be triggered if the proposed ceilings
existing benefit programs to ensure no def-
the Mideast crisis or rapid changes in
were violated.
icit impact.
Eastern Europe.
The same pay-as-you-go approach ap-
The notion of a third category for for-
plies to future tax cuts as well. Any bill
House-passed appropriations bills for
that failed to provide offsetting revenue
this year will have to be cut to stay within
eign aid further narrows Congress's flexi-
would have to pass a point-of-order vote in
the proposed ceilings, but the budget
bility and has a ripple effect on what re-
the Senate, which requires 60 votes, for ex-
agreement is in fact more generous to do-
mains for domestic accounts. A new set of
mestic spending than many had expected
scoring rules makes it harder for appropri-
ample.
at the outset of the talks months ago. Sen-
ations committees to hide spending in
The new mechanism is similar to the
ate Appropriations Committee Chairman
some cases as well. but lawmakers won
current Gramm-Rudman law but would be
Robert Byrd was a major force in blunting
concessions that allow for adjustments for
quicker to respond to evidence of over-
the administration's efforts to expand the
changes in the economy and the vagaries
spending and more targeted to the problem
president's power, and as negotiators met
of long-range estimates.
area. The White House would have the fi-
in one corner of the Capitol late Saturday
Aggregate appropriations for the next
nal word on determining any violators, ac-
night. the West Virginia Democrat waited
three fiscal years may exceed the caps as
cording to budget analysts, and the agree-
in his office. smoking a cigar and review-
much as 0.4% without penalty. for exam-
ment provides that an across-the-board cut
ing a videotape of a lengthy speech he de-
ple, and a further allowance is permitted
could be ordered 15 days after enactment
livered last year on the budget process.
for technical reestimates. The base for
of any bill that breaks the prescribed ceil-
"I just want to be here at my post of
across-the-board cuts from benefit pro-
ings.
duty if the trumpet calls," said Mr.
grams would be expanded by relaxing lim-
For example, the agreement establishes
Byrd.
its protecting Medicare. for example. and
a base line under which domestic discre-
in fiscal 1994 and 1995. appropriations com-
tionary spending is projected to grow from
Given the prevailing mood in Congress,
mittees would be subject to only a single
$197.6 billion in the new fiscal year that
Mr. Bush will still face opposition to the
ceiling with no differentiation between do-
started today to $210.1 billion in fiscal 1992.
defense spending assumed in the agree-
mestic and national security accounts.
THE WALL STREET JOURNAL.
1990 Dow Jones & Company, Inc. All Rights Reserved.
MONDAY, OCTOBER 1, 1990
Cuts in Farm Subsidies Likely
To Provoke Political Turmoil
By BRUCE INGERSOLL
ing to make voters unhappy. It will be very
Staff Reporter of THE WALL STREET JOURNAL
difficult for them to decide [on cuts).
WASHINGTON - Besides sharply cut-
The consensus among farm groups is
ting farm income, the proposed $13 billion
that the lawmakers will opt for a combina-
cut in commodity subsidies over the next
tion of price-support cuts and acreage re-
five years is likely to provoke political tur-
ductions. Under -the farm program, the
moil, pitting farmer against farmer and
government pays farmers subsidies if mar-
region against region.
ket prices fall short of so-called target
Some commodity-group lobbyists and
prices. To qualify for such deficiency pay-
agricultural analysts expressed fear that
ments, however, farmers must idle part of
the plan would end the Farm Belt's strong
their so-called base acreage.
recovery from the doldrums of the mid-
One option would cut the target prices
1980s and trigger another wave of farm
for wheat, feed grains, cotton and rice 2%
failures and foreclosures, particularly in
each year through fiscal 1995, and would
the Great Plains wheat belt and soybean-
require farmers to reduce their base acre-
producing areas of the South.
age 3% each year. Such a reduction would
Under the budget summit agreement,
decrease the amount of production eligible
the savings demanded of the farm sector
for deficiency payments. The White House
could be achieved by either trimming farm
budget office estimates this would save
income price supports or shrinking the
$500 million in fiscal 1991 and $12.4 billion
amount of acreage eligible for subsidies
over five years. It's unclear how the re-
or a combination of the two options.
maining $600 million would be saved.
But critics complained that the nation's
A second possibility is the so-called tri-
wheat, feed-grain, cotton and rice growers
ple-base option involving a one-time 2%
would be required to bear a disproportion-
cut in target prices and a one-time 15% cut
ate share of the economic pain of deficit
in acres eligible for deficiency payments
reduction. Apparently untouched by the
and other subsidies. At the same time,
plan-at least for now-are dairy, peanut
farmers would be free to grow oil seeds,
and sugar producers, who don't receive
including soybeans and sunflowers, and
any direct subsidies from the govern-
other crops on the ineligible acreage.
ment.
This option would hurt thousands of
James Barr, chief executive officer of
wheat farmers in the semi-arid Great
the National Milk Producers Federation,
Plains, Montana and eastern Washington,
said he sees considerable potential for "di-
where wheat is about the only crop they
visiveness among commodity groups."
can grow profitably because of climate and
While deep cuts in the $55 billion, five-
soil conditions. The result is that they
year farm bill now pending in a Senate-
couldn't take advantage of the much-
House conference had been widely ex-
touted planting flexibility of the triple-base
pected, the plan still left the farm organi-
option. Mr. Schwensen said he fears it
zations stunned and demoralized. "Farm-
would drive many wheat growers out of
ers come out the losers," said Carl
business:
Schwensen, executive vice president of the
National Association of Wheat Growers.
Corn Belt farmers. on the other hand.
"You're going to hear some real scream-
would be able to plant more soybeans on
ing out there," Mr. Barr said.
acreage no longer eligible for subsidies,
The loss of farm income, coupled with
analysts pointed out. The resulting surge in
the rising costs of fuel. fertilizer and other
production. however, would lower soybean
agrichemicals due to the Persian Gulf
prices. conceivably to the point where soy-
crisis, will intensify "economic pressure on
bean growers in the South wouldn't be able
farmers." added Robert Nooter. lobbyist
to compete because of their lower yields
for the American Farm Bureau Federa-
per acre.
tion.
The triple-base option would save S1 bil-
The budget summit negotiators appear
lion the first year and $12.2 billion over
to have given the House and Senate Agri-
five years. One way for farm-policy
culture Committee leadership some lati-
makers in Congress to bring the savings up
tude in deciding how to make the cuts. in-
to the $13 billion goal-and make the plan
cluding $1.3 billion in the fiscal year that
more equitable and less politically vola-
begins today. "They're all looking at Nov.
tile-would be to lower dairy price sup-
6." said Dean Kleckner. the Farm Bu-
ports or impose assessments on dairy
rean S president. "They know they're go-
farmers.
THE
WALL STREET JOURNAL.
1990 Dow Jones & Company, Inc. All Rights Reserved.
MONDAY, OCTOBER 1, 1990
Seniors Can Expect to Pay
More for Medicare Benefits
By KENNETH H. BACON
But if the Medicare plan contains politi-
Staff Reporter of THE WALL STREET JOURNAL
cal risks. administration officials believe
WASHINGTON - The budget compro-
it makes good fiscal sense by starting to
mise calls for the largest increases in pay-
balance the costs and revenues of a $100
ments by Medicare beneficiaries since the
billion-a-year program that is contributing
health-insurance program began 25 years
more and more to the budget deficit.
ago and is already triggering opposition
If the proposal survives, the major
from senior citizens groups.
changes for beneficiaries will be in Part B
Negotiators agreed to raise $30 billion
of Medicare. which pays doctors' bills
from Medicare beneficiaries over five
-The annual deductible, which benefi-
years by boosting the monthly premium
ciaries must pay before Medicare begins to
and the annual deductible they pay for
pay 80% of doctors bills, would rise from
doctors' services. The five-year plan also
S75 currently to $100 on Jan. 1, $125 in 1992,
calls for cuts of $30 billion in planned pay-
and $150 in 1993-1995. The negotiators
ments to hospitals and doctors, resulting in
dropped an earlier proposal to index the
total savings of $60 billion from Medi-
deductible to inflation after it reaches $150.
care.
The change, which would bring in $6 billion
And to bolster Medicare's hospital in-
over five years. would be the first increase
surance trust fund, workers and employers
in the deductible since 1982, when it rose
each would pay an additional 1.45% of
from $50.
earnings on income between $51,300 and
-The monthly Part B premium would
$73,000.
rise to cover 30% of Part B costs from the
"What I hear from my district is that
current 25%. This would boost the current
you've got to do a lot more in terms of cut-
$28.60 monthly premium to about $34 on
ting than look just at the seniors," said
Jan. 1 and to around $55 in 1995, and would
Rep. Harris Fawell (R., Ill.). A deficit-re-
raise $20.17 billion over five years, the Of-
duction package that seniors think de-
fice of Management and Budget calcu-
mands too much from them is "an explo-
lates. Between 1965 and 1974, the Medicare
sive pre-election move that may be as im-
law required premiums to cover 50% of
possible a political task as any one might
Part B cost. If current law, which limits
pick. I think there will be a wholesale re-
Part B premium increases to the rise in
volt," Rep. Fawell said.
the cost of living, remained in place, pre-
Today, a coalition of senior citizens
mium coverage would fall to 21.5% of cost
groups and labor unions plans to launch a
by 1995.
campaign against the proposed Medicare
-Seniors would be required to pay 20%
increases. "We want to make it clear that
of laboratory costs; currently Medicare
those who wage a budget war against se-
pays the entire cost. The change would re-
niors shouldn't expect pacifism on election
store a co-payment in place until 1984 and
day," said Ron Pollack, the executive di-
raise $3.88 billion over five years, the OMB
rector of Families USA. which represents
estimates.
the elderly.
The package contains about billion in
Martha McSteen, president of the Na-
proposed new spending to help elderly ben-
tional Committee to Preserve Social Secu-
eficiaries near the poverty line bear the
rity and Medicare, which led the success-
higher costs. Medicaid, the health program
ful fight to repeal a catastrophic-illness in-
for the poor, already pays the Medicare
surance plan that many seniors considered
deductible and premiums for beneficiaries
too expensive, called the proposals unfair.
below the poverty line.
"When half of the proposed budget savings
Over time, the combination of the 30%
from entitlement programs comes from a
premium coverage requirement and the
single program-Medicare
well,
that's
not fair," she said.
20% co-payment for lab fees could change
the dynamic of Medicare by making se-
But officials at the American Associa-
niors more attentive to medical-cost con-
tion of Retired Persons, the largest senior
tainment, administration officials say. The
citizens group. said the negotiators aban-
faster medical costs rise, the faster their
doned other proposals that would have hurt
payments will increase.
the elderly-higher taxes on Social Secu-
Of the additional $30 billion of Medicare
rity benefits. a postponement in the cost-of-
savings produced by slowing payments to
living increase for Social Security benefits.
Medicare providers, $16.5 billion would
and a big increase in Medicare premiums
come- from hospitals and most of the rest
for wealthy beneficiaries. "You have to
would come from reducing payments to
judge a package like this not just by
doctors for such "overpriced procedures"
what's in it but by what's not in it," said
as radiology, anesthesiology and diagnostic
Martin Corry, the AARP's director of fed-
tests. Hospitals, arguing that inner-city
eral relations.
and rural hospitals already face a financial
In a statement yesterday, the AARP
crisis, successfully argued against admin-
congratulated the negotiators for reaching
istration efforts for bigger cuts.
an agreement, but said it was withholding
The extension of the 1.45% hospital in-
judgment until it reviews the entire pack-
surance tax to earned income between $51,-
age.
300 and $73,000 would boost the revenues of
One part of the overall budget agree-
the trust fund that pays for hospitalization
ment dims the prospect of future efforts,
under Part A of Medicare. Without the in-
increasingly favored by Democrats and
crease, the Hospital Insurance Trust Fund
Republicans alike, to fill gaps in the na-
will go bankrupt early in the next century,
tion's health care by expanding coverage
according to government projections. Cur-
to the poor. the uninsured or the elderly
rently, the 1.45% levy. which is paid by
who need long-term care. The five-year
both workers and employers, like the 6.2%
agreement provides that any new benefits
Social Security payroll tax, is capped at in-
must be enacted on a pay-as-you-go basis,
comes of $51,300. Under the plan, the 1.45%
meaning that expanded health care would
tax would be paid by employees and em-
trigger a dollar-for-dollar increase in reve-
ployers alike on income up to $73,000, but
nues or cuts in expenditures. The Bush ad-
not on any income beyond that. The
ministration is studying ways to improve
change, which doesn't affect the Social Se-
health coverage, but officials warn that fis-
curity tax, would bring in $13 billion over
cal realities rule out costly expansion.
five years.
THE
WALL STREET JOURNAL.
© 1990 Dow Jones & Company, Inc. All Rights Reserved.
MONDAY, OCTOBER 1, 1990
MilitarySpendingtoBeCut,
But No Peace DividendSeen
By BOB DAVIS
survive, some liberals are bound to take
And WALTER S. MOSSBERG
aim repeatedly at the Pentagon budget in
Staff Reporters of THE WALL STREET JOURNAL
future years, especially if there is a re-
WASHINGTON The budget agreement
cession or the Persian Gulf crisis fades.
would force the Bush administration to
Rep. Patricia Schroeder (D., Colo. ),
spend less on defense than it had planned
chairwoman of the House subcommittee on
at the beginning of the year, but also
military installations, warned that "it may
dashes remaining hopes for any sizable
be we just don't give them that much
peace dividend.
money.' She said she had expected the
The five-year figures agreed to by the
Pentagon to receive less money for regular
summit participants closely track a plan
operations, provided Congress funded the
put forward in April by Sam Nunn (D.,
Persian Gulf deployment separately.
Ga. the Democrats' leading defense ex-
"Now, it looks like they've got a win-win
pert and chairman of the Senate Armed
situation," with higher regular funding
Services Committee. They are the highest
than Democrats sought, plus a separate
levels either party considered politically
Persian Gulf fund. "I don't see any peace
practical this year-a fact the White House
dividend in it," Rep. Schroeder said. "The
hopes will help sell the package to conser-
peace dividend went to Saudi Arabia."
vatives.
The budget accord doesn't cut funding
However, defense hardliners were al-
considered necessary for the current mili-
ready warning that the new figures could
tary operation in the Persian Gulf. That
result in a weaker military. And meeting
operation, called Desert Shield, is expected
the new levels is certain to unleash a fight
to cost $15 billion in fiscal 1991, with for-
over which programs to cut. The outcome
eign countries likely to underwrite about
could determine the fate of such weapons
half of that amount. The remaining $7.5
programs as the Strategic Defense Initia-
billion will be sought in special legislation
tive and the B-2 bomber.
over and above the regular Pentagon
According to Frank Gaffney. a Reagan-
budget. Those figures would balloon if war
era Pentagon official who now heads the
breaks out in the Persian Gulf.
Center for Security Policy, "it will proba-
bly result in a significant cut in money that
Gordon Adams. director of the liberal-
spends!out quickly-operations and main-
leaning Defense Budget Project. praised
tenance." That means, Mr. Gaffney says,
the agreement because "the baseline is
that readiness of U.S. forces outside the
now headed down deeper than [Defense
Persian Gulf, especially in Europe and
Secretary I Dick Cheney anticipated.'
South Korea, could suffer. "You get back
However, Mr. Adams added, "This is
to a hollow military," he said, using the
certainly not the end of the world for the
terms Republicans favored in the 1970s to
Pentagon. My guess is that the Pentagon
criticize shortages of spare parts and
knew that [Sen. I Nunn's plan was about the
training under the Carter administration.
best they could do.'
Under the summit agreement, the U.S.
For fiscal 1991, which begins today, the
would spend about $290 billion a year on
budget agreement calls for Pentagon
defense for the next three fiscal years. The
spending authority of $288.5 billion and out-
agreement cuts $67 billion in outlays and
lays of $296.4 billion. Over the next two
$107.4 billion in spending authority from
years, spending authority would increase
the administration's plans for a slowly
to $290.9 billion and $291.1 billion. Outlays
growing defense budget over three years.
The result-an essentially flat level of de-
would drop to $294.3 billion and $291.3 bil-
fense spending-means that the Pentagon
lion. Budget authority defines which pro-
coffers won't be heavily raided to finance
grams the government may carry out and
social programs.
sets spending ceilings for them. while out-
Only six months ago, liberal lawmakers
lays refer to money actually spent.
had hoped to shift significant funds from
The agreement didn't specify the reduc-
Pentagon accounts to a host of domestic
tion in spending over five years compared
programs, including education. health in-
with administration projections, but an in-
surance for the poor, and highway repair.
dividual close to the negotiations put the
But the administration has bitterly op-
figure at S173 billion.
posed such moves, and the Persian Gulf
The Senate and House have already
crisis sharply reduced the odds that the
passed defense authorization bills for fiscal
liberals would succeed.
1991. The budget negotiators agreed to
Democratic budget negotiators argued
adopt the Senate's overall budget plan-
until the last minute to cut Pentagon fund-
which has $6 billion more in spending au-
ing more sharply, and rank-and-file House
thority than the House bill-but conferees
liberals will probably be disgruntled that
from the House and Senate Armed Service
the Pentagon budget wasn't cut more.
Committees must work out differences in
Even if the first-year figures in the plan
proposed funding for individual programs.
THE WALL STREET JOURNAL.
1990 Dou Jones & Company, Inc. All Rights Reserved.
MONDAY, OCTOBER 1, 1990
Bush, Despite Losing Capital Gains War,
Wins Tax Breaks for Small Companies
By ALAN MURRAY
companies whose principal activity is man-
Staff Reporter of THE WALL STREET JOURNAL
aging real estate and investments, or fi-
WASHINGTON-While losing the capi-
nancial businesses.
tal-gains tax cut, President Bush did win a
The biggest single item in the grab bag
handful of face-saving. smaller tax breaks
of incentives would allow investors. who
designed to benefit small and medium-
buy stock in one of the qualified companies
sized entrepreneurial companies.
to take a deduction of 25% of the purchase
The White House praised the plans as
price of the stock. The deduction would be
strong incentives to growth. "The growth
limited to $50,000.
incentives in this package will be a power-
A person who bought $200,000 of stock in
ful boost to small, rapidly growing entre-
one of these medium-size companies. for
preneurial business," said Michael Boskin,
instance, would be allowed to deduct $50,-
chairman of the Council of Economic Ad-
000 of that amount. If the person is in the
visers.
33% tax bracket, that would be a tax sav-
But proponents of the capital-gains tax
ings of $16,500. The provision is estimated
cut were scarcely satisfied. "The capital-
to cost the government $7.3 billion over the
formation piece is suitable for- a banana
next five years.
republic, but not for the United States of
In addition, investors who bought stock
America, which has to compete with major
in these companies wouldn't have to pay
powers like Japan and others, with sub-
taxes on gains due solely to inflation.
stantially lower-capital costs," said Mark
The tax breaks would expand the ability
Bloomfield, head of the American Council
of companies that fall into this special cat-
for Capital Formation and a leader in the
egory to "expense" certain investments-
effort for a capital-gains tax cut.
or write them all off in one year. They
The tax breaks in the package are
would also provide these companies a 30%
aimed at helping corporations with less
credit for research and development, al-
than $50 million in equity that are engaged
though that tax break would be in place for
in "active" businesses. That would exclude
calendar year 1991 only. The total package
will cost the government $12.1 billion over
the next five years.
Tax Credits for Ethanol
The changes marked a dramatic rever-
Are Extended in Accord
sal from the Tax Reform Act of 1986,
which attempted to roll back the special-in-
By a WALL STREET JOURNAL Staff Reporter
terest tax breaks that permeated the tax
WASHINGTON - Senate Minority
code.
Leader Robert Dole got his wish and
Large corporations and tax-shelter pro-
inserted into the budget accord the ex-
moters are certain to put their account-
tension of tax breaks totaling $500 mil-
ants at work overtime to figure out ways to
lion a year that prop up the market for
qualify for the generous but specific tax
corn-based ethanol, which is used to
breaks.
make gasohol.
Administration officials say the Treas-
The major beneficiary of the subsidy
ury will be attempting to devise rules to
is Archer-Daniels-Midland Co., which
prevent such game-playing. But if past ex-
makes 70% of the fuel component pro-
perience is any guide, the creativity of pri-
duced in the U.S. Sen. Dole long has
vate accountants may prove to be too
had personal and professional ties to
much for government regulation writers.
Dwayne Andreas. chairman of the Deca-
Robert Greenstein of the Center on
tur. III., commodities company.
Documents released yesterday in
Budget and Policy Priorities said the tax
breaks were "some of the more lucrative
connection with the budget pact indicate
that the two gasohol tax credits would
and more egregious new tax loopholes to
be extended and modified. They aren't
come down the pike in recent years," and
scheduled to expire until the end of 1992.
said they will "open the doors wide to ex-
Other details weren't disclosed. and it's
tensive tax sheltering by wealthy inves-
tors."
still uncertain- whether congress will en-
act these extensions.
"It's a typical move by politicians to
The tax credits. one for excise taxes
provide sops rather than substance," said
and another for income taxes, amount to
Eugene Steuerle, a senior fellow at the Ur-
a 60-cent subsidy for each gallon of alco-
ban Institute and a former Treasury tax
hol used for fuel. Although the credits go
official. "It basically ignores the notion of
the '86 act that all income should be
to companies that mix ethanol with gas-
oline to make gasohol and not to ADM,
treated equally."
they benefit the company by creating a
"There's no doubt there will be game-
market for ethanol.
playing with this type of thing," Mr.
Steuerle said.
THE
WALL STREET JOURNAL.
© 1990 Dow Jones & Company, Inc. All Rights Reserved.
MONDAY. OCTOBER 1, 1990
Consumer Excise Levies to Climb;
Big Rise on Gasoline Tax Planned
By HILARY STOUT
Benz $4,000 more.
Staff Reporter of THE WALL STREET JOURNAL
Generally, the plan calls for increasing
WASHINGTON The average American
the federal excise tax on a bottle of wine
consumer will foot a big chunk of the defi-
by 22 cents from three cents and the tax on
cit-reduction bill, mostly through higher
a 750-ml. bottle of 80-proof liquor to about
gasoline taxes.
$2.22 from the current $1.98. Overall the
The agreement would also boost govern-
rise in alcohol taxes would garner $10 bil-
ment revenue through a 10% tax on expen-
lion in five years.
sive luxury products, affordable largely to
just the wealthiest Americans. But the $1.9
The current 16-cent-a-pack cigarette tax
would rise by four cents in 1991 and four
billion gain to the Treasury from the lux-
ury tax over five years pales in compari-
more-cents in 1993. That means a pack-a-
son with the more than $45 billion to be
day smoker would spend $14.60 more on
cigarettes next year and $29.20 after 1993.
raised through a proposed 12-cent increase
in gasoline taxes.
The increase is estimated to bring in $5.9
Overall, more than $74 billion of the
billion over five years.
proposed $134 billion increase in tax reve-
Other excise taxes would probably af-
nue in the five-year deficit-reduction pack-
fect relatively few Americans-those rich
age comes from consumer excise taxes. In
enough to buy yachts, furs and $5,000
addition to the gas and luxury taxes, the
rings. The accord calls for a 10% tax on
accord also would raise taxes on alcohol
the following "luxury" goods: cars with a
and cigarettes.
price tag over $30,000; private boats and
"It's a consumer package," said Alice
yachts over $100,000; jewelry and watches
Rivlin, an economist at the Brookings In-
over $5,000; and furs over $5,000, not in-
stitution in Washington. "It's a very spe-
cluding artificial furs.
cial kind of consumer package, a series of
"I don't think people care from a moral
taxes on things we would like to discourage
point of view whether we buy luxury
the consumption of: gasoline. alcohol, cig-
cars," Ms. Rivlin said. "But clearly if we
arettes."
need more money to reduce the deficit,
The broadest and deepest impact would
this hits things that are not really neces-
come from a 12-cent-a-gallon increase in
sary."
the federal gasoline tax, the single largest
Any increased revenue from luxury
revenue-raiser in the budget package. The
taxes, however, would be small. For exam-
tax would be phased in over two years,
ple, economists at DRI/McGraw Hill esti-
with a five-cent-a-gallon increase starting
mate that only about 5% of all automobiles
in December and an additional five cents
sold in the U.S. cost more than $30,000.
starting July 1991. An additional two-cent-
Budget negotiators considered other
a-gallon petroleum tax would be imposed
candidates for luxury taxes, which would
on gasoline and other petroleum products
have brought in several billion dollars over
beginning Jan. 1.
five years. A 10% levy on electronics
"The average household in America
equipment with price tags over $1,000 was
consumes about 1.000 gallons of gas a year,
dropped from the final package.
SO that's an additional $120" on their gaso-
Private airplanes were álso eventually
line bills. estimates Edwin Rothschild. en-
spared the luxury tax. Two big manufac-
ergy policy director of Citizen Action, a na-
turers of such aircraft, Cessna Aircraft
tional consumer organization.
Co., a unit of General Dynamics Corp., and
If the entire budget package goes into
Raytheon Co.'s Beech Aircraft Corp., are
effect. a pack of cigarettes would cost four
both based in Kansas, the state of Senate
cents more next year. a six-pack of beer
Republican Leader Robert Dole. a major
16 cents more. and a $40.000 Mercedes
player. in the budget talks.
THE
WALL STREET JOURNAL.
1990 Dow Jones & Company, Inc. All Rights Reserved.
MONDAY, OCTOBER 1, 1990
Savings Are to Be Achieved
At the Cost of a Lot of Pain
By DAVID WESSEL and JACKIE CALMES
Staff Reporters of THE WALL STREET JOURNAL
A couple with income of $200,000, for in-
WASHINGTON - The budget accord,
stance, wouldn't be permitted to deduct the
cobbled together by administration and
first $3,000 (3% of the difference between
congressional negotiators at the 11th hour,
$200,000 and $100,000) of their deductions. If
is almost all pain.
their deductions-for mortgage interest,
Just about three-fifths of the $500 billion
state and local taxes and the like-
in projected deficit savings comes from in-
amounted to $50,000, they would be permit-
creasing the federal gasoline tax; squeez-
ted to deduct only $47,000 ($50,000 minus
ing Medicare beneficiaries and their doc-
$3,000). A couple with income of $500,000
tors; slashing farm subsidy payments, and
would be forced to exclude the first $12,000
cutting the defense budget.
in deductions (3% of the difference be-
tween $500,000 and $100,000).
And by limiting tax deductions taken by
those with incomes above $100,000, the plan
In tallying deductions for this purpose,
would effectively raise marginal income
taxpayers wouldn't have to include medi-
tax rates by as much as one percentage
cal expenses or investment-related interest
point for some taxpayers.
payments; these remain fully deductible.
No taxpayer would lose more than 20%
"This is all real," contended White
of their total deductions under the plan.
House Budget Director Richard Darman,
his eyes red from lack of sleep.
Economists said that, in fact, this
amounts to an increase in marginal tax
Well, almost. The package purports to
rates for those earning over $100,000, some-
reduce the projected federal deficit by
thing that Republicans pledged to avoid.
$40.1 billion in fiscal 1991, which begins
For those facing a 33% marginal tax rate,
today, to an estimated $253.6 billion, a rec-
it amounts to a one percentage point in-
ord. But it does that only by ignoring the
crease; for those in the 28% bracket, it
costs of Operation Desert Shield. Negotia-
works out to an increase of about eight-
tors estimate that will shave the first
tenths of one percentage point. But the
year's deficit reduction to $34.4 billion-
published income-tax rates aren't altered.
even after contributions from U.S. allies.
White House Chief of Staff John Sununu in-
And though the agreement relies less on
sisted yesterday: "The rates have not been
smoke and mirrors than did its predeces-
changed."
sors, it still has a few. In the first year
Other big tax increases include:
alone, the accord assumes $3 billion from
-Increasing the gasoline tax by five
the impact of intensified Internal Revenue
cents a gallon on Dec. 1, 1990, and another
Service collection, and $9.4 billion over five
five cents a gallon on July 1, 1991. That
years. Moreover, much remains to be de-
alone raises $45 billion over five years. An
cided. Congressional agriculture commit-
additional two-cents-a-gallon tax on all re-
tees, for instance, have yet to decide how
fined petroleum products, including gaso-
to cut by 25% their recently passed 1990
line but not home-heating oil, would be im-
farm bill.
posed Jan. 1. This raises $11.8 billion more
Approved Last Night
over five years.
-Applying the 1.45% Medicare payroll
The House and Senate last night ap-
tax to the first $73,000 of wages, up from
proved a measure to fund the government
the current $51,300 ceiling, to raise $13 bil-
through Friday and put off until then the
lion over five years.
automatic spending cuts due to take effect
today. The two houses also extended the
-Increasing the airline ticket tax to
Treasury's borrowing authority, due to ex-
10% from 8%, and raising other aviation
pire tomorrow, until that day. By then,
taxes to yield about $12 billion over five
Congress is supposed to have approved a
years.
resolution that embodies the accord. If it
-Requiring state and local employees
does, then all sides agreed to put off the
to pay Social Security and Medicare pay-
automatic spending cuts again Oct. 20; by
roll taxes to raise about $17.2 billion over
that date, Congress is supposed to have put
five years.
the whole package into law.
-Increasing beer, wine and liquor
The package would raise $18 billion
taxes to raise $10 billion over five years,
over five years with a new limit on item-
with details still to be resolved.
ized deductions for individuals or couples
-Increasing tobacco taxes, now at 16
with incomes above $100.000 that is based
cents a pack of cigarettes, by four cents a
on a proposal by Rep. Don Pease (D.,
pack in 1991 and another four cents in 1993
Ohio).
to raise $6 billion over five years.
Here's how it works: Beginning in 1991,
In all, tax increases are estimated to
individuals and couples would be forced to
produce $16.2 billion in the first year and
reduce their deductions by $300 for every
$133.8 billion over five years. That's after
$10,000 in income over adjusted gross in-
taking account of $5 billion in revenue-los-
come of $100.000.
ing tax breaks in the first year and $25 bil-
lion over five years.
Most of the tax breaks are aimed at
stimulating investment, including $1 billion
of new incentives for investment in eco-
nomically depressed areas, known as en-
terprise zones. But they also include about
$7 billion aimed at the poor.
On the spending side, negotiators al-
lowed overall spending on foreign aid and
domestic discretionary programs-annu-
ally appropriated spending on everything
from education to judges' salaries-to
grow with inflation. Congressional appro-
priations committees will divide the pot.
But the defense budget will be cut. De-
fense spending in 1991-other than the
costs of Operation Desert Shield-will be
$9.8 billion below what would be required
to keep pace with inflation. Over three
years, defense spending will be S67 billion
less than needed to keep up with infla-
tion.
Government benefits, however, were hit
hard. In all, the negotiators slashed $12.1
billion from projected spending on govern-
ment benefits in fiscal 1991 and $119 billion
over five years, the toughest part of the
package for members of Congress and
their constituents to swallow.
Here are the highlights:
-Spending on Medicare would be
slashed almost $60 billion over the next
five years with half that coming from re-
duced payments to doctors and hospitals
and the rest from the pockets of the el-
derly.
-Spending on farm subsidies will be
cut by $13 billion over five years.
-Spending on government retirees will
be cut by about $8.1 billion over five years
by denying them the right to withdraw
some of their pension benefits in a lump
sum when they retire-with a 30-day win-
dow for those who chose to retire immedi-
ately.
-Postal service changes, details of
which have yet to be worked out, would
save another $4.2 billion.
All the spending cuts are from projec-
tions that assume that program spending
would increase with inflation and changes
in demography.
In addition, the agreement would save
about $4.6 billion by requiring jobless
workers to wait two weeks before collect-
ing benefits. Currently, 41 states require at
least a one-week delay: the rest don't have
any delay.
r W AM-BudgetRdp 1stLd-Writethru 10-01 0704
^AM-Budget Rdp, 1st Ld-Writethru, 0857 (
^Bush, Congressional Leaders Begin Selling Painful Budget Plan<
^Eds: Updates with Bush comments, signing of order, inserting new
5th graf and inserting 1 graf after 10th graf pvs, 'Obviously it<
^By ALAN FRAM=
^Associated Press Writer=
WASHINGTON (AP) - President Bush and congressional leaders of
both parties began the tough election-year task Monday of selling
their painful $500 billion deficit-reduction compromise to wary
rank-and-file lawmakers.
Democrats said the task of building support for the package of
tax increases and spending cuts would be helped greatly if Bush
would deliver a television address explaining to Americans why the
nation's ailing economy needs such bitter budgetary medicine.
'We in Congress can't prepare them, said Sen. Wyche Fowler,
D-Ga., a participant during most of the four months of budget
bargaining this year. ' It is only the president going on national
TV who can convince the public it is in their long-term best
interest. ... If he convinces them of that, it will pass.
Democrats had asked Bush at the White House Sunday to make the
speech. participants in the meeting said. Rep. Silvio Conte,
R-Mass., another budget bargainer, said the president has yet to
decide.
Bush, meanwhile, signed a stopgap spending resolution to keep
the government going for five days while more work is done on the
budget. He called the compromise ' 'the right package at the right
time'' and 'our best chance to get the deficit under control.
The leaders' sales effort was dealt a blow when one of Congress'
leading conservatives, Rep. Newt Gingrich, R-Ga., announced he
would oppose the proposed tax increases and spending cuts. Gingrich
had left the White House Sunday shortly before Bush and
congressional leaders announced their five-year agreement.
Gingrich complained on Monday that the plan - the largest
deficit-reduction package ever - would enact permanent tax
increases while leaving spending cuts up to Congress to enact in
the future. He was also upset that the plan did not contain enough
measures to help businesses.
We can do better for America, said Gingrich, the No. 2 House
Republican. 'This package will lose jobs, raise taxes and deepen
the recession.
The plan's $134 billion in new taxes on gasoline, alcohol,
tobacco, airline tickets, incomes of the wealthy and other items
have angered many Republicans. They also complained that defense
cuts of up to $182 billion were too deep, and that domestic
programs were not pared enough.
Numerous Democrats don't like the package's $105 billion in
spending reductions for benefit programs such as Medicare and the
fact that many of the taxes - such as those on gasoline and alcohol
- take a deep bite out of poor peoples' incomes.
'Obviously it is not a proposal that most members of Congress
want to rush out screaming in the streets with joy about, said
Huse Speaker Thomas Foley, D-Wash.
The president, in New York to give a speech at the United
Nations, said, 'Like most compromises, it is certainly not going
to satisfv everyone Rut this is the time to moye heyord these
individual concerns and exercise leadership for the good of the
country.
Bush and Vice President Dan Quayle began telephoning GOP
lawmakers in an effort to round up their support for coming votes
on the budget package. One lawmaker, Rep. John Kasich, R-Ohio, said
he had received a morning call at his home from Quayle.
House Republican leaders huddled in the Capitol with
administration officials, including the vice president.
He's supporting it,'' said Conte. 'He's telling people what
the consequences are if you don't support it - you go to
sequester.
Sequester is the technical name for the $85 billion in automatic
spending cuts that would have been triggered Monday, the beginning
of fiscal 1991, without a budget agreement.
Those automatic cuts - enough to stagger many federal agencies -
were only delayed for five days. The reductions will be postponed
further if Congress begins passing legislation that implements the
budget agreement.
Bush and congressional leaders have said that to protect
lawmakers from attacks by their political opponents, the budget
legislation would need a majority of votes from members of both
parties in both the House and Senate.
As the sales job to the rank and file began, leaders were not
brimming with confidence that they would meet their goal.
'All we can do is try,'' said House Majority Leader Richard
Gephardt, D-Mo. This is a big decision for members. It's a very
tounh call and = close call
p0648
r W AM-BudgetRdp istLd-Writethru 10-01 0704
^AM-Budget Rdp, 1st Ld-Writethru, 0857<
Bush, Congressional Leaders Begin Selling Painful Budget Plan<
^Eds: Updates with Bush comments, signing of order, inserting new
5th graf and inserting 1 graf after 10th graf pvs, Obviously it(
^By ALAN FRAM=
^Associated Press Writer=
WASHINGTON (AP) - President Bush and congressional leaders of
both parties began the tough election-year task Monday of selling
their painful $500 billion deficit-reduction compromise to wary
rank-and-file lawmakers.
Democrats said the task of building support for the package of
tax increases and spending cuts would be helped greatly if Bush
would deliver a television address explaining to Americans why the
nation! $ ailing economy needs such bitter budgetary medicine.
We in Congress can't prepare them,' said Sen. Wyche Fowler,
D-Ga., a participant during most of the four months of budget
bargaining this year. It is only the president going on national
TV who can convince the public it is in their long-term best
interest
If he convinces them of that, it will pass.''
Democrats had asked Bush at the White House Sunday to make the
speech, participants in the meeting said. Rep. Silvio Conte,
R-Mass., another budget bargainer, said the president has yet to
decide.
Bush, meanwhile, signed a stopgap spending resolution to keep
the government going for five days while more work is done on the
budget. He called the compromise the right package at the right
time'' and our best chance to get the deficit under control.
The leaders' sales effort was dealt a blow when one of Congress'
leading conservatives, Rep. Newt Gingrich, R-Ga,, announced he
would oppose the proposed tax increases and spending cuts. Gingrich
had left the White House Sunday shortly before Bush and
congressional leaders announced their five-year agreement.
Gingrich complained on Monday that the plan - the largest
deficit reduction package ever - would enact permanent tax
increases while leaving spending cuts up to Congress to enact in
the future. He was also upset that the plan did not contain enough
measures to help businesses.
We can do better for America,' said Gingrich, the No. 2 House
Republican. This package will lose jobs, raise taxes and deepen
the recession.
The plan's $134 billion in new taxes on gasoline, alcohol,
tobacco, airline tickets, incomes of the wealthy and other items
have angered many Republicans. They also complained that defense
cuts of up to $182 billion were too deep, and that domestic
programs were not pared enough.
Numerous Democrats don't like the package's $105 billion in
spending reductions for benefit programs such as Medicare and the
fact that many of the taxes - such as those on gasoline and alcohol
- take a deep bite out of poor peoples' incomes.
'Obviously it is not a proposal that most members of Congress
want to rush out screaming in the streets with joy about, " said
Huse Speaker Thomas Foley, D-Wash.
The president, in New York to give a speech at the United
Nations, said, Like most compromises, it is certainly not going
to satisfy everyone. But this is the time to move beyond these
individual concerns and exercise leadership for the good of the
country.
-contid-
Bush and Vice President Dan Quayle began telephoning GOP
lawmakers in an effort to round up their support for coming votes
on the budget package. One lawmaker, Rep. John Kasich, R-Ohio, said
he had received a morning call at his home from Quayle.
House Republican leaders huddled in the Capitol with
administration officials, including the vice president.
He's supporting it,'' said Conte. ' 'He's telling people what
the consequences are if you don't support it - you go to
sequester.'
Sequester is the technical name for the $85 billion in automatic
spending cuts that would have been triggered Monday, the beginning
of fiscal 1991, without a budget agreement.
Those automatic cuts - enough to stagger many federal agencies --
were only delayed for five days. The reductions will be postponed
further if Congress begins passing legislation that implements the
budget agreement.
Bush and congressional leaders have said that to protect
lawmakers from attacks by their political opponents, the budget
legislation would need a majority of votes from members of both
parties in both the House and Senate.
As the sales job to the rank and file began, leaders were not
brimming with confidence that they would meet their goal.
All we can do is try, said House Majority Leader Richard
Gephardt. D-Mo. This is a big decision for members. It's a very
tough call and a close call.''
Meanwhile, groups representing the elderly protested the budget
deal's impact on Medicare, saying budget summiteers placed an
unfair burden on older Americans through higher premiums and
deduct bles for the health-care program.
The budget summiteers have declared war on seniors and the
disabled,' said Ron Pollack, director of Families USA, a lobbying
group for senior citizens. Those that wage this war shouldn't
expect older Americans to be pacifists on Election Day.
Medicare spending would be reduced by $60 billion from the
amount it would otherwise have grown over the next five years.
AP-TV-10-01-90 1531EDT(+
The Wushington Post
MONDAY, OCTOBER 1, 1990
Bush, Hill Leaders
Approve Budget Package
By John E. Yang
Washington Post Staff Writer
President Bush and congressional
The accord cleared the way for
leaders came together yesterday to
last-minute congressional approval of
embrace the largest deficit-reduc-
an omnibus stopgap spending bill to
tion agreement ever proposed and
keep the government funded through
vowed to work together to push the
Friday and put off massive across-
painful combination of tax increases
the-board cuts at least until then.
and spending cuts through a resis-
The House voted 382 to 41 to
tant Congress.
pass the measure yesterday eve-
The ambitious accord, reached
ning. Nearly an hour later, the Sen-
just hours before across-the-board
ate approved it on a voice vote.
spending cuts were set to be im-
The deal envisions saving $40.1
posed today, would affect virtually
billion from the deficit in the fiscal
year that begins today, with the
every government program, paring
deficit now reestimated at a record
health benefits to the elderly, rais-
$293.7 billion. Even if all of the sav-
ing excise taxes and making deep
ings in the plan are achieved, the
cuts in military spending.
shortfall would still be more than
"It is balanced, it is fair, and in
twice as high as the Bush adminis-
my view it is what the United
States of America needs," Bush said
tration had previously projected it
would be without any action.
in an afternoon Rose Garden cer-
The bargainers sought at least
emony that culminated five months
of often combative, partisan nego-
$50 billion in savings this fiscal year,
tiations over the package.
but lowered their sights in order to
Bush and the bipartisan congres-
phase in an increase in the federal
sional leadership now face the for-
gasoline tax because of the current
midable task of persuading reluc-
escalation of energy prices.
tant lawmakers-especially conser-
Of the projected five-year sav-
vative House Republicans-to go
ings, $133.8 billion would come
against their natural inclinations
from new taxes, much of it from
and vote for spending cuts and tax
excise taxes on gasoline and other
increases just weeks before Elec-
petroleum products, except home
tion Day. The difficulty they face
heating oil, and higher excise taxes
on cigarettes, alcoholic beverages
was underscored on Capitol Hill
and airline tickets.
yesterday, where the plan was
As much as $18 billion of that
greeted by a firestorm of criticism
total would be raised by limiting the
from conservative Republicans and
benefit of federal income tax deduc-
skepticism by many Democrats.
tions for those earning more than
[Details on Page A8.]
$100,000 a year. This provision
"Now comes the hard part," said
would effectively raise marginal tax
Senate Majority Leader George J.
rates by one percentage point for
Mitchell (D-Maine.).
taxpayers-single or married filing
The leaders urged lawmakers to
jointly-who itemize deductions
ignore the pain of individual provi-
and have adjusted gross incomes of
sions in the package and concen-
$100,000 or more. Another $14.2
trate instead on the benefits of
billion would be raised in new fed-
soaking up $500 billion in federal
eral fees, according to Bush admin-
red ink over five years. "We owe
istration estimates.
more to the American people than
The issue that had stalled the
finding fault with what I consider to
budget talks for SO long-Bush's
be a good agreement
that will
campaign pledge to lower taxes on
help the American economy," said
capital gains-was not included in
Senate Minority Leader Robert J.
the deal at all. Neither was the
Dole (R-Kan.).
Democrats' counter-demand that
"The alternative to this agree-
income tax rates on the wealthiest
ment is fiscal chaos," said House
Americans be raised.
Majority Leader Richard A. Gep-
Bush did get tax incentives for
hardt (D-Mo.).
investment that can be portrayed as
Economists said the plan should
meeting his objective of trying to
bolster the economy in the long run
spur the economy. But the package's
but is not likely to help ease the
heavy reliance on excise taxes, which
country's economic troubles in the
hit lower- and middle-income earners
short term. [Details on Page A11.]
proportionately harder than the
wealthy, makes it difficult for Dem-
ocrats to argue that they had pro-
tected those earners.
The automatic cuts needed to meet
In other key provisions of the
the law's deficit-reduction targets
accord, spending for benefit pro-
would come only from the category
grams would be cut by about
that exceeds its limit. Currently, all
$104.8 billion below what would be
spending would be cut across-the-
needed to keep pace with inflation,
board if a deficit target is missed.
including $59.9 billion from Medi-
In addition, any new program
care. One of the final decisions
that would either spend or lose
made as the talks drew to a close
more money must be offset to avoid
early yesterday morning was not to
adding to the deficit.
seek any savings from the Social
Tucked away inside the package
Security program. Negotiators con-
are huge revisions in the forecasts
cluded that the likely pain involved
of the federal deficit, the adminis-
in activating opposition by the po-
tration's fifth this year.
litically potent organizations of the
About half of the increase, $30.4
elderly would not be worth the fis-
billion, was due to the slowing econ-
cal savings, officials familiar with
omy, while $31.2 billion was attri-
the proceedings said.
buted to increases in the anticipated
Military spending would be pared
by nearly $180 billion. The costs of
cost of the savings and loan cleanup
and of increased costs related to
operations in the Persian Gulf,
problems in the commercial bank-
projected at $11.5 billion for the
ing system.
next year, would not be included in
the spending limit. Most non-mil-
Having come to the precipice of
itary spending would be held to the
total government shutdown, admin-
projected rate of inflation.
istration officials and congressional
"This is real," Bush said. "It is not
leaders agreed as part of the accord
a phony smoke-and-mirrors deficit-
to keep moving the cliff to create
cutting program." House Speaker
pressure for enactment of the bud-
Thomas S. Foley (D-Wash.) agreed:
get deal with a series of deadlines
"There's not a lot of budget maneu-
that threaten government shut-
down and default.
vering here."
The agreement does, however,
"This is a marriage of conve-
have questionable aspects. It pro-
nience and if we take the shotgun
jects, for instance, raising $9.4 bil-
away, they might not do it," said
lion over five years from stricter
Sen. Phil Gramm (R-Tex.).
Internal Revenue Service enforce-
Staff writers Ann Devroy and
ment, an outcome the nonpartisan
Steven Mufson contributed to this
Congressional Budget Office has
report.
always looked upon with skepti-
cism.
The deal also advertises $119
billion in benefit program cuts, but
$14.2 billion of that would result
from new federal fees. Further, the
promised savings in programs sub-
ject to annual appropriations were
not allocated between military and
non-military programs beyond the
plan's third year, allowing lawmak-
THE FEDERAL BUDGET DEFICIT
ers to seek deeper cuts in Pentagon
Following are changes in projections of the federal budget deficit stemming
accounts in order to allow domestic
from the budget agreement announced yesterday at the White House.
spending to grow.
Figures are in billions of dollars.
Under the agreement, the
Gramm-Rudman-Hollings
Raw
FY91
1992
1993
1994
would get its second overhaul. The
July deficit projection
231.4
205.0
135.2
79.6
deficit law, set to expire in 1993,
would be extended through 1995.
Increases in deficit
62.3
101.1
92.1
36.2
The changes would establish
projection due to
weakening economy,
three categories of spending: mil-
S&L cleanup, etc.
itary, domestic and international.
Proposed saving in budget
40.1
76.7
97.9
132.5
agreement
Adjusted deficit projection
253.6
229.4
129.4
-16.7
(surplus)
SOURCE: Office of Management and Budget
The mashington Post
MONDAY, OCTOBER 1, 1990
Conservative Republicans Assail
Budget Pact; Democrats Skeptical
By Helen Dewar
and Tom Kenworthy
Washington Post Staff Writers
House Republican caucus on the
The budget agreement negotiated
plan, Minority Leader Robert H. Mi-
by President Bush and congressional
chel (R-III.) declined to say whether
leaders drew a firestorm of criticism
he thought it would eventually win
from conservative Republicans and
considerable skepticism from many
support by a majority of House Re-
Democrats yesterday, as lawmakers
publicans, who are considered the
from both parties predicted that it
key group in determining the pack-
will be difficult to sell the plan to
age's fate. "This is just the beginning
Congress.
of the process," he said, noting that
Republicans assailed the deficit-
opposition from anti-tax conserva-
reduction package as a "cave-in" to
tives came as no surprise.
Democratic pressure for tax in-
Other Republicans, mostly mod-
creases as an alternative to deep do-
erates, said it is still possible to pro-
mestic spending cuts. Democratic
duce a majority for the plan. But
critics charged that both the tax and
some said Bush must be willing to go
spending provisions favored the
to the mat with conservatives on the
wealthy at the expense of the middle
issue of taxes, which he had vowed to
class.
oppose-to the delight of the party's
Particularly strong hostility from
right wing-during his presidential
House GOP conservatives, who
campaign. "It's one thing to take pot-
called the plan a "road map to reces-
shots today and another when the
sion" and "the fiscal equivalent of
president talks to the people and to
Yalta," cast doubt over whether the
the members himself," observed
White House and Republican con-
Rep. Ralph Regula (R-Ohio), a mod-
gressional leaders can persuade a
erate who said it will be difficult but
majority of House Republicans to
not impossible to pass the plan.
vote for the plan. The Democrats
The mood also may change when
have demanded that a majority of
lawmakers "consider the alterna-
GOP lawmakers in both houses vote
tive," Regula said in a reference to
for any deficit-reduction plan as the
automatic across-the-board spending
price for their support.
cuts. Such cuts could eventually total
Reiterating that demand. Senate
$105.7 billion, disrupt government
Majority Leader George J. Mitchell
services and furlough more than 1
(D-Maine) said last night that "if we
million federal workers.
can't get a majority [of both parties
But the initial response to the plan
in both houses], then the agreement
indicated qualms, if not opposition,
can't pass."
within senior GOP ranks in both
Several leaders said they believe
houses. Both House Minority Whip
the five-year, $500 billion package of
Newt Gingrich (R-Ga.) and Sen. Bob
spending cuts and tax increases can
Packwood (R-Ore.), ranking Repub-
be passed, but only if the president
lican on the Finance Committee,
and congressional leaders make an
pointedly skipped the unveiling cer-
extraordinary bipartisan effort to sell
emony in the White House Rose Gar-
it to the public as well as Congress.
den. Gingrich later said he was still
"It won't be easy, but I think we
studying the plan.
can do it, although it will take strong
To rally support for the plan, Bush
bipartisan leadership-and especially
assured Democrats that he will lay
leadership from the president," said
aside the kind of partisan attacks he
Senate Finance Committee Chair-
has been making in connection with
man Lloyd Bentsen (D-Tex.), who
the budget talks and try to "sell" the
praised the plan's drafters for having
plan to the American people.
made "the necessary but politically
For their part, Democratic con-
unpopular choices."
gressional leaders put Congress on a
"It's going to be a real bear to get
tight leash in dealing with the plan by
it passed," said Rep. Henry J. Hyde
agreeing to a schedule that effective-
(R-III.).
ly locks the budget plan to the fate of
After briefing a largely hostile
other must-pass measures needed
for the government to retain legal
spending authority.
The problem for both parties is
that the budget agreement hits di-
rectly at some of their most cher-
ished political tenets, including op-
position to tax increases for Repub-
lican conservatives and cutbacks or
freezes in social welfare programs
for Democrats. Many Democrats
also criticized the tax components of
the package, arguing that higher ex-
cise taxes-especially the proposed
12-cents-a-gallon hike in taxes on
gasoline-would have a largely re-
gressive impact by hitting poor and
middle-income people the hardest.
But the strongest criticism came
from members of the president's
own party.
"To me, this is the fiscal equiva-
lent of Yalta," said Rep. Chuck Doug-
las (R-N.H.), referring to the pact
among Allied leaders in World War II
that conservatives say was respon-
sible for postwar Soviet domination
of Eastern Europe. He said he would
rather see the automatic spending
cuts of the Gramm-Rudman-Hollings
law take effect than the tax increases
proposed in the plan.
"It looks like a road map to reces-
sion, as far as I'm concerned," said
Rep. Dana Rohrabacher (R-Calif.). "I
don't think it's a compromise. I think
it's a cave-in to the Democratic lib-
eral big spenders."
Republican moderates also ex-
pressed dismay. "If they're savaging
Medicare, it's going nowhere," said
Rep. Marge Roukema (R-N.J.). "Def-
icit reduction on the back of the el-
derly sick? This is madness."
Although House Democrats were
asked by their leaders during a cau-
cus to hold their fire for at least 24
hours, some expressed strong mis-
givings before the caucus started.
"It just leaves the richest of the
rich alone," said Rep. Charles B.
Rangel (D-N.Y.). "Everybody I've
talked to so far has been negative,"
said Rep. Bill Alexander (D-Ark.).
"The disquiet I have comes from the
impression that the investing side of
society has come out ahead of the
wage-earning side," said Rep. David
R. Obey (D-Wis.).
The problem with the package is
that "Democrats think it's a Repub-
lican budget and Republicans think
it's a Democratic budget," said Rep.
Charles E. Schumer (D-N.Y.).
The Washington Post
MONDAY, OCTOBER 1, 1990
Long-Term Growth May Get a Boost
Budget Deal Is Little Help for Economic Problems in Short Run
By John M. Berry
:-Some financial market analysts
Brookings's Schultze, chairman of
Washington Post Staff Writer
have warned. however, that long-
the Council of Economic Advisers in
term rates might fall only by a quar-
the Carter administration, stressed
The budget deal agreed to yester-
day by President Bush and congres-
ter percentage point or a third of a
yesterday that he believes a budget
sional leaders should help bolster
percentage point because of the
deal should go through as soon as pos-
U.S. economic growth in the long-
deal, particularly if there is any
sible to reduce the drain of U.S. sav-
run, but it is not likely to provide
question about whether the deficit
ings even though it carries with it
reduction proposals will add up to as
added short-term risks for the econo-
much help in the short run for an
much as negotiators claim.
my.
economy flirting with recession.
By cutting into the amounts the
Even with the announcement of
At a conference here last week,
federal government would have to
an agreement, "the process is not
Sidney L. Jones, assistant Treasury
borrow to finance a growing deficit,
over, "said Sam Kahan, chief econo-
Department secretary for economic
the budget agreement-if enacted
mist of Fuji-Securities in Chicago.
policy, said that during the 1980s the
and enforced-would leave more
"Whatever agreement they have,
U.S. personal savings rate plummet-
they will have to sell that to the
ed. That decline, he said, was partly
money available for private invest-
ment and keep interest rates lower
troops
No matter what they
responsible for "a significant erosion"
publish, every one will wonder how
of business investment in the United
than they otherwise would be, econ-
much is real and how much is
States "despite borrowing $100 bil-
omists said.
The short-run question is whether
Memorex."
lion to $150 billion" abroad each year.
Bush said at the White House that
Schultze, Jones and many other
the $40 billion in higher taxes and
fees and cuts in federal spending
unlike some past budget deals, there
economists would like to see an in-
were no smoke or mirrors this time.
crease in business investment in
proposed for fiscal 1991, which be-
"With a half-a-trillion dollars in real
hopes that would improve long-term
gan today, will cause consumers and
deficit reduction-and let me re-
growth of productivity-how much
businesses to cut their own buying
and push the weak economy into a
peat, the [congressional] leaders
output is produced for each hour
here and I think that these are real
worked. This is the primary source of
recession.
deficit-reduction figures-long-term
an increase in living standards. Over
The problem is that any immedi-
interest rates should be able to come
the past two decades, Jones said, pro-
ate reduction in interest rates paid
down
This package should be a
ductivity has increased less than 1
by individuals on new cars and
strong component of a positive, re-
percent a year.
homes or businesses financing new
investments is likely to be small, fi-
sponsible fiscal and monetary poli-
Other analysts said a budget deal
nancial market analysts said.
cy."
also was needed now because the
higher interest rates in Japan, Germa-
Underscoring the economy's vul-
But come down from what?
ny and some other major industrial
nerability, the negotiators agreed on
Rising interest rates in Japan and
countries are encouraging foreign in-
a new economic forecast that the na-
Germany and financial market fears
vestors, who have been helping fi-
tion, already feeling the impact of
of worsening inflation recently
nance the U.S. federal budget deficit,
tighter credit and higher oil prices,
pushed interest rates on 10-year
to put their money in those nations
is facing more bad news.
U.S. government bonds close to 9
rather than in the United States.
The new official forecast shows
percent. Even with a very soft econ-
Investors will be focusing this week
virtually no economic growth for the
omy and the new budget deal, the
on the credibility of the budget pro-
rest of the year and a 1.3 percent in-
administration now assumes those
posals, including how much of it might
crease in inflation-adjusted gross na-
rates will average 8.3 percent next
be reversed by future sessions of
tional product in 1991. The forecast
year. That is higher than the projec-
Congress, Kahan said. At the same
also shows the nation's unemploy-
tion of 7.9 percent the administra-
time, Federal Reserve officials will be
ment rate, which was 5.4 percent in
tion used in the July forecast.
watching the market's reaction.
August, rising to 6.4 percent by the
In other words, the budget deal is
end of 1991.
not expected to mean dramatically
The Fed's top policy-making group,
"Of all the years they could have
lower rates for home mortgages,
the Federal Open Market Committee.
done the budget deal, this is the
new car loans or personal loans, or
will hold a regularly scheduled meet-
least appropriate," said economist
for business borrowers.
ing tomorrow to set monetary policy
Charles L. Schultze of the Brookings
While even modestly lower rates
for coming weeks. If Congress ap-
Institution. "But it still should be
could give the economy a boost, the
proves the budget deal. the Fed is ex-
done. I only wish they had done it
proposed increases in gasoline, ener-
pected to bring short-term rates
last year, even more the year be-
gy and payroll taxes would mean
down-unless "the market gives it a
fore."
consumers would have less income
real thumbs down." Kahan said.
Schultze and many other econo-
left to spend for-other things. Simi-
Whether because of mounting evi-
mists have been urging for years
larly, federal spending cuts would
dence of a weak economy or news
that steps be taken to slash deficits
reduce another source of jobs and in-
that a budget deal was near fruition,
to reduce federal borrowing, which
come for some Americans, particu-
long-term interest rates fell late last
they said was eating up too much of
larly in the defense area.
week. Yields on 30-year government
the nation's limited amount of sav-
The increase in gasoline and fuel
bonds, which had been as high as 9.17
ings. As a result. they argue, inter-
taxes, expected to raise about $12
percent recently, dipped to 8.93 per-
est rates have been higher than they
otherwise would have been and busi-
billion a year when they are fully in
cent Friday.
effect. would add about 0.2 percent
F. Ward McGarthy of Stone & Mc-
ness investment, essential for long-
to next year's inflation rate. Increas-
term U.S. economic growth, has
Carthy, a financial markets research
es in taxes on airline tickets, ciga-
firm in Princeton, N.J., attributed the
been held down or financed by for-
rettes, liquor and certain luxury
drop in rates to "the rumors coming
eign investors.
items such as cars that cost more
The proponents of deficit reduc-
out of Washington. The market re-
than $30,000 also would add to the
tion are hoping that the prospect of
sponded very favorably
It looks
inflation rate next year.
lower budget deficits will bring down
like the market is getting fairly excit-
In the new administration fore-
long-term interest rates. Federal
ed about it."
cast, prices are shown rising 5.2
Reserve officials have said they
percent this year and 4.6 percent in
would, in effect, lower short-term
rates about as much as long-term
1991, compared with last year's 3.8
rates fall once Congress approves a
percent rate.
deal.
The Washington Post
MONDAY, OCTOBER 1, 1990
Most Americans Would Feel the Pinch
By Steven Mufson
Washington Post Staff Writer
The budget agreement unveiled
But the most immediate and most
in the Rose Garden yesterday
obvious cost would be higher taxes
would pinch virtually every Amer-
on gasoline, which would boost
ican pocketbook by raising taxes on
prices at the pump by a nickel Dec.
gasoline, booze, cigarettes, boats
1 and by another five cents next
and furs while shaving benefits paid
July. The increased gasoline tax is
out to farmers and Medicare recip-
the biggest component of the tax
ients.
package agreed to by the White
Even the wealthy get nicked, al-
House and congressional leaders.
beit not as much as some Demo-
Gasoline also would go up Jan. 1
crats had hoped. Although the pack-
because of a separate 2-cent-a-gal-
age does not include an increase in
lon tax on oil products, except for
the top income tax rate, a complex
heating oil.
formula for reducing deductions for
Edwin Rothschild. director of
people who earn more than
Citizen Action, said the gasoline tax
$100,000 would have an effect sim-
would cost the average household
ilar to raising their income tax rates
$120 a year. in addition to the $250
by about one percentage point.
a year in price increases following
President Bush said the deal "re-
the Iraqi invasion of Kuwait. This
quires that virtually everyone con-
would particularly hurt people in
tribute in some way."
rural areas and western states.
"This will be seen as sufficient
The accord also would hit the
pain from the standpoint of burden
33.3 million elderly and disabled
sharing," House Speaker Thomas S.
Americans who are recipients of
Foley (D-Wash.) said yesterday on
ABC's "This Week With David
Medicare payments. The govern-
ment expects to raise $13 billion by
Brinkley."
increasing to $73,000 the amount
"There will be some taxes raised
and we hope that they will go across
of income subject to the 1.45 per-
cent Medicare tax, which now
the income spectrum of the United
phases out at $51,300 along with
States, so that there is a fair share
the rest of the 7.65 percent payroll
of burden sharing except for the
tax that goes to Social Security.
lowest income elements," Foley
The agreement would cut antic-
said.
ipated Medicare spending by $59.9
The heavy reliance on excise
billion. Half that would come from
taxes to close the budget gap is ex-
reduced reimbursements to hospi-
pected to draw criticism from many
tals and doctors. The other half
who feel the package hits lower-
would come by increasing from $75
and middle-income earners too
to $150 the amount beneficiaries
heavily.
must pay before receiving benefits
Such taxes are paid by people
and by raising the premiums so that
regardless of income. However, the
they cover 30 percent of the cost of
negotiators tried to target excise
the program, up from 25 percent
taxes at activities they specifically
today. To offset that, lawmakers
wanted to reduce, such as oil con-
provided aid to poor elderly Medi-
care recipients.
sumption, cigarette smoking and
Lawmakers have avoided touch-
excessive alcohol use.
To make the package more pro-
ing the Social Security program,
gressive, they increased the earned
but the change in Medicare premi-
ums and deductibles would affect a
income tax credit for couples with
incomes of less than $19,340.
similarly vocal constituency and
Leaving the White House yester-
could prompt an outcry.
There are two measures designed
day, Senate Majority Leader
10 increase the burden on wealthier
George J. Mitchell (D-Maine) still
taxpayers. One is a 10 percent lux-
expressed "disappointment that the
tax burden is not as fairly shared as
ury tax on the amount that the pur-
chase price of new private boats and
I would have preferred.
That is
yachts exceeds $100,000, on auto-
one aspect that we have compro-
mobile prices above $30,000 and
mised."
jewelry and fur prices that exceed
If the accord is enacted into law.
the biggest impact on individuals
$5,000. Thus the surtax would apply
to $20,000 of the purchase price for
probably would be interest rates
a $50.000 car.
lower than they would have been
The other is a limit on tax deduc-
otherwise. helping to keep down
tions. The measure would disallow
business expenses and mortgage
deductions equal to 3 percent of a
payments for the nearly two-thirds
of Americans who own their homes,
person's or a couple's income in
excess of $100,000. For an individ-
ual earning $160,000 with deduc-
tions of $40,000, the measure
would take away $1,800 worth of
deductions. This measure would
affect the estimated 4.25 million
returns of Americans who have
over $100,000 in income and who
itemize their deductions.
Few people are expected to toast
the package, especially because of a
doubling of the tax on a six-pack of
beer from 16 cents to 32 cents, a
jump in the tax on a 750-milliliter
bottle of wine from 3 cents to 25
cents, and a boost in the tax on dis-
tilled spirits from $12.50 per proof
gallon to $14.
In the name of spurring economic
growth, however, the package
would give tax breaks to busi-
nesses, especially those in the oil
and gas industry. It would give $4
billion worth of tax credits for new
exploration and production, tax in-
centives for the development of oil
that is difficult to extract because it
is located in so-called tight sands
and a limited exemption to the min-
imum tax for oil and gas producers.
"This package is aimed at produc-
ers," said Sen. Phil Gramm (R-Tex.).
The accord also extends tax cred-
its to firms for research and devel-
opment and increases the credit
from 20 to 30 percent of the expen-
diture. It adds tax incentives for buy-
ing scientific equipment.
The deal also helps out relatively
small companies and their investors
by giving a 25 percent deduction for
up to $50,000 worth of stock pur-
chases in relatively small, high-
growth companies. This measure
alone would cost $7.3 billion over the
life of the five-year budget accord.
Staff writer John E. Yang
contributed to this report.
The New York Tim
NEW YORK, MONDAY, OCTOBER 1, 1990
ACCORD TO REDUCE SPENDING
AND RAISE TAXES IS REACHED;
MANY IN CONGRESS CRITICAL
By SUSAN F. RASKY
Special to The New York Times
Democrats blocked the President on
WASHINGTON, Sept 30 - President
Bush and Congressional negotiators
his pet issue, a cut in the tax on gains,
the profits on the sale of assets, which
agreed today to a deficit-cutting plan
are currently taxed at the same rate as
that includes major increases in taxes
ordinary income. The Democrats had
after Mr. Bush decided that the need
insisted that any cut in the gains tax be
for economic stability was worth the
accompanied by an increase in tax
sacrifice of his main policies on taxa-
rates for the wealthy. That would have
tion.
put Mr. Bush at loggerheads with Re-
Mr. Bush and a weary group of lead-
publican House members, most of
ers from both parties gathered in the
whom have vowed to block any pack-
Rose Garden to announce their accord
age that includes rate increases.
and to disclose that they now project
The negotiators, who sealed the final
the deficit for the fiscal year 1991 at
deal at 3 o'clock this morning, decided
$293.7 billion, up more than $60 billion
at-the last minute that they were un-
willing to take the political risk of in-
from the estimate the Government
made in July.
cluding Social Security in the deficit-
cutting package. Earlier plans had
They said the plan would bring the
called for either delaying cost of living
Federal deficit down by $40 billion next
adjustments for Social Security recipi-
year and by $500 billion over five years.
ents or increasing the portion of their
But at the same time they agreed to ex-
benefits now subject to income tax.
tend the Gramm-Rudman-Holings
The political strain that the negotia-
deadline for a balanced budget to the
tions have engendered was illustrated
fiscal year 1996 from 1993.
by the absence from the Rose Garden
meeting of two top Republicans, Sena-
Lower Interest Rates Expected
tor Bob Packwood of Oregon and Rep-
Mr. Bush said he expected that
resentative Newt Gingrich of Georgia,
who were upset over the tax policies in
enactment of the plan would stimulate
the agreement.
the economy and lead to lower interest
But the Democratic leaders, who
rates. But White House officials later
may face their own rebellion from the
said the economic projections underly-
liberal wing of their party, signed up to
ing the plan also assume that oil prices
sell the plan.
will fall.
Mr. Bush began selling the package
'Get This Deficit Under Control'
to Congress, which took the first step
As he announced the accord this af-
today of approving a stopgap spending
ternoon, Mr: Bush pledged, "I will do
bill that will keep the Government in
everything I can to lay aside partisan-
operation through Oct. 5 and also avoid
ship here and to take the case for this
steep automatic spending cuts that
deal to the American people in every
were due to take effect on Monday.
way can.
Even Mr. Bush began his sales pitch,
dozens of rank and file members of
"Sometimes," Mr. Bush continued,
Congress attacked the agreement. Re-
"you don't get it just the way you want,
and this is such a time for me. But it's
publicans were angry by the tax in-
time we put the interest of the United
creases and Democrats by the cuts in
States of America first and get this
domestic spending. (Page B8.]
deficit under control.'
The compromise, a product of four
The House Speaker, Thomas S.
months of negotiations between the
Foley, told the President, "We pledge
White House and Congressional lead-
our efforts with yours to convince our
ers, would impose steep spending cuts
colleagues in the country that this is a
in popular domestic programs, particu-
strong undergirding of our economic
larly Medicare, while raising taxes on
future, our national prosperity and
joint national interest."
petroleum products as well as gasoline,
cigarettes, luxury items and alcoholic
Both the President and the Congres-
sional leaders noted that while the ne-
beverages. But the Social Security pro-
gotiations had been difficult, the hard-
gram was spared.
est task now lies ahead - getting rank
The agreement, however, forced
and file members of the House and Sen-
tough political decisions upon Presi-
ate to go along with the deficit-cutting
dent Bush. He gave up his long-sought
package. Despite the swift approval by
goal of a cut in the capital gains tax
the two chambers of the stopgap spend-
rate and accepted a Democratic pro-
ing bill and the delay in automatic
posal that would decrease the amount
spending cuts until Oct. 5, the absence
of deductions that Americans with in-
of Senator Packwood and Representa-
comes over $100,000 can take on their
tive Gingrich could foreshadow some
Federal income tax returns.
of the difficulties that lie ahead.
Under the complicated procedure
"The fact of the matter is that rates
the negotiators have worked out to try
nave not been changed," said the White
to assure that the House and Senate ap-
House chief of staff, John H. Sununu,
prove the final package intact, law-
who argued that the change did not
makers will face a series of deadlines
constitute a tax rate increase.
over the next three weeks to consider
the specific spending cuts and tax in-
creases their leaders have recomend-
ed. If the deadlines are not met, law-
makers would be faced at each step
along the way with the alternative of a
Government shut down and the impos-
tion of the automatic spending cuts.
"This is not a marriage of love or
convenience," Senator Phil Gramm, a
Texas Republican, said, referring to
the budget accord and the series of
deadlines intended to force lawmakers
to accept it. "I'm afraid if we take the
shotgun away, they may not say I do."
The Easy Vote
Senator Bob Dole of Kansas, the Sen-
ate Republican leader, warned that the
"nay sayers and the nit pickers may
have a field day because the easy vote
in this case is to find something you
don't like and vote no." But like the
other senior Congressional leaders in-
volved in the final negotiations, he
called the package "a good, solid, posi-
tive package" that would help the econ-
omy and demonstrate that even a Con-
gress and White House controlled by
different political parties could work
together.
Over five years, the budget package
would cut $170 billion from military
programs and $120 billion from benefit
programs like Medicare, farm subsi-
dies and civil service retirement. The
package would raise $134 billion in new
revenue from higher taxes and user
fees for various Government services
during the same period.
The main spending cuts in the agree-
ment include increased premiums and
a higher deductible for Medicare, cuts
in farm programs, military spending
and retirement benefits for Federal
employees.
The main revenue-raising provisions
include a five-cent-a-gallon increase in
the Federal gasoline tax, effective Dec.
1, 1990, and an additional five-cent-
a-gallon increase effective July 1, 1991.
There would also be a separate tax on
petroleum that Mr. Darman said would
increase per gallon gasoline tax an
additional two cents. In addition, the
package includes higher taxes on ciga-
rettes, and a 10 percent tax on automo-
biles with price tags over $30,000, boats
with price tags over $100,000 and jew-
elry and furs over $5,000.
The package would also raise the
limit on wages subject to a 1.45 tax that
workers and their employers pay to fi-
nance the hospital portion of the Medi-
care program. The tax currently
applies to the first $51,300 and would
rise to $73,000.
While the President did not get the
capital gains tax cut, he did win a pack-
age of more narrowly targeted tax
breaks totaling about $25 billion over
five years and aimed at increasing in-
centives for investment in small busi-
nesses. These included tax credits for
business investment in economically
depressed areas, partial deductions for
stock purchases in small companies,
more generous write-offs for small
business equipment purchases and
more generous tax credits for invest-
ment in research and development.
In addition, the negotiators agreed to
extend for one year, tax breaks on re-
search and energy investments and
low-income housing investments that
are due to expire at the end of this year.
They also agreed to expand the earned
income tax credit now available to
lower income taxpayers.
"This set of growth incentives should
be judged on their own merits," Mr.
Darman said.
The budget director praised the
budget deal as one that would "impose
a tighter discipline system than than
has ever been present in the Federal
budget." Under the new system, details
of which were still being negotiated to-
night, legislation to increase spending
above newly imposed limits would
have to be accompanied by offsetting
spending cuts or tax increases.
The New York Times
NEW YORK, MONDAY, OCTOBER 1, 1990
And the Victor Is: Bush?
Endangered Incumbents
some other Republican opted to bring
Taking Punches Now
"On balance," said a Democratic
up it again next year.
Senator, "this package is not helpful to
Whatever the immediate conse-
May Help Him Later
Democrats politically. It helps resolve
quences, the economic advantages
the fiscal disaster the Republicans put
over time could be manifold.
us in with the notion that everybody
The ever-increasing budget deficit,
could have a free lunch."
now $293.7 billion by the Administra-
By DAVID E. ROSENBAUM
The immediate political problem for
tion's latest estimate, is draining away
Special to The New York Times
Democrats, who hold the majority in
productive investment by Americans,
WASHINGTON, Sept. 30 - It was an
the Senate and House, is that it will be
using Government funds for interest
unhappy looking group that assembled
incumbents who will be called on to
payments instead of better roads,
in the Rose Garden this afternoon. In
vote for such unpopular measures as a
schools and research and eroding the
the politics of the moment, the budget
higher gasoline tax and a cut in Medi-
quality of life of the next generation.
deal does not give any of them, Presi-
care benefits, and then defend them on
Benjamin M. Friedman, a Harvard
the stump this fall.
economist, asserts that failure to solve
dent Bush or the Congres-
Democratic leaders are trying to as-
the deficit problem would lead to "a
News
sional leaders, a winning
semble enough votes from representa-
lower standard of living for individual
hand.
Analysis
tives with safe seats and senators not
Americans and reduced American in-
As central question,
up for re-election that lawmakers in
fluence and importance in world af-
though, is, who will win
tough races can vote against the pack-
fairs."
politically in the longer term. The an-
age.
swer may well be the President.
"I may have to vote against it and
Is Deal Credible?
Already today, he was taking a
hope it passes," admitted one Demo-
The White House chief of staff, John
pounding from his right flank for losing
cratic senator in a difficult re-election
H. Sununu, reflected the view of all the
his fight for a capital gains tax cut and
campaign.
budget negotiators today when he said,
renouncing his "no new taxes" pledge
But Democratic strategists saw ad-
"The most important impact of this is
to the tune of $134 billion over five
vantages to their party as well.
as a contributor to the overall eco-
years. This may continue for weeks or
First, they said, incumbents would
nomic climate."
have been held responsible if a budget
The crucial question is whether the
even months.
compromise had failed and Govern-
financial markets believe this is a cred-
Pay Well Before Elections
ment services had been cut back by
ible budget deal, one the President and
Congress will stick to through thick
But Mr. Bush's eye was trained on
across-the-board spending cuts re-
and thin. If they do, interest rates
prosperity and re-election two years
quired by the Gramm-Rudman-Holl-
should soon begin to fall, encouraging
from now. With the economy on the
ings budget-balancing law. That was
companies and individuals to borrow
averted by the budget agreement.
verge of recession and the markets un-
:. N spend, thus stimulating the econ-
Second, they maintain that they were
settled by events in the Persian Gulf,
ony.
the ones who protected Social Security,
he chose to take his licks now rather
The markets have every reason to be
the strongest card in the Democratic
skeptical. In the past, deficit-reduction
than foster the economic chaos that
hand.
measures have amounted to little more
would have resulted from a protracted
Finally, and most important over the
than what the Speaker of the House,
fight with Congress, hoping that this
long haul, they believe their refusal to
Thomas S. Foley, today called "smoke
will put him in a stronger position when
budge in their stance against a cut in
and mirrors."
he really needs it.
the capital gains tax reinforces the
If the economy does slide into a re-
traditional position of Democrats as
cession, a fate that seems ever more
the party that favors economic equity.
Recent public opinion polls show that
likely with each new release of eco-
the Republican party is increasingly
nomic statistics, Mr. Bush will be in a
viewed as the party of fat cats, and
position to deflect part of the blame to
Democrats hope to burn that image
into public consciousness.
Democrats. They are the ones, he can
say, who prevented the economic
Capital Gains as Weapon
stimulus that he argued would have
come from the capital gains tax break
Only 7.8 million of the 109.8 million
tax returns that were filed in 1988 re-
he strove for so hard and so long.
ported capital gains, and most of those
That could be especially important if
profits from investments were claimed
the economy is still weak as the 1992
by the richest 1 percent of taxpayers,
election approaches, since Presidents
those with incomes above $200.000.
"They made a big mistake when they
Continued on Page B8, Column I
pushed for the capital gains cut for so
long," said Senator Jim Sasser, a Ten-
Continued From Page Al
nessee Democrat "It has now been
driven into the heartland that Republi-
are inevitably held responsible for the
cans were insisting on tax cuts for the
state of the economy.
wealthy.'
And if the economy has improved
Though the gains issue seems to be
significantly by 1992, a turnaround his
dead for this year, the Democrats
economic advisers expect, Mr. Bush
would be delighted if President Bush or
can assert that it was his determina-
tion to drive down the deficit that led
interest rates to fall and the economy
to rebound.
The New York Times
NEW YORK, MONDAY, OCTOBER 1, 1990
Shouts of Revolt Rise Up In Congressional Ranks
By RICHARD L. BERKE
Special to The New York Times
WASHINGTON, Sept. 30 - Even be-
people say, 'Boy, I did this vote for me.'
fore President Bush and Congressional
There is not a partisan gain in either
leaders had finished their sales pitch
party."
for the budget compromise, dozens of
Mr. Dole implored his colleagues on
rank-and-file members today attacked
the Senate floor this evening to "give
it as unacceptable. Republicans were
us an opportunity to explain it" before
angry about the tax increases, and
passing judgment on the plan. Yet few
Democrats derided the cuts in domes-
members seem interested in heeding
tic spending.
his plea.
"It's dead in the water," said Repre-
"It's going to be one hell of a de-
sentative Nick Joe Rahall, Democrat of
bate," Senator Daniel Patrick Moyni-
West Virginia. "The package as I see it
han, Democrat of New York, said on
now does not go far enough in requiring
the Senate floor this evening.
the wealthy to pay their fair share."
"Oh, I think more than that," Senator
Emerging halfway through a brief-
George J. Mitchell of Maine, the Demo-
ing of House Republicans on the plan,
cratic leader, responded with a smile.
Representative Philip M. Crane of Illi-
nois had his mind made up. "We are
No Mood for Jokes
being taxed at all-time high levels," he
said. "This is the most inauspicious
But most members were in no joking
mood.
time I can think of to raise taxes."
Declaring that he was "totally op-
"I think its lousy," Representative
Charles B. Rangel, a Manhattan Demo-
posed" to the package, Mr. Crane
crat and one of the most liberal mem-
added, "You bet it's an easy vote."
bers, said of the compromise. "It im-
While they emphasized the impor-
pacts too heavily on the services to
tance of passing a budget package,
Medicare "recipients. It impacts too
many members who are not part of the
heavily on the lower and middle in-
Congressional leadership were reluc-
come recipients."
tant to commit themselves to voting for
it.
Asked if he would vote against the
package, he said, "That's without ques-
'Pledges Have Been Made'
tion."
"We are not the Radio City Rock-
On the other side of the aisle, one of
ettes that march in perfect precision,"
the most conservative members was-
said Representative Henry J. Hyde of
just as angry.
Illinois, one of the more influential Re-
"It looks like a road map to reces-
publicans. "Every fiber in my being
sion," said Representative Dana Roh-
wants to support it. But at the same
rabacher, a California Republican. "I
time, pledges have been made, and I,
think it's a cave-in to the liberal Demo-
want to use my own judgment."
Anticipating the opposition of rank-
and-file members, Senate and House
leaders at the White House ceremony
Leaders tell the
today sought to promote the package
as too crucial to the nation's well-being
to be undermined by partisan sniping.
nay-sayers to act
Representative Thomas S. Foley of
Washington, the House Speaker, ac-
responsibly.
knowledged that finding majorities in
both parties in both houses of Congress
would be difficult. But he added, "we
pledge our efforts with yours to con-
crats. This is totally irresponsible, and
vince our colleagues and the country
the system has broken down."
that this is strong undergirding of our
Representative Robert S. Walker, a
economic future, our national pros-
Pennsylvania Republican, agreed.
perity and joint national interests.
"It's a package where the Republicans
The nation's well-being was also the
did the giving and the Democrats did
centerpiece of a pitch by Bob Dole, the
the taking," he said. "The fact is, the
Senate Republican leader,
Democrats turned out to be ruthless
"The naysayers, the nit-pickers may
bargainers.
have a field day because the easy vote
in this case is to find something you
Gingrich Holds His Fire
don't like and vote no," the Kansan
said. "But in my view, we owe more to
One of the few conservatives who did
the American people than finding fault
not attack the plan was Representative
with what I consider to be a good
Newt Gingrich of Georgia, the Republi-
agreement."
can whip. He was conspicuously absent
Looking Past Cynicism
from the White House ceremony where
Mr. Bush and Congressional leaders
Mr. Dole went on to say that the
announced their agreement today. He
package will "demonstrate to the
refused to discuss the plan as he
American people, who are sometimes
walked in and out of a meeting with
somewhat cynical, that the Congress
House Republicans, saying only, "Still
and the President of the United States
looking at it, still looking at it."
can work together, and we can look
ahead, and we can do the right thing for
But privately, members and aides
our country."
said Mr. Gingrich was furious about
But the words of unity sounded hol-
the agreement, notably the tax in-
low to many lawmakers, coming after
creases.
months of bickering among the parties,
"I think he's holding his fire," Mr.
the White House and Congress over the
Walker said.
details of h a deficit-reducing budget. It
was just a few days ago that President
Representative Robert H. Michel of
Bush was attacking Congressional
Illinois, the Republican leader, refused
Democrats for lack of an agreement,
to discuss Mr. Gingrich's concerns,
and the Democrats were assailing him
saying, "He has his reasons." He said,
for not negotiating in what they saw as
however, that he had anticipated the
good faith.
conservative opposition and believed it
"I think the leadership on both sides
could be overcome.
are going to have to do substantial lob-
"That generic group of our mem-
bying to get the package passed,' said
bers, I would have expected that that
Representative Ralph Regula, an Ohio
would be the kind of response," Mr.
Republican. "There are no pleasant
Michel said. "I feel comfortable with
choices. This is not something where
what we've put together."
The New York Times
NEW YORK, MONDAY, OCTOBER 1, 1990
CREDIT MARKETS
Budget Accord Is Played Down
Pact Is Termed 'Just
A Starting Point'
By H. J. MAIDENBERG
Other Forces Cited
While Administration and Congres-
But David M. Jones, chief econo-
by their Government to restrict
sional negotiators reached an 11th-
mist at Aubrey G. Langston & Com-
credit. which IS sharply reducing the
hour budget deficit agreement ves-
terday, the pact had been expected
pany, primary dealers in Treasury
liquidity in all their markets as well
and discounted late last week by the
securities, said he doubted whether
as driving up their domestic interest
the Fed can ease credit and held that
rates."
credit markets.
other forces had caused the recent
Last Friday, for example, the yield
"Not only is the agreement just a
decline in rates and yields.
on 10-year Japanese Government
starting point but the disgraceful
As Mr. Jones explained: "We have
bonds, their longest maturity, rose to
spectacle gave the nation a fiscal re-
sult that must still be hashed over in
two distinct Treasury debt markets,
8.69 percent. from 8.60 percent the
Congress," Donald H. Straszheim,
the short term that consists of bills
week before. The yield on West Ger-
chief economist at Merrill Lynch &
and two-year notes and is most easily
many's 10-year long bonds rose to
Company, said yesterday. "We still
influenced by Fed operations, and the
9.12 percent. from 9.03 percent during
longer maturities. The Fed, faced
the week. By comparison. the yield on
don't have a national fiscal policy."
with the threat of an oil-fueled rise in
the Treasury's 10-year long notes
Last Friday, when Merrill Lynch
inflation will probably stand pat. The
dropped to 8.79 percent last Friday,
added its mighty voice to the chorus
of credit market analysts who say
Fed remembers the surge in inflation
from 8.97 percent the week before.
they believe that the nation is already
that attended the sharp rises in oil
Erosion of Dollar Seen
in a recession, it raised the prospect
prices in 1974-75 and again in 1980-
82."
A further decline in domestic inter-
of a substantial decline in interest
rates. How deep will the decline be,
As for the recent drop in short-term
est rates would further erode the
rates, Mr. Jones said it reflected
value of the dollar and dollar-denomi-
and how soon will it become mani-
strong moves by the Securities and
nated securities for foreign investors.
fest?
Exchange Commission to sharply re-
With domestic inflation currently
Two Wild Cards
strict the holdings of commercial
running at an annual rate of just over
"We believe the recession, which
paper issued by smaller corpora-
6 percent, foreign as well as domestic
probably began in late June, will not
tions. This restriction has forced
investors would want a real return of
be as severe as the ones in 1974-75 and
many of the funds to move out of com-
at least 9 percent.
1980-82," Mr. Straszheim said. "And
mercial paper and into Treasury
While Mr. Jones noted that domes-
we expect the Federal Reserve to re-
bills.
tic rates and yields were reduced late
spond by easing credit within a
last week in part by anticipation of
Commercial paper is the unsecured
month. Unless two wild cards turn up,
the budget deficit agreement that
debt of corporations, normally with
was reached yesterday, "the most
we can expect short-term rates to
maturities of between 30 and 90 days,
drop 1.5 percentage points and long
immediate impact, if any, will prob-
although an increasing amount of it is
yields to fall half as much within six-
ably be on the intermediate Treasury
for periods of up to a year. Until re-
months."
sector, say, from the three-year to
cent times, only the top blue-chip
The two wild cards, Mr. Straszheim
seven-year maturities."
companies issued such paper, but
said, were a further deterioration in
Looking further ahead, Philip
many lesser names have begun issu-
Braverman, senior vice president
the "fragile commercial banking in-
ing such debt and paying attractive
and chief economist at DKB Securi-
dustry and a sharp rise in the debt
interest rates because they have been
ties Inc., the domestic arm of the
levels of all sectors of the economy."
unable or unwilling to borrow money
As it was, the discount rate on 90-
giant Dai-Ichi Kangyo Bank of Tokyo,
from banks.
day Treasury bills fell to 7.13 percent
has given interest rates a sharply
Friday from 7.37 percent the week be-
"At the long end of the Treasury
higher forecast. "Bond yields in the
fore, while at the long end the yield on
debt market," Mr. Jones said, "yields
weeks and months immediately
the benchmark 30-year bonds de-
will continue to be influenced by the
ahead." he said, will remain hos-
clined to 8.93 percent from 9.12 per-
Mideast situation and, increasingly,
tage to the threatened destruction of
cent. But the decline in short-term
by the growing reluctance of Japa-
the gulf oilfields in a hot war. That
rates last week was clouded by the
nese institutional investors to buy our
threat, which continues to push oil
usual "window dressing" that occurs
ever-increasing volume of Govern-
prices up, is forcing Treasury bond
at the end of a quarter. when many in-
ment debt. Not only are the Japanese
yields toward 9.5 percent or even 10
vestment portfolio managers seek to
money managers worried about the
unload unprofitable investments and
46 percent plunge in their stock mar-
percent. But once the threat of higher
show large cash balances on their ac-
ket thus far this year, but by moves
oil prices is removed or dissipated, in-
terest rates will plunge in response to
counts.
the deep domestic recession that has
begun.'
Mr. Braverman added that it was
"primarily the uncertainty over oil
supplies, and its inflationary conse-
quences, that is preventing the Fed
from recognizing the recession or
reacting to it." He continued: "What
we expect the Fed to do is abandon its
practice of targeting interest rates
and return to working with reserve
aggregates. This would give the Fed
greater flexibility and avoid the
charge of being soft on inflation."
Also preventing bond prices from
rising and yields from falling further
IS at least a risk of a financial panic
stemming from those potential devel-
opments and the cash-squeeze vul-
nerability of business and financial
institutions. he said.
The New York Times
NEW YORK, MONDAY, OCTOBER 1, 1990
Budget Pact
Called Test
Of Theories
Continued From First Business Page
Cuts Could Stimulate
problems, some practical and some
Economy or Increase
theoretical. As Mr. Yardeni puts it, "I
would not get fully invested in bonds
Risk of a Recession
or stocks just on this news."
One of the problems is that Govern-
ment spending on weaponry, high-
ways, airports, Medicare, education,
By LOUIS UCHITELLE
Social Security and many other pro-
grams sustains the economy by
The long-awaited agreement on the
creating jobs, income and wide-
budget deficit, announced yesterday
spread demand for the numerous
in Washington, might finally test the
products and materials produced by
economic thinking that for the past
the private sector.
decade has driven the White House,
In addition, the higher taxes on
Congress and millions of Americans
gasoline, cigarettes, alcohol and lux-
to advocate a sharp reduction in the
ury items that were announced as
deficit.
part of the agreement, cut into house-
If the thesis behind budget-cutting
hold income now dedicated to spend-
is correct, then the interest rates that
ing. This further reduces demand,
consumers and businesses are
and just at a time when the economy
charged for a wide variety of loans
is close to a recession.
should fall - not this week or next,
"The agreement announced today
perhaps, but by the end of the year
is a moment of truth," said Robert
they should be in a steady decline.
Eisner, an economist at Northwest-
"Other things being equal - ignor-
ern University. "If they go through
ing for the moment the rising oil
with this reduction, they will deal a
prices, the banking system's weak-
new blow to an economy already tee-
ness and the sluggish economy -
tering near a recession:"
then the agreement to cut the budget
The budget-cutters, in Congress,
deficit should lower interest rates,
the White House and the economics
and eventually make stock prices
profession, acknowledge the risks of
rise," said Ed Yardeni, chief econo-
shrinking demand at this moment.
mist at Prudential-Bache Securities
"It would have been much better to
Inc., the investment banking firm.
have had the deficit reduction just
In the credit markets, the budget
after Bush took office in 1989," said
accord, which some analysts said had
Lawrence Summers, a Harvard
been expected, was played down as
economist. "He had great political
"just a starting point. [Page D9.]
strength then and the economy was
Choking of Economy Seen
strong.
Many economists, including Mr.
Mr. Summers and others who ap-
Yardeni, hold that the budget deficit
plaud the budget agreement are
chokes the economy. Their argument
counting on the Federal Reserve to
offset the weak demand and the re-
is that the Federal Government, to fi-
nance deficits that have ranged
duced Government spending by
above $200 billion a year sometimes,
lowering interest rates, a power the
must borrow too much from the na-
Fed exercises by manipulating the
tion's pool of savings. The heavy
nation's bank reserves. Their hope
drain leaves an inadequate amount
might be in vain.
for private borrowing, and the
competition for limited funds drives
Two Constraints Cited
up interest rates.
Alan Greenspan, chairman of the
The new agreement is billed by the
Fed, and others at the tentral bank
Bush Administration as a big enough
point to two constraints. One is the
cut to reverse this process. As rates
dollar, which has weakened in recent
fall, the private sector, in theory at
weeks; the other is the Mideast crisis,
least, will increase its borrowing and
which has pushed up the price of oil.
spending, and this should stimulate
Both developments are considered
economic growth, eventually making
inflationary and the Fed has been
the stock market boom.
countering their impact by freezing
Certainly, the agreed-upon reduc-
interest rates at current levels.
tion of $500 billion over five years, if
Strong rates help to keep a lid on
approved by Congress, is a huge
prices by discouraging the borrowing
amount, representing a reversal of
that makes possible robust spending
the Government's spending practices
and investment, but the medicine also
that have prevailed for more than a
tends to weaken the already weak
decade. And the initial cut of $50 bil-
economy.
lion in the fiscal year that begins to-
day dwarfs previous attempts to re-
duce the budget deficit. The biggest
one-year budget cut to date was $27
billion in the early 1980's.
But the thesis on which cutting the
deficit is based runs into several
Los Angeles Times
BUDGET: President, Top Lawmakers
Reach Deficit Agreement
MONDAY, OCTOBER 1, 1990
By TOM REDBURN
and WILLIAM J. EATON
TIMES STAFF WRITERS
WASHINGTON President
fit programs such as Medicare and
The final compromise, forged in
Bush and congressional leaders,
farm subsidies for additional sav-
an all-night session that lasted
capping months of often-acrimoni-
ings of $119 billion.
until dawn, would slice $40 billion
ous negotiations, reached agree-
Under the agreement, the two
off the deficit expected for fiscal
ment Sunday on a sweeping pack-
houses will have until Oct. 19 to
1991-a full $10 billion short of the
age of tax increases and spending
pass final compromise legislation
$50-billion reduction that negotia-
cuts designed to slash the federal
needed to carry out the budget
tors originally wanted to achieve.
budget deficit by $40 billion this
pact-including enactment of 13
Even with the agreement, the
fiscal year and by a total of $500
appropriations bills that are neces-
largest deficit-reduction plan ever
billion over the next five years.
sary to provide for government
proposed, the deficit for the new
The eleventh-hour agreement,
spending in fiscal 1991, which be-
fiscal year still is expected to hit a
which heads off $85 billion worth
gins today.
record $253.6 billion-partly be-
of automatic, across-the-board
But the accord-which has al-
cause of the slowdown in the
spending cuts that would have
ready set off howls of protest from
nation's economy.
gone into effect this morning if the
dozens of affected interest
In a briefing for reporters, Rich-
talks had failed, was hailed both by
groups-must still overcome wide-
ard G. Darman, director of the
Bush and top lawmakers as a
spread resistance among lawmak-
White House Office of Manage-
historic breakthrough in the dec-
ers, who fear that angry voters
ment and Budget, acknowledged
ade-long budget stalemate be-
might retaliate by throwing them
that a deteriorating economy and
tween Republicans and Democrats.
out of office this November.
the growing cost of protecting
"It is balanced, it is fair and in
"I have great reservations about
savings and loan depositors meant
my view it is what the United
supporting the agreement until I
that officials had to struggle harder
States of America needs at this
look realistically at the alterna-
and harder just to keep the deficit
point in its history," Bush said,
tives," said Rep. Julian C. Dixon
from growing.
surrounded by congressional lead-
(D-Los Angeles). "The impact of
Officials said that the big payoff
ers and aides, in a midafternoon
the gas tax is going to hit very hard
under Sunday's accord, however.
ceremony in the Rose Garden out-
in Southern California. It's not a
will come starting in fiscal 1993,
side the White House.
done deal."
when most of the S&L bailout
Bush interrupted a round of
House Minority Whip Newt Gin-
should be finished.
meetings at the United Nations in
grich (R-Ga.), also a participant in
Under the plan, which assumes
New York to return here for the
the budget negotiations, boycotted
that the economy will achieve only
announcement.
the White House ceremony and
modest gains during the coming
House Majority Leader Richard
told reporters that he is "still
year and rebound strongly in fu-
A. Gephardt (D-Mo.), who had led
looking at" the accord. Rebellious
ture years, the deficit would fall to
the closed-door bargaining ses-
House Republicans criticized the
$129.4 billion in 1993 and turn into
sions since they began in May.
package and vowed to try to defeat
a modest budget surplus of $16.7
agreed. "The alternative to this
it.
billion in 1994.
agreement is fiscal chaos," he said.
In abandoning the old Gramm-
"What delayed us for months is
T
he GOP lawmakers expressed
their frustration at a closed-
Rudman targets, which had called
what has divided us for a decade,"
for a $64-billion deficit in fiscal
door caucus that was SO raucous it
he added. "The parties to these
could be heard easily in the hall
1991, the budget negotiators set
talks
continue to have deep
outside.
new goals for future years, with
disagreements over values, the
Rep. C. Christopher Cox (R-
hopes of balancing the budget by
role of government and the fair-
Newport Beach), a former aide in
1994 and building up substantial
ness of our taxes. But we all made
the Ronald Reagan White House,
Social Security surpluses starting
compromises in the national inter-
in 1996.
est."
called the budget agreement "an
The package, if approved by
economic Yalta. This is a complete
But if the economy plunges into
Congress, would increase taxes on
sellout.
The American people
a recession, the targets would be
gasoline, cigarettes and alcoholic
won't buy it and certainly the
modified in March-so lawmakers
Republican conference won't buy
would not have to make additional
beverages; raise Medicare premi-
it."
spending cuts or raise taxes further
ums; impose a new tax on luxury
But congressional leaders ex-
to achieve the goals set under
goods, and scale back itemized
Sunday's accord.
deductions for all taxpayers with
pressed optimism that the initial
incomes above $100,000.
wave of opposition would diminish
Initial reaction in Congress was
Overall, taxes would rise $134
as lawmakers face an up-or-down
positive. The two houses, meeting
billion over the next five years.
vote on whether to approve the
in an extraordinary Sunday session
deficit-reduction package intact or
for the first time in nearly a
Under the budget agreement,
federal spending would be subject
bring on the automatic cuts man-
decade, quickly approved stopgap
to firm caps, reducing government
dated by the Gramm-Rudman def-
legislation that would postpone the
outlays for domestic and military
icit reduction law.
Gramm-Rudman cuts until Oct. 5
"The alternative to this package
when another vote must be taken.
programs by $182.4 billion-with
is economic crisis," said Rep. Leon
The House rammed through the
the bulk of the savings likely to
come out of the Pentagon's hide.
E. Panetta (D-Carmel Valley),
measure on a 382-41 roll call after
At the same time, the new
chairman of the House Budget
less than an hour of debate. The
budget pact is designed to restrain
Committee, "not only from contin-
Senate approved it shortly after-
uing high interest rates
ward.
the growth of long-standing bene-
but
also from the disastrous
Gramm-Rudman cuts that will
I
n the same bill, lawmakers
agreed to continue federal
take effect if the agreement is not
spending roughly at current levels
approved."
for the rest of this week while
Congress considers the compro-
mise deficit reduction package
hammered out at the budget sum-
mit.
Overwhelming votes in the
House and Senate, however, did
in depressed urban and rural areas
not signal how lawmakers will
will qualify for tax advantages.
react when it comes to the final
Overall, the Medicare program,
showdown, which is scheduled to
whose costs are growing by leaps
occur before Oct. 19.
and bounds, would be cut to pro-
In one of the final disputes of the
vide some $60 billion in savings-
budget negotiations, Bush aban-
split evenly between recipients and
doned his effort to win a reduction
physicians or hospitals.
in the capital gains tax rate. The
Farm support programs would
White House was unwilling to
be cut $13 billion over five years.
accept higher income tax rates on
Changes in the way payments are
the wealthy, which Democrats de-
made to civil service retirees and
manded as the price for accepting a
postal workers would save $12
lower tax on investment profits.
billion.
The two sides also agreed not to
The top-level budget discussions
tamper with Social Security bene-
produced extraordinary political
fits, often called the "third rail" of
conflict over tax and spending
American politics because those
priorities, dramatically displaying
who touch them risk almost certain
the rival approaches of the Demo-
political death. Proposals to in-
cratic and Republican parties.
crease taxes on Social Security or
At first, shortly after the talks
to restrain the growth in benefits
started, Bush dismayed conserva-
fell victim to both parties' fears of
tive Republicans when he reneged
well-organized elderly voters.
on his famous "no new taxes"
The most severe cuts would
campaign pledge by acknowledg-
affect the military-$10 billion
ing, at Democratic insistence, that
right away and up to $182 billion
revenue increases would have to
over five years.
be part of any deficit-cutting
Among the tax measures was a
agreement.
A
t the outset of the serious
sharp boost in federal gasoline
bargaining, Democrats fa-,
taxes from its current 9 cents per
vored larger cuts in Pentagon out-
gallon to 21 cents. The increase
lays but, after the Persian Gulf
would be phased in, starting with a
crisis erupted, softened their posi-
5-cent-a-gallon gasoline tax hike
tion and agreed that funds for,
in December, a separate 2-cent-
Operation Desert Shield should not.
per-gallon tax applied to all petro-
be included in the deficit-cutting
leum fuels in January, and an
package.
additional 5-cent gasoline tax in-
Both sides agreed almost imme-
crease next July.
diately that the Gramm-Rudman
(California boosted its own gaso-
deficit goal of $64 billion was out of
line taxes by 5 cents a gallon last
reach.
August, and will raise them by 1
In addition to congressional
cent a gallon each year beginning
leaders of both parties, representa-
next January.)
tives of the budget, appropriations
T
axes on alcoholic beverages
and tax-writing committees were
would rise as well.
included in the 21-member group
Luxury items such as expensive
that labored for months to achieve
cars, jewelry and furs will be
the budget deal.
subject to a new 10% tax. And all
taxpayers with incomes above
$100,000 will find that they no
longer will receive full credit for
their itemized deductions.
But the package contains some
modest new tax reductions as
well-which Republicans argued
were needed to help the economy.
Companies that explore for gas and
oil, conduct research or do business
Los Анц Times
MONDAY, OCTOBER 1, 1990
Elderly Line Up to Fight
Changes in Medicare Costs
By ROBERT A. ROSENBLATT
TIMES STAFF WRITER
spokesman for the National Committee to Preserve
Social Security and Medicare. "Let's share some of the
WASHINGTON-The budget deal may have bipar-
pain with the wealthy-those who had the greatest
tisan support in Congress, but it seems certain to
gain during the 1980s.'
generate intense anger and a political backlash among
And congressional opposition began stirring Sunday
one of the most influential and vociferous groups of
night.
voters-the elderly.
One of the congressional leaders on health care
Congress could face a replay of the 1989 battle over
issues, Rep. Henry A. Waxman (D-Los Angeles), said
catastrophic care. Last year, elderly voters forced
he would vote against the budget agreement when it
repeal of the biggest increase in Medicare benefits
reaches the House floor.
since the program started in 1965 after they learned
"What troubles me about the budget is that it asks
that the more affluent among them would have to pay
the elderly in this country to take a very hard hit,"
for the benefits. The catastrophic-care program would
Waxman said. "It doesn't distinguish between those
have provided unlimited days of hospital care and
who can afford, it and those who can't. Many of the
prescription drug coverage with financing coming
elderly will have to make a choice between paying for
from the 40% of persons over 65 who pay federal
health care and rent."
income taxes.
Rep. Edward R. Roybal (D-Los Angeles), chairman
On Sunday, the President and congressional leaders
of the House Aging Committee and one of the more
decided again that the elderly should pay more but this
influential senior Democrats, said he will vote against
time without even compensating them with increased
the budget because of the impact on the elderly.
benefits.
Rep. John Bryant (D-Tex.) called the increase in
payments by Medicare beneficiaries "a major nega-
If Congress adopts the package proposed on Sunday,
tive" in the budget package.
the 34 million Medicare beneficiaries would be forced
Medicare covers persons over 65 and disabled people
to pay significantly more for the Part B coverage that
of all ages. Part A covers hospital bills, and Part B
helps pay doctor bills. The annual deductible, now $75,
deals with payments to physicians.
would climb to $100 next year, and level off at $150 in
The budget agreement aims for savings of $60 billion
1993 and beyond.
in Medicare outlays over five years.
The Medicare insurance premiums, now $28.60 a
Half would come from reduced payments to doctors
month, would rise to about $33.50 next year and reach
and hospitals, both of whom are already complaining
$54.30 by 1995, according to estimates by the Ameri-
that reimbursement levels are too low. About $30
can Assn. of Retired Persons.
billion in budget savings would come directly from the
Beneficiaries now pay 25% of the total cost of
pockets of the beneficiaries.
Medicare's Part B, which helps cover doctor bills.
Some of the reduced spending by the government
General tax revenues pay for the rest. Under the
would result in higher costs to patients under 65 who
budget agreement, the beneficiaries' share would rise
are not covered by Medicare, because doctors and
to 30% of the program's cost. This could mean a
hospitals are likely to increase their charges to make
significant increase in monthly premiums each year,
up for the Medicare reductions.
because inflation in doctor bills has been racing at
The increase in the annual deductible would cost
double-digit levels.
beneficiaries $6 billion. For the first time, they would
Advocacy groups for the elderly offered quick
pay 20% of the cost of clinical laboratory fees,
opposition.
spending $3.6 billion.
"We are concerned about the level of cuts in
Medicare," said Horace Deets, executive director of the
The biggest item, by far, is the boost in premiums to
AARP. "We urge Congress to seek ways to ameliorate
cover 30% of the fast-growing program. This would
cost beneficiaries $20 billion.
the effects
on those for whom any increase in
health care costs is unaffordable. We further urge
Americans over 65 already spend about 18% of their
Congress to ensure that any cuts in Medicare do not
income on health and long-term care, according to a
impede the access of older and disabled persons to
study by the House Aging Committee. The proposed
quality health care."
increases would "aggravate an already unacceptable
"We're going to work strongly against this package
burden on elderly Americans," according to Roybal.
to see that more fairness is put in it," said Bill Ritz, a
The Part B Medicare premiums are automatically
deducted from monthly Social Security checks. The
average Social Security check this year is $594 a
month, with a Medicare premium of $28.60.
By 1995, the average Social Security check will
climb to $713 monthly, but Medicare, rising much
faster will be $54.30 a month.
Los Angeles Times
MONDAY, OCTOBER 1, 1990
Lawmakers Prepare to Sell Pact of Pain
By PAUL HOUSTON
and WILLIAM EATON
C
ongressional leaders know well
the deficit problem, has said that
TIMES STAFF WRITERS
the difficulty they will face in
Congress must be made to under-
WASHINGTON-To reach the
trying to hammer the package into
stand that it faces the stark choice
new bipartisan budget agreement
law.
between accepting a bipartisan
that was completed Sunday, White
"It will be very tough because it
deficit-cutting package or allowing
House and congressional negotia-
has a lot of pain and a lot of
crippling spending cuts to take
tors had to go through five hellish
sacrifice," said Rep. Leon E. Pa-
place under the Gramm-Rudman
months of bargaining, marathon
netta (D-Carmel Valley), chair-
deficit reduction law.
talks at Andrews Air Force Base
man of the House Budget Commit-
"We can't give them any wig-
and grueling late-night sessions at
tee. "I'm afraid that not enough
gle-room," Conte said he advised
the Capitol.
groundwork has been laid with
House Speaker Thomas S. Foley
But, as Senate Majority Leader
either the public or the members."
(D-Wash.).
George J. Mitchell (D-Me.) said,
"We'll know in a couple of days,"
Under the ground rules for rati-
"Now comes the hard part": The
Panetta said.
fying the new accord that were
leaders must sell their package of
Leaders of both parties say Pres-
agreed to by the President and
pain to the American peoplè and to
ident Bush must play a key role to
Democratic congressional leaders,
their representatives in Congress.
get any agreement approved by
a majority of each party in both the
"Everybody wants something to
Congress. And he will have to help
House and the Senate must ap-
pass, but very few people want to
muster broad public support for the
prove any deal or it will not take
vote for it," said Sen. Phil Gramm
package through a nationally tele-
effect.
(R-Tex.), whose 1985 Gramm-
vised address aimed at persuading
Achieving this result appears to
Rudman law forced the deficit-
lawmakers to vote for it.
be more difficult in the House-
reduction plan.
"I think it's going to be difficult
whose members all will face the
The accord now must be put into
to pass a deficit-reduction package
voters in November-than in the
legislation, passed by Congress and
of this historic size unless there is
Senate, only a third of whose
signed by President Bush. The
bipartisan support," said House
members are up for reelection. But
agreement gives the lawmakers
Majority Whip William H. Gray III
it will be tough in both chambers to
until Oct. 19 to pass legislation
(D-Pa.). "The President has got to
get the necessary votes.
enacting the specific spending cuts
be out there leading. and it's going
and tax changes called for in Sun-
to be very, very difficult."
day's budget pact.
Bush, for his part, seemed to
O
ne wild-card in any ratifica-
"We've got a lot of heavy lifting
recognize that on Sunday, pledging
tion process will be House
to do," Gramm noted.
that although "there will be tough
Minority Whip Newt Gingrich (R-
The proposed package will affect
fights ahead," he would do "every-
Ga.), a participant in the budget
every American, or-perhaps more
thing in my power
to get this
talks who has a large following
important-every voter. And with
passed in the United States Con-
among conservative Republicans.
November elections fast approach-
gress."
He had declared his unhappiness
ing, it will be that much tougher
Domenici agreed that there is "a
with the White House negotiating
for senators and House members to
great question" as to whether the
position.
support the kinds of sweeping
package could be pushed through.
Gingrich aides said that he may
changes that must be enacted in
Lawmakers from more-affluent
be able to influence more than half
districts are concerned about tax,
of the 175 Republicans to follow his
the next few weeks.
"Who wants to vote for Medicare
Social Security and Medicare
lead in any ratification process.
cuts? Who wants to vote for Social.
changes. Those from working-
potentially threatening approval of
Security cuts? Who wants to vote
class areas are worried about pro-
a package that he and his support-
for a gasoline tax?" Sen. Trent Lott
posed cuts in health care or tax
ers do not accept.
(R-Miss.) asked in voicing the
increases on gasoline, beer and
Some Democrats also are unhap-
anxieties of many rank-and-file
cigarettes.
py with the course of the budget
members of Congress.
"If I go back to Atlanta and say
talks.
Such leaders as Sen. Pete V.
we held the line on capital gains
They argue that Democratic ne-
but we did you in on Medicare,
gotiators made concessions on such
Domenici (R-N.M.), the ranking
issues as Medicare that never
Republican on the Senate Budget
they'll say you're not bringing us
would have been made in the
Committee, are answering that
good news," said Rep. John Lewis
question with one of their own:
(D-Ga.).
normal legislative process, where
"Can you support the entire
Rep. Ronald V. Dellums (D-
Democrats have a 3-2 edge over
Berkeley), chairman of the Con-
Republicans in the House and a
package in order to fix the deficit of
this country, get us on the right
gressional Black Caucus, has urged
55-45 advantage in the Senate.
track, get interest rates down and
his colleagues to vote against any
Two early battlegrounds in the
bring the American economy back
budget agreement that "further
ratification process will be the
savages already decimated pro-
House Ways and Means Committee
into a job-producing mode?"
grams in housing, health care,
and the Senate Finance Commit-
Similarly, House Majority Lead-
er Richard A. Gephardt (D-Mo.)
education and job training."
tee. Both panels have jurisdiction
told fellow Democrats at a recent
Rep. Silvio 0. Conte (R-Mass.),
over not only tax matters but also
caucus that "you've got to under-
a negotiator in the talks that finally
the politically explosive Social Se-
stand-there is no pleasure in this
ended in agreement and one of the
curity and Medicare issues.
package. But you've got to look at
few Republicans who originally
Thus, Rep. Dan Rostenkowski
the positive side of getting it done."
favored a tax increase to address
(D-III.) and Sen. Lloyd Bentsen
(D-Tex.), the panels' chairmen.
will be prominent players in the
battle known as "reconciliation"-
the act of reconciling current laws
with the spending cuts and tax
increases in the proposed package.
Los Angeles Times
OCTOBER 1, 1990
Analysts Predict Deal Will Trigger
Short-Term Damage to Economy
By TOM REDBURN
TIMES STAFF WRITER
WASHINGTON-The new budget accord
may be just what the doctor ordered for the
"While things may not tomorrow morning get
nation's ailing economy but the patient is likely
better," Domenici added, "this package is ulti-
to get a lot worse before it gets better.
mately healthy for the American economy.
government and private analysts said Sunday.
I'm convinced. having worked on this kind of
Although almost every economist has long
thing, that we'd better do it because we won't
prescribed a reduction in federal borrowing,
get another chance."
several expressed fears that the short-run
The economic forecast that the budget nego-
impact will be negative, nudging the economy
tiators published Sunday shows precisely this
ever closer to a recession.
sort of pattern.
"The economy is SO weak right now that the
Economic officials now expect the U.S. econo-
last thing you want to do is hit it over the head
my to cke out a bare 0.7% gain in 1990-essen-
with a massive dose of fiscal restraint-but
tially an acknowledgement that a recession is
that's what they've done," said Irwin Kellner,
possible in the months ahead-before slowly
chief economist at Manufacturers Hanover
recovering at a 1.3% pace in 1991 and 3.8% in
Bank in New York.
1992.
They also show the inflation rate-expected
"Y
ou have to be honest and admit there will
to reach 5.21% in 1990-slowing to 4.6% in 1991
be a modest short-term contractionary
and 3.4% in 1992.
effect," Benjamin Friedman, a Harvard econo-
If the projections prove accurate, President
mist who has long been a fervent proponent of
Bush should benefit from the visibly improved
cutting the deficit, said Sunday.
economic situation in time for his reelection
"The problem is that higher taxes and lower
campaign in 1992.
spending affect the economy immediately, while
But a lot of conservatives are convinced that
lower interest rates take time to boost economic
Bush is making a fatal error in signing a
investment," he explained.
deficit-reduction pact that does not contain his
Whatever the immediate damage to the
long-sought capital gains tax cut.
economy, however, budget negotiators here
"This is a bad deal for the economy," said
believed that they had no choice but to forge
Jude Wanniski, known for his early advocacy of
ahead.
former President Ronald Reagan's "supply-
Officials are hoping that their resolve-which
side" tax program. "Getting the capital gains
could easily have been diverted by arguments
rate reduced and indexed is the only way of
that the Persian Gulf crisis should let them off
pulling the economy out of its slump."
the hook once again-will assuage financial
Many Republican lawmakers echoed Wannis-
markets that have long urged Washington to
ki's views. Rep. Dana Rohrabacher (R-Lomita)
produce a credible long-run deficit-reduction
termed the package "a road map to recession"
pact.
and added: "It's a cave-in to the Democratic big
They also are hoping that the increased
spenders.
It's ridiculous. The system's
leeway on the budget will prompt Federal
broken down."
Reserve Chairman Alan Greenspan to ease
interest rates.
M
ost economists, however, said that the true
"This is not a phony smoke-and-mirrors
test of the deficit accord will come soon on
program." said Senate Finance Committee
Wall Street.
Chairman Lloyd Bentsen (D-Tex.). "It ought to
If investors think the budget agreement will
signal the Federal Reserve to ease up in interest
substantially reduce the federal government's
rates and start stimulating the economy."
long-term borrowing needs, opening up fresh
But the Fed, which appears to be more
credit for private investment, they could drive
interest rates down in the bond market this
worried about reviving inflation, is likely to
week.
move cautiously as long as the dollar remains
weak and oil prices remain high.
That will provide a glimmer of hope as
To be sure, budget negotiators did not over-
Congress debates whether to approve the budg-
look the possibility that the harsh medicine
et measure.
contained in the budget agreement might prove
"If financial markets believe this will put the
risky.
government on the track of smaller deficits in
the future, they could provide a lot of latitude
Sen. Pete V. Domenici (R-N.M.) conceded
for the Fed to ease," said Jerry Jordan, chief
Sunday that the new budget accord "has a lot of
economist at First Interstate Bank in Los
pain in it," but insisted that "the result is good
Angeles.
for the country."
Los Angeles Times
OCTOBER 1, 1990
UDGET: Small Business Gets Some Breaks
By ROBERT A. ROSENBLATT
TIMES STAFF WRITER
WASHINGTON-Small and medium-
WThe proposed new tax breaks
sized businesses-and their investors-will
apply only to companies in busi-
reap some unexpected benefits if Sunday's
ness for at least five years. And the
last-minute budget agreement is approved
firm must have a trade or business
by Congress.
producing a tangible product.
President Bush abandoned his long-
Banks, real estate agencies and
sought goal of cutting capital gains taxes,
:other financial services firms don't
but he insisted on some pro-growth mea-
qualify.
sures that would give small business a
The budget conferees also
boost.
agreed to have Congress adopt an
The deal struck Sunday between the
additional $600 million in unspeci-
White House and congressional leaders
fied "growth incentives."
includes a cornucopia of benefits for firms
Enterprise zones, an effort to
with less. than $50 million in equity-a
bring business back to economical-
combination of paid-in capital and retained
ly devastated neighborhoods, also
earnings.
would receive recognition under
The tax deductions and credits total $25
the budget deal.
billion over five years-a drop in the
The idea of luring business back
bucket in a $500-billion budget package but
to the depressed inner-city is a
a big boost for some modest-sized busi-
favorite theme of the White House,
nesses and the people who buy their stocks.
but has never been embraced by
"It's a triple sweetener, quite a deal,"
Congress. Sunday's agreement
said a congressional staff aide. "The com-
represents another effort to win
panies themselves receive breaks, and the
legislative approval.
people who buy the stock get helped both
The government would issue a
when they buy and when they unload for
list of areas qualifying as enter-
profits."
prise zones. A business operating in
The investor gets a 25% income tax
the area-with a factory, distri-
deduction for stock purchased in one of
bution center or other job-creating
these firms. If he buys $100,000 in stock, for
activity-would enjoy two tax
example, he can deduct $25,000. The maxi-
mum allowable deduction is $50,000.
breaks. The investment would
Taxes on capital gains from stock sales
qualify for very fast depreciation
by small companies would be linked to
under the tax laws, and the compa-
inflation. If the consumer price
ny could claim tax credits for a
has risen 10% during the time
portion of the salaries for all work-
the investor holds the stock, then
ers in the zone.
'90% of the profit on the stock sale
The search for oil and gas also
would be subject to taxes. This
would get a boost if Congress
technique is called indexing for
approves the budget package. It
inflation.
includes a variety of technical but
"The tax break is targeted to
important tax changes.
individuals to get them to invest in
Tax credits would be increased
these companies. The theory is
for expenditures on exploratory
that the economy is better off if we
drilling. Capital spending for spe-
plow money into the smaller busi-
cial techniques to recover the rem-
nesses," said another congressional
nants of oil in existing fields would
aide.
receive expanded tax credits. And
For the company, the budget
taxes on investors in some of these
agreement offers an array of eco-
energy-related projects would be
nomic goodies.
eased slightly.
The research and development
The energy tax breaks, which
tax Credit, now 20%, would be
might have drawn strong opposi-
boosted to 30%. A separate credit
tion earlier from a Democratic-
to encourage experimentation, due
controlled Congress, have a much
to expire, would be extended
better chance of approval now
through 1991.
because of the surge in oil prices
Expensing, which allows deduc-
resulting from the Middle East
Lion of the full price of some
crisis.
equipment in the year it is pur-
"The President wanted some-
chased, would be expanded to in-
thing he could call a growth pack-
stude two years.
age, even though he lost the battle
Companies also could get a rapid
on capital gains," a congressional
write-off for additional purchases
aide said of the agreement between
scientific equipment.
the White House and congressional
leaders. "This deal represented the
best he could do, and it should be
attractive to the conservative Re-
publicans who are always talking
about helping entrepreneurs."
Los Angeles Times
Bush's Popularity Failed to
Provide Clout
MONDAY. OCTOBER 1. 1990
By DAVID LAUTER
TIMES STAFF WRITER
dential campaign and one that he
had pressed ever since.
NEW YORK-With his approval
But Bush could not budge Demo-
rating topping 70% and the nation
cratic leaders, who resisted on
rallying around his Persian Gulf
grounds that cutting the capital
policy, President Bush seems at the
gains taxes favored the rich. In the
apex of his popularity. But to reach
end, over the last week, key Re-
an agreement on the federal budg-
publicans, led by Senate Minority
et, he was forced to make major
Leader Bob Dole (R-Kan.), aban-
concessions.
doned him as well.
Bush dropped his insistence on
"Sometimes you just don't get it
"no new taxes" just to get the
just the way you want." Bush said
budget negotiations started, and he
as he announced the budget deal.
was forced to abandon his plan to
"This is such a time for me."
reduce taxes on capital gains to
Bush did obtain some items that
bring them to a close.
he and his advisers wanted. The
In-between, he also gave in to
agreement includes new tax breaks
Democratic demands for some $33
for the oil industry. an issue for
billion in increased taxes on upper-
former oilman Bush, and new tax
income taxpayers, including a
credits for research and develop-
complicated limit on tax deductions
ment, which Bush and his aides
and increased luxury taxes and an
believe will increase economic pro-
increase in tax charges for Medi-
ductivity.
care.
The deal also provides an en-
The result illustrates the limits
forceable limit on spending for
on how far a President can trans-
domestic programs-a step that
late popularity in foreign affairs
will require congressional Demo-
into political clout at home. And it
crats to make difficult choices over'
also demonstrates the marked dif-
the next several years as constitu-
ference between Bush and his
encies clamor for more federal aid.
predecessor, Ronald Reagan, who
Above all, there is the deal itself;
refused opportunities to take a
which will substantially reduce the
similar deal to reduce the deficit
federal budget deficit and which, at
because of his insistent opposition
least for now, would break the
to higher taxes.
deadlock over fiscal policy that had
Democrats also faced limits on
threatened to paralyze federal de-
their power. As Senate Majority
cision-making.
Leader George J. Mitchell (D-Me.)
But the fact that getting the deal,
noted, it remains unclear whether
in the end, did come before every-
leaders of either party will be able
thing else underlines a central
to get their followers to ratify the
element of the Bush presidency.
politically unpopular compromises
Unlike Reagan, who had a set of
that the budget deal comprises.
issues in which he believed strong-"
"Now comes the hard part,"
ly and on which he was unwilling-
Mitchell said as the budget agree-
to compromise, Bush, as his aides
ment was announced in the White
say, is basically interested in "pro-
House Rose Garden.
cess," not ideology. There are few
Less than four weeks ago. when
specific things the President will
he spoke to a joint session of
not sacrifice to achieve a compro-
Congress, Bush tried to use support
mise.
for his Persian Gulf policy to
That approach makes it far easi-
leverage votes for his position on
er to reach deals. But Bush's style
the budget. Strength abroad re-
has costs as well. More ideological
quired strength at home, he told
members of his own party already
members of Congress. And
are angry at the President for
strength at home, he said, would
giving up on causes they believe in.
require a budget plan along the
And the compromise on taxes-
lines he wanted.
which remains one of the most
The gambit was chancy. Past
potent political issues of the era-
presidents had "never been able to
will deprive Republicans of a po-
translate support for foreign policy
tent weapon as the fall congres-
into support for a domestic agen-
sional campaigns head into their
da," conservative political analyst
final five weeks.
Kevin Phillips pointed out at the
One indication of the problems
time. President Franklin D. Roose-
Bush may face was the conspicu-
velt, for example, was forced to
bus absence of Rep. Newt Gingrich
give up much of his New Deal
(R-Ga.). a leader of conservatives
program during World War II..
in the House, as the budget agree-
Bush fared no better. During his
ment was unveiled Sunday after-
speech, as on numerous occasions
noon. Without the support of Gin-
before and since, Bush specifically
grich and his followers. Bush will
said that a budget agreement
have to rely ever more heavily on
would have to include a capital
the majority Democrats-a source
gains tax cut-an issue he had
of support that could prove in-
advocated during his 1988 presi-
creasingly shaky if Bush's overall
popularity slips.
Los Angeles Times
MONDAY, OCTOBER 1, 1990
CONSUMERS: Cigarettes, Beer, Gas
Would Cost More Under New Plan
By EDWIN CHEN
TIMES STAFF WRITER
WASHINGTON-The budget
levy is 9 cents per gallon. Califor-
deficit reduction agreement that
nia drivers would be especially
President Bush and congressional
hard hit, since state voters on June
leaders signed Sunday will hit
5 approved a doubling of the state
American consumers squarely in
gas tax, to 18 cents per gallon.
their pocketbooks.
Separately, a 2-cent tax on each
If Congress enacts the accord,
gallon of crude oil would take
cigarettes, liquor, gasoline and oth-
effect Jan. 1.
er fuels soon will cost more. The
Joseph Lastelic, a spokesman for
agreement also calls for a new
the American Petroleum Institute,
luxury tax on expensive consumer
said that higher gas taxes in the
products, ranging from cars and
past have had very little impact on
yachts to furs and jewelry.
consumption and that the proposed
Altogether, higher taxes would
new hikes would be no different.
bring in $134 billion in new reve-
Lastelic also said that the higher
nues over the next five years in a
taxes would hurt consumers in the
budget package designed to reduce
West more than elsewhere around
federal borrowing by $500 billion
the country because they drive
over that same period.
greater distances.
In addition to higher levies on
The deficit-reduction package
tobacco, alcohol and fuel, the pack-
calls for a 4-cent-per-pack ciga-
age would require higher-salaried
rette tax increase on Jan. 1, and a
employees to contribute more to
second 4-cent increase in 1993.
help finance the fast-rising costs of
The Tobacco Institute, the
the federal Medicare program.
Washington-based lobbying group
Currently, workers pay 7.65% of
for the tobacco industry, said that
their income up to $51,300 as Social
the proposed hikes-coming on top
Security withholding taxes, 1.45%
of the current 16-cent-per-pack
of which is for Medicare. The new
federal excise tax-would be re-
agreement would continue the
gressive in that the increases
1.45% up to $73,000 in annual
would disproportionately hit the
earnings.
middle class and poor, who make
Employees of state govern-
up most of the nation's 50 million to
ments, who currently do not pay
60 million smokers.
the Medicare tax or Social Security,
The agreement also contains
would be brought into the system.
sharp tax increases for beer, wine
Most individuals or families
and distilled liquor. It calls for
earning more than $100,000 would
doubling the current 16-cent per
pay more income taxes, with the
six-pack federal beer tax, which
government disallowing itemized
will cost beer drinkers an addition-
deductions equal to 3% of the
al $1.5 billion a year, according to
income above the $100,000 thresh-
Jeff Becker, a spokesman for the
old. For example, if a taxpayer had
Beer Institute.
an income of $150,000, the taxpayer
The tax on wines would go up by
would lose deductions equal to 3%
24 cents a bottle and on distilled
of the $50,000 excess or $1,500
liquor by $1.20 per gallon.
worth of tax writeoffs.
According to the Distilled Spirits
But the news isn't all bad.
Council of the United States, the
By reducing the federal govern-
current federal taxes on hard liquor
ment's borrowing needs, the new
are about $2 on a fifth of liquor or
budget plan is expected to bring
more than 25% of the cost of an
down interest rates. "Long-term
average bottle.
interest rates should be able to
come down," the President said at
The luxury tax calls for a 10%
the White House Sunday after-
levy on the portion of the retail
price in excess of $30,000 for cars,
noon.
The budget pact includes $182
$5,000 for furs and jewelry,
billion in cuts in government dis-
$100,000 for private airplanes,
cretionary expenditures, with de-
boats and yachts.
fense spending accounting for the
"This is real, not a phony smoke
single largest share, $67 billion, in
and mirrors deficit-cutting pro-
the first three years.
gram," Bush said of the budget
Cuts in popular benefit pro-
agreement.
grams, such as Medicare and farm
Times staff writers Tom Redburn
subsidies, would contribute anoth-
and James Risen contributed to this
er $119 billion in savings.
story.
If the package is adopted by Oct.
19, as the President and congres-
sional leaders hope, a 5-cent gaso-
line tax increase would take effect
on Dec. 1, with an additional 5-cent
hike next July 1. It is estimated
that each penny increase in the gas
tax will cost American drivers
about $1 billion a year. The current
The Philadelphia Thquirer
Monday, October 1. 1990
Plan raises taxes,cuts U.S. spending
By R. A. Zaldivar
Inquirer Washington Bureau
WASHINGTON - President Bush
Congressional leaders said that the
The increased excise tax burden
and congressional leaders agreed
President's role would be crucial. "I
on the poorest taxpayers would be
yesterday on a plan to cut the federal
think it's going to be difficult to pass
partly offset by a $5 billion expan-
deficit by $500 billion over the next
a deficit-reduction package of this
sion of the earned income tax credit.
five years.
historic size unless there is biparti-
The elderly poor would also be
If approved by Congress, the pack-
san support," said House Majority
shielded from the higher cost of
age would affect virtually every
Whip William H. Gray 3d (D., Pa.).
Medicare benefits.
household in America, raising the
"The President has got to be out
The $60 billion in Medicare cuts
cost of gasoline by 12 cents a gallon
there leading, and it's going to be
would be divided evenly between
and the cost of a six-pack of beer by
very, very difficult."
care providers and beneficiaries.
16 cents, while reducing spending
"If a senator is looking for a way
Medicare enrollees would see a num-
for Medicare, farm subsidies and un-
out, there are a number of difficult
ber of changes in the Part B cover-
employment insurance.
issues," said Sen. Pete V. Domenici of
age, which applies to outpatient care.
The agreement, which also in-
New Mexico, the senior Budget Com-
The annual deductible would rise
cludes Pentagon cuts and some tax
mittee Republican. "Those who do
from $75 to $150 in yearly increments
breaks for businesses, averted the
not want to face up to this can find
of $25, and monthly premiums would
automatic spending cuts under the
reasons, but I think the test is, what
be increased from $28.60 to $34.30.
Gramm-Rudman law that would
would they propose?"
Beneficiaries would also be required
have sent more than a million fed-
Rep. Newt Gingrich (R., Ga.), long
to pay 20 percent of the cost of home-
eral workers home as the 1991 fiscal
a strident foe of higher taxes, did not
attend the Rose Garden ceremony,
health visits.
year began today.
Three hours after Bush announced
despite his involvement in the nego-
Bush asserted that the plan repre-
the agreement from the Rose Gar-
tiations. An aide said Gingrich was
sented a break with the Washington
den, the House passed, 382-41, a stop-
having the package analyzed by a
tradition of cooked-up budgets. "It is
team of economists before he an-
not a phony smoke-and-mirrors defi-
gap spending bill to keep the govern-
nounced his position.
cit-cutting program," the President
ment going while work on the 1991
On the Democratic side, Senate
said. For example, the cost of the
budget was finished. Senate approval
by voice vote followed.
Budget Committee Chairman Jim
savings-and-loan bailout is included
Congressional leaders agreed to
Sasser of Tennessee expressed con-
in figuring the deficit.
complete the budget by Oct. 19,
cerns that the deal did not do enough
But the costs of Operation Desert
though they acknowledged that the
to address the issue of fairness in the
Shield - estimated at $15 billion
benefit cuts and new taxes will be a
distribution of federal taxes. Studies
next year - will not be counted in
have shown that during the '80s,
figuring the deficit. The temporary-
tough sell to members just one
taxes took a growing share of the
financing bill Congress passed last
month away from an election.
shrinking incomes of those less well
night included $2 billion in new
The agreement would cut the 1991
deficit, projected at a record $293
off, while the rich saw their tax
appropriations for the gulf opera-
billion, by $40.1 billion. The Gramm-
burden lessened.
tions.
Rudman law's goal of a balanced
"Because of the administration's
The budget plan also assumes that
budget in three years would be put
intractability on rates, and the neces-
the government will get $9.4 billion
sity of increasing excise taxes, it
over five years from improved IRS
off until after 1995. In January, the
Bush administration was projecting
leaves the overall package much less.
enforcement, a promise that has not
a $100 billion deficit for next year
progressive than I would have
paid off in the past.
and a balanced budget by 1993.
liked," Sasser said.
Additionally, the economic as-
Of the $133.4 billion in taxes, $73
sumptions underlying the package
Domestic benefit programs would
billion would come from excise
predict that domestic oil prices will
be cut by $119 billion over five years,
with $60 billion of that coming from
taxes, which affect lower-income
average $21.15 a barrel this year and.
Medicare and $13 billion from farm
people disproportionately. Those in-
$24.15 next year. Oil prices recently
programs. Discretionary spending
clude a 5-cent gasoline-tax increase,
passed $40 a barrel, and budget direc-
would be cut by $182 billion. most of
with another 5 cents by next July; a
tor Richard G. Darman acknowl-
it from the Pentagon.
4-cent increase in the cigarette tax,
edged that if prices stayed that high,
Taxes would go up by almost $134
with another 4 cents by 1993; dou-
his projections were out the window,
bling the tax on a six-pack of beer
Nevertheless, Domenici said this
billion, with the biggest item being a
from 16 to 32 cents; raising the tax on
was the most serious effort at deficit
10-cent increase in the gasoline tax
wine to 24 cents a bottle; increasing
reduction he had seen in 14 years on
that would bring in $45 billion. Sav.
ings on interest costs - one payoff
the tax on hard liquor by $1.20 a
the Budget Committee.
gallon, and a new tax on the petro-
"I've been at it a long time. and I
for such a deficit reduction 1S OX-
pected to be lower long-term interes'
leum content of manufactured goods
have never seen a package that at-
that would add 2 cents to the price of
tacks the deficit that is as credible as
rates would add nearly S65 billion
Bush's long-sought reduction 1:
a gallon of gas on Jan. 1.
this or as significant as this," Dome-
the capital-gains tax rate was
Tax increases aimed at the wealthy
nici said.
account for $33 billion of the reve-
dropped Saturday, along with the
Democrats insistence on higher
nue package. Those include a new
luxury tax on expensive cars and
taxes for the wealthy and plans la
trim Social Security benefits
items such as boats and private
planes, limits on income tax deduc-
"It is balanced. 1: IS fair. and in my
view it is what the United States of
tions and subjecting incomes of up to
$73,000 to the Medicare tax. Current-
America needs at this point in its
ly, the Medicare tax applies only to
history," Bush said in announcing
the first $51,300 of income.
the agreement, which concluded
The package includes $12.1 billion
budget talks that began in May.
in tax breaks for smaller businesses
With congressional leaders at his
and those who invest in them, $4
side, Bush said, "I do not welcome"
billion in tax incentives for oil and
the tax increases." But he said they
gas exploration, and $1 billion in
were needed to help the economy,
enterprise-zone credits for busi-
and "I will do everything I can to lay
nesses going into economically de-
aside partisanship and to take the
pressed areas.
case for this deal to the American
people in every way that I can."
The Philabelphia Thaquirer
Monday. October 1. 1990
Deal offers both pain and benefits
By Robert A. Rankin
Inquirer Washington Bureau
WASHINGTON - Americans would
And if financial markets believe
pay higher taxes and get reduced
the deal truly will lower federal bor-
federal benefits under the budget
rowing by $500 billion over five
agreement announced yesterday, but
years and possibly end federal defi-
if the deal works as expected, they
cits, as negotiators claim - that
also would gain lower interest rates
happy prospect in itself should push
on car loans and home mortgages, as
interest rates down immediately,
well as a healthier economy.
economists, bankers and market ana-
Taxes would rise for gasoline, to-
lysts agreed.
bacco and alcoholic beverages. Peo-
"The bond market is going to be
ple who buy luxury goods such as
the true sounding board, the true
yachts and expensive autos, or who
arbiter of [the deal's] ultimate impact
spend more than $5,000 on furs and
on the economy," said William Sulli-
jewelry, would pay a stiff new tax on
van, senior vice president for Dean
those items.
Witter Reynolds in New York.
If financial markets find the deal
Medicare beneficiaries would pay
credible, long-term interest rates
higher fees, farmers would get
should drop by half a percentage
smaller subsidies. state and local
point, most experts agree, and some
government workers would be re-
see even greater reductions.
quired to pay Social Security taxes
"I think that's worth a full percent-
and federal workers would lose a big,
age-point (drop) on rates across the
sweet pension perk - all if the defi-
spectrum," said Jay Woodworth. vice
cit deal becomes law
president of Bankers Trust in New
The agreement would be good for
York.
the American economy, independent
Such rate cuts would make homes,
experts agreed - but several big
appliances and autos cheaper. For ex-
questions remain unanswered.
ample, a $100,000, 30-year mortgage that
Will Congress enact it? Will finan-
carries a 10 percent interest fee pro-
cial markets believe the numbers are
duces a monthly payment of $877.57 to
and not "blue smoke-and-mir-
service principal and interest.
ror" budgetary fictions?
If the interest rate drops to 9 percent,
Will there be war in the Persian
the monthly payment would fall to
Gulf or deep recession here at home?
$804.62, said David Smith of Mount
Will oil prices stay at $40 a barrel, go
Vernon Realty in Alexandria, Va.
higher, or fall?
Federal Reserve Board Chairman
The answer to any of those ques-
Alan Greenspan repeatedly has said
tions could swamp the deal, or se-
that a credible deficit-cutting deal
verely reduce its effect on the U.S.
would lead to lower interest rates -
economy.
and the Fed controls short-term in-
Bush's budget director, Richard G.
terest rates.
Darman, conceded that if oil prices
stayed near their current $40-per-
But a one-point drop in short-term
barrel range long, "it would be seri-
rates would provide only modest
ously disruptive" to all calculations
benefits to consumers. For example,
in the budget agreement. This
a 48-month car loan for $10,000 now
budget assumes that the Persian Gulf
carries an 11.25 percent interest rate
and costs $259.67 a month.
crisis will be resolved and oil prices
will fall soon, Darman said.
At 10.25 percent interest, the
But if negotiators' calculations are
monthly payment would drop only to
$254.82 and interest costs over the
borne out, the federal goverment
could stop borrowing private funds
life of the loan would fall $233.20,
said Darren Zetena of Sovran Bank
to pay for current operations by fis-
cal 1994.
in suburban Washington.
That would end a massive, decade-
Falling interest rates would spur
business investment as well as con-
long federal drain on America's shal-
low pool of savings, freeing markets
sumer spending, perhaps enough to
to channel that money instead into
lift the slumping U.S. economy past
productive private investment at
recession this year, some experts
lower lending fees.
said; all agreed a credible deal that
pushes rates down would set Amer-
ica on a firmer economic foundation
for the future.
"The drop in rates should offset
the impact of the cutback in govern-
ment spending and the hike in
taxes," said Norman Robertson, chief
economist of Mellon Bank, of Pitts-
burgh, Pa.
"I certainly have no hesitation in
thinking this will be good for the
economy over the long term." said
Rudolph Penner, former director of
the Congressional Budget Office.
The Washington Times
MONDAY,
OCTOBER
1,
1990
Big fight expected on Hill
By Frank J. Murray
Democrats responded coolly to
and Major Garrett
new fiscal year's budget gap to not
the deal yesterday. Republicans
exceed $74 billion.
THE WASHINGTON TIMES
voiced potentially lethal objections.
Because the economy is so frag-
President Bush and congressional
"What is it that we've gotten," said
ile, only $40.1 billion of savings
negotiators ended the budget dead-
Rep. Mickey Edwards, Oklahoma
would be felt in the budget for the
lock yesterday by agreeing to wipe
Republican and chairman of the
fiscal year beginning today.
out the deficit in five years with a
House Republican Policy Commit-
The $500 billion deficit reduction
$134 billion tax boost and spending
tee. "There are enough demerits to
would be achieved over five years
cuts that would save $366 billion.
advocate defeat of the package. I
through $134 billion in tax increases,
The president abandoned his pro-
must use a microscope to find
discretionary cuts of $182.4 billion,
posal for a cut in the capital gains
enough merits."
mandatory cuts of $119 billion and
tax, a centerpiece of his 1988 cam-
Rep. Jerry Lewis, Califor nia Re-
spending reductions of $64.8 billion
paign, and agreed to new taxes on a
publican and chairman of the House
in interest.
wide variety of items.
Conference Committee, estimated
Mr. Bush won in another area,
The agreement, which must get
that 55 percent of the House Repub-
growth incentives for small busi-
House and Senate approval, would
licans oppose the deal and 45 per-
nesses. The plans would.cost $12.1
increase taxes on cigarettes, alco-
cent support it.
billion over the five years but even-
hol, gasoline, airplane tickets, fur
"A lot of work needs to be done at
tually would produce income and
coats, jewelry and luxury cars. It
the highest levels of the administra-
jobs. There also would be $1 billion
raises income taxes and Social Secu-
tion [to sell the package]," he said.
earmarked for enterprise zones and
rity premiums for the wealthy and
"At best, the people carrying this
$4 billion in energy incentives.
increases medical expenses for the
package are on eggshells."
Mr. Bush interrupted a round of
disabled and elderly while cutting
Sen. Connie Mack, Florida Repub-
private meetings with world leaders
back unemployment insurance pay-
lican, said, "I cannot support this
at the United Nations for a five-hour
ments and student loans.
budget because it hurts taxpayers,
round trip to the White House for the
"[It] requires that virtually every-
hurts the economy and hurts senior
announcement. When he returned to
one contribute in some way," a sour-
citizens."
New York he told the world leaders
faced President Bush said in an-
Rep. Dana Rohrabacher, Califor-
he hoped the budget plan and deficit
nouncing the deal in the Rose
nia Republican, called it "a road map
reductions would lower interna-
Garden surrounded by equally grim
to recession."
tional interest rates.
negotiators from both parties who
Rep. Charles Rangel, New York
A number of citizen groups re-
reportedly thrashed out details
Democrat, said it left "the richest of
acted harshly to the budget plan.
through the night.
the rich alone." He doubted he would
The National Association of Coun-
"It is balanced, it is fair and in my
support the package.
ties complained bitterly about the
view it is what the United States of
One sweetener available to Con-
proposed increase in gas taxes and
America needs at this point in its
gress is that more than half of the
provisions to limit the federal in-
history," Mr. Bush said.
$500 billion in deficit reduction will
come tax deduction for state and lo-
Shortly afterward, Congress
not take effect until 1994-95.
cal income and property taxes.
acted to avert $105 billion in spend-
"You threaten people with execu-
"We are strongly opposed to this
ing cuts and furloughs of thou-
tion, and when you only cut off their
budget package," said NACo Pres-
sands of rederal workers - which
thumb, they're supposed to be
ident D. Michael Stewart. "It is un-
would have taken effect this morning
happy," said Rep. Larry Smith, a
fortunate that we have to oppose the
under the Gramm-Rudman-Hol-
Florida Democrat whose South Flor-
entire package because of these two
lings deficit-reduction law.
ida district includes thousands of el-
proposals, but we have been given no
On a 382-41 vote, the House ap-
derly residents.
other choice."
proved a stopgap spending bill,
"A majority of House Republicans
Alan L. Keyes, president of a
known as a continuing resolution,
need to support this," he said. "We're
400,000-member taxpayer advocate
that allows the government to fund
not carrying their water."
group called Citizens Against Gov-
all services until Oct. 5. The Senate
Although Mr. Bush already had
ernment Waste, called the package
wien passed the measure on a voice
abandoned his campaign pledge not
"a terrible deal for taxpayers."
vote. The resolution also includes $2
to raise taxes, he said, "Sometimes
"Just as with so many budget
billion in new appropriations for Op-
you don't get it just the way you
deals in the past decade, the taxpay-
eration Desert Shield in the Persian
want, and this is such a time for me."
ers have absolutely no guarantees
Gulf.
He even signed off on a page from
that spending cuts will materialize
The congressional leadership in-
Michael Dukakis' presidential cam-
and every assurance that taxes will
volved in the negotiations now must
paign that Mr. Bush had ridiculed.
go up," Mr. Keyes said.
sell the agreement to rank-and-file
Mr. Dukakis suggested easing the
Ron Pollack of Families USA, a
lawmakers who were largely ex-
deficit without taxes by increasing
non-profit group that advocates on
cluded from the budget talks, which
IRS enforcement. That plan was in
behalf of the elderly poor, said the
began in May. November elections
the bipartisan deal, with a $9.4 bil-
negotiators "have declared war on
will make the task more complicated
lion estimate of its value.
our grandparents" and warned that
amid higher taxes and cuts in pro-
Technically, yesterday's agree-
those who back the plan "shouldn't
grams such as Medicare.
ment produced a postponement of
expect older Americans to be paci-
"It's going to be very painful for a
drastic budget cuts only until Friday,
fists on Election Day."
lot of people," said Senate Minority
giving Congress a week to pass a
Edwin Rothschild, head of Citizen
leader Robert Dole of Kansas. "The
budget resolution adopting the
Action, a non-profit national con-
naysayers, the nit-pickers may have
broad outlines of the agreement.
sumer organization, complained
a field day."
Congress likely will pass a second
that the gasoline tax is a regressive
House Speaker Thomas Foley of
continuing resolution to extend gov-
measure that will hit poor and
Washington said "it's not going to be
ernment spending until Oct. 19. That
middle-income people hardest.
easy or simple" to win congressional
would allow the various committees
passage.
to draft legislation and specific ap-
"Now comes the hard part," said
propriations bills that meet the
Senate Majority Leader George
spending targets within the budget
Mitchell of Maine. "This agreement
agreement.
is a compromise. Both sides can ac-
The agreement would waive the
curately say that it includes provi-
current Gramm-Rudman deficit tar-
sions they don't like,
We have al-
gets, which would have required the
ready debated too long. Now we
must act decisively."
The Washington Times
MONDAY, OCTOBER 1, 1990
Democrats rolled
us
tax-cutters say of deal
By Donald Lambro
attended the meetings.
more important is a budget deal that
THE WASHINGTON TIMES
At one point in an exchange with
works."
Sen. Malcolm Wallop of Wyoming,
Last week, with the chances dim-
The Republicans who fought for
who chairs the Senate Republican
ming for any capital gains tax cut,
the capital-gains tax cut, a center-
Steering Committee, which is a
several conservative Republican
piece of the President Bush's 1988
group of conservative senators, Mr.
senators, such as Bob Kasten of Wis-
campaign, reacted last night with
Sununu angrily told him: "If you
consin, shifted to a fallback position,
bitter anger and sour frustration.
don't like what we're doing, you
pushing for indexing of capital gains
"We let the Democrats roll us on
come up with your own plan."
for inflation.
capital gains," said a budget aide to
Mr. Sununu has over the past sev-
In the end, even that modification
one Republican senator who has
eral weeks turned aside repeated re-
could not win enough support among
been in the forefront of the fight.
quests from the conservative group
negotiators, when Democrats, un-
"We let them get away with mur-
to meet with Mr. Bush to discuss
ruffled by the deadline pressure,
der: There were some very good ar-
their concerns about how the capital
stuck to their position that any re-
guments to be made for our position
gains and budget negotiations were
duction in capital gains taxation
and we didn't make them.
being handled.
must be accompanied by raising the
"We let the enemy have the field."
The president's chief adviser was
rates on the wealthiest taxpayers.
In the end, some Republicans
quoted as telling Mr. Wallop: "If you
Supporters of the capital-gains
said, President Bush and his chief
don't have a solution of your own in
tax cut, such as Sen. Connie Mack,
lieutenants wouldn't make the eco-
hand, then there is no point in com-
Florida Republican, insisted over the
nomic case for the president's own
ing up here and telling him that you
weekend that despite their defeat in
don't like his."
the budget talks, they would press
proposal, which the president ar-
The growing acrimony between
ahead in the weeks to come to offer
gued in 1988 would stimulate busi-
ness investment and jobs in the
the White House and Republican
their own capital-gains cut propos-
midst of a declining economy.
senators appeared to worsen at last
als on the Senate floor as an amend-
"Our people up here feel that the
Tuesday's closed Senate Republican
ment to a piece of legislation.
"He's not throwing in the towel,"
White House has not defended the
Policy Committee meeting.
said an adviser to Sen. Kasten who,
capital-gains case in the face of the
"They ganged up on him [for] not
with Mr. Mack, is sponsoring an
Democrats' attacks and has not de-
being as effective as the Democrats
amendment to cut the present 28
fined the issue as a major economic
in framing the debate and keeping
percent capital-gains tax rate to 15
growth measure," the budget aide
the party on the offensive," said a
percent. "We still want to go for a
said.
Senate budget aide. "The message
rate cut and a separate vote on this
Many of the Republicans blamed
that the senators gave Sununu was
issue."
Sen. Robert. Dole of Kansas, the
for the president to get on the stick
Nevertheless, the critical ques-
leader of the Republican minority,
and start blaming the Democrats.
tion on Capitol Hill last night was
and Rep. Robert Michel of Illinois,
"But he ganged right back, re-
whether the White House and Demo-
his counterpart in the House, for
minding everybody that when Bush
cratic leaders could persuade their
abandoning the issue as budget-
was criticized for attacking the
troops in the House and Senate to
deadline pressure grew.
Democrats last August for the im-
support the budget agreement.
"It's really hard when you are bat-
passe over the budget talks, there
Aides to several conservative Re-
tling not only [Senate Democratic
weren't many Republicans in Con-
publican senators said they believed
leader] George Mitchell, but your
gress who backed him up."
many on their side would "walk
own Republican leaders," com-
White House political director
away from the agreement" because
plained a chief budget adviser to a
David Carney dismissed reports of
of its tax components. On the Demo-
Southern Republican senator.
Republican dissatisfaction with the
cratic side, one House aide close to
"There's a great deal of trustra-
administration's handling of the
the budget talks said Speaker
tion toward the Republican leader-
capital gains issue as "inside-the-
Thomas S. Foley "would have trou-
ship in the Senate which they 1GOP
Beltway stuff" that carries little or
ble selling the package" to Demo-
senators] are close to calling no lead-
no weight with the voters.
crats "because of the entitlement
ership," said another party officer
"The budget deal is 100 percent
cuts."
who works closely with conserva-
more important than any one cam-
tive senators.
paign platform political point of
But it was the White House's
view and from an economic point of
handling of the capital-gains issue
view." Mr. Carney said. "The Amer-
that was the chief focus of com-
ican people want to know, did they
plaints made in recent weeks by Re-
get the job done? And if not, why
publican senators during closed
not?
meetings with White House Chief of
'Capital gains is an important
Staff John Sununu and other admin-
growth mechanism. but it's not the
istration officials, say sources who
only growth mechanism. What's
ALEXANDE BY NI, HAMILTON OF
NEWYORKPOST
METRO EDITION
MONDAY, OCTOBER 1, 1990 / Sunny, upper 60s today; partly cloudy, low 50s tonight / Details, Page 2
FED BUDGET DEAL:
$134B IN TAX HIKES
By DEBORAH ORIN Washington Bureau Chief
President Bush and congressional leaders yesterday
families earning over $100,000,
unveiled an 11th-hour budget deal that would mean
in a state such as New York -
$134 billion in tax hikes on everything from gasoline,
which has both higher incomes
booze and cigarettes to fancy cars.
and higher costs-of-living -
The deal would also slash tax deductions for families
that could affect a husband and
earning over $100,000 - meaning some wealthy individu-
wife who both are civil servants.
als could lose 80 percent of their deductions, including
Critics also contend the deal
local and property taxes and charitable contributions.
would encourage wealthy corpo-
Aides to both Gov. Cuomo and Mayor Dinkins said
rate executives to move their
the deal would zap New York especially hard.
companies out of New York to
Cuomo is "adamantly opposed" to what he regards
lower-tax states - hurting the
city's economy and the real-es-
as a "very regressive" plan and
tate market.
intends to fight it, said his Wash-
"It's also very regressive - to
ington lobbyist, Brad Johnson.
seek just $2 billion in luxury
It wasn't immediately clear
taxes doesn't balance the equa-
whether the package will pass
tion;" added Johnson, Cuomo's
Congress - President Bush ac-
man in Washington.
knowledged "there will be some
He contended the $2 billion to
tough fights ahead," and conser-
be raised in "luxury taxes" on
vative Republicans were report-
items likes Xancy cars is nothing
edly furious.
compared with the $45 billion in
After the deal was announced,
gas taxes and $10 billion in
Congress passed stop-gap fund-
booze taxes that would hit Joe
ing to avoid layoffs as the new
Sixpack.
fiscal year starts today. Con-
Cuomo himself is expected to
gress will have until Oct. 19 to
denounce the plan today.
vote on the deal.
Mayor Dinkins' press secre-
Most New York congressmen
tary, Albert Scardino, noted that
described the proposal as "iffy"
New York City now gets back
- but several voiced relief that
just 77 cents on every dollar
it doesn't hurt Social Security
"We already bear a dispropor-
payments, although it raises
tionate share of the cost of the
Medicare costs to seniors.
federal government and get less
The five-year plan doesn't in-
than our share of the benefits -
clude the capital-gains tax cut
this would only exacerbate the
President Bush ardently sought.
situation," Scardino said.
That idea died when Demo-
The complicated proposal for
crats insisted it be accompanied
slashing deductions would af-
by higher income-tax rates for
fect any individual or family
the rich.
with adjusted gross income
Conservative Republicans re-
over $100,000.
portedly were furious over the
The amount of eligible deduc-
absence of a capital-gains cut as
tions would be reduced by
well as over some of the tax
3 percent of the amount of ad-
hikes - in fact, House GOP whip
justed income over $100,000.
Newt Gingrich (R-Ga.) boycot-
A family with $200,000 in ad-
ted Bush's Rose Garden press
justed gross income and $40,000
conference durinn which he an-
in deductions would have in-
nounced the deal.
come $100,000 over the three
The plan calls for defense cuts
hold, which means a $3,000 re-
of at least $67 billion - possibly
duction - so only $37,000 could
more - and a freeze in domestic
be deducted.
programs.
As family income rose,
as
Cuomo's staff denounced the
much as 80 percent of deduc-
package as a "partial repeal" of
tions could be lost.
deductibility of state and local
taxes - a erucial issue in New
York, which has some of the
highest state taxes in the nation.
Although the deal hits only
DAILY NEWS
NEW YORK'S PICTURE NEWSPAPER®
Monday, October 1, 1990
Read it here: new
taxes
By JEROME CAHILL
News Washington Bureau
WASHINGTON - President Bush and Con-
gress agreed yesterday on a five-year, $500 bil-
lion package of spending cuts and tax hikes that
will hit nearly every American but saves most of
a tax break important to New Yorkers.
The plan, which heads off
the shutdown of government
But about 2.5 million up-
services threatened for to-
per-income taxpayers - cou-
day, calls for a total of $134
ples and individuals with in-
billion in higher taxes over
comes higher than $100,000
the period, with the biggest
- would lose a part of their
increase coming from a 12-
itemized deductions. As a re-
cent-a-gallon hike in the gas-
sult, someone at the top 28%
oline tax - 5 cents effective
tax rate earning $150,000 a
this year and 7 cents next
year would pay about $420
July.
more in income taxes, offi-
Defense spending would
cials said:
face a three-year, $67.2 bil-
Although Bush campaigned
lion cutback. Government
for the White House in 1988
spending on benefit pro-
on a "no new taxes" platform
grams such as Medicare
and for months bitterly op-
would be slashed, and other
posed the idea of using tax
domestic programs would
increases to reduce the bud-
held down.
get deficit, he promised to
Bush, who flew back to
fight hard to get the package
Washington from the United
approved by Congress.
Nations yesterday morning to
"Sometimes you don't get it
bless the agreement, urged
just the way you want, and
swift congressional approval.
this is is such a time for me,"
Bush said. But he said the
'Balanced': Bush
time had come "to lay parti-
Underscoring his adminis-
sanship aside" and compro-
tration's hopes that the plan
mise to bring the deficit un-
will lead to lower interest
der control.
rates and boost the sluggish
Democratic leaders agreed.
economy, Bush told a Rose
"The alternative to this
Garden ceremony attended
agreement is fiscal chaos,"
by top congressional leaders
said House Majority Leader
that the plan was "balanced
Richard Gephardt (D-Mo.)
fair and in my view it is
In the marathon round of
what the United States of
weekend talks that finally
America needs at this point
produced an agreement early
in its history."
yesterday, the budget negoti-
On key pocketbook items,
ators shelved two of the most
the plan calls for higher taxes
controversial issues facing
on cigarets, beer, wine, li-
them - proposals to cut capi-
quor, airplane tickets and
tal gains taxes and Social Se-
luxury items such as jewelry
curity benefits.
and high-powered autos. Mid-
Bush dropped his demand
dle and upper-income tax-
for a capital gains tax reduc-
payers would pay more in
tion and Democrats gave up
Medicare taxes, the govern-
on their insistence on raising
the 28% tax rate for the
ment's health insurance pro-
gram for the elderly.
wealthiest taxpayers, who
In a victory for Gov. Cuomo,
would benefit most from a
the plan retains the full de-
lower rate on capital gains -
ductibility for state and local
those from sales of stocks,
income tax payments for
bonds and other assets.
most middle-income taxpay-
Negotiators, fearful of a
ers. The White House had
voter backlash by senior citi-
sought to wipe out much of
zens in the November elec-
the deduction, but backed
tions, rejected any delay in
down in the face of opposi-
cost-of-living raises for Social
tion led by Cuomo and New
Security retirees. The negoti-
York's congressional delega-
ators also had second
tion.
thoughts about increasing the
tax bite on retirement bene-
fits received by the middle
and upper-income elderly.
DAILY NEWS
NEW YORK'S PICTURE NEWSPAPER®
Monday, October 1, 1990
Deficit plan is called painful
By STEVEN KOMAROW
The Associated Press
WASHINGTON - Pres-
ident Bush's budget deal
with Congress would dig
deep into American pock-
etbooks.
"It's going to be very
painful for a lot of peo-
ple," said Senate GOP
Leader Bob Dole of Kan-
sas, predicting a tough
fight for enough votes to
approve the agreement.
Taxes on gasoline and
diesel fuel, now 9 cents a
gallon, would more than
double, to 21 cents by
next July.
The 16-cent federal tax
on a pack of cigarets
would rise 4 cents Jan. 1
and 4 cents in 1993.
Middle-income and;
wealthy taxpayers, not
just the elderly, would
pay for Medicare. Cur-
rently, the payroll tax of
1.45% stops after a tax-
payer's income hits
$51,300. The budget deal
would keep workers -
and employers - paying
until a $73,000 income
cap.
Medicare, Soc Sec
State employes who
currently don't pay the
Medicare tax or Social
Security would be
brought into the system.
The annual Medicare
deductible would double,
from $75 to $150; cover-
age for clinical testing
would drop from full to
80%, and monthly premi-
ums would rise from
$28.60 to about $34 next
year.
Buyers of new cars,
boats, jewelry and furs
would pay a national
sales tax on luxury goods.
The fee would be 10% on
the portion of car pur-
chases above $30,000,
boats and yachts above
$100,000 and jewelry and
furs above $5,000.
Most individuals or
families with incomes in
excess of $100,000 would
pay higher taxes, with the
government disallowing
3% of itemized deduc-
tions. Medical expenses
or investment interest
would not count.
Taxes on beer, wine
and other alcoholic bev-
erages would rise.
Richmond
Times-Dispatch
Monday, October 1, 1990
Accord averts automatic cuts
WASHINGTON - President Bush
The negotiators, who sealed the
ous government services during the
and congressional negotiators
final deal at 3 o'clock yesterday
same period.
agreed yesterday to a deficit-cutting
morning, decided at the last minute
The main spending cuts in the
plan that includes major increases in
that they were unwilling to take the
agreement include increased premi-
taxes.
political risk of including Social Se-
ums and a higher deductible for
Bush and a weary group of leaders
curity in the deficit-cutting package.
Medicare, cuts in farm programs,
from both parties gathered in the
Earlier plans had called for either
military spending and retirement
Rose Garden to announce their ac-
delaying cost of living adjustments
benefits for federal employees.
cord and to disclose that they now
for Social Security recipients or in-
project the deficit for fiscal 1991 at
creasing the portion of their benefits
The main revenue-raising provi-
$293.7 billion, up more than $60 bil-
now subject to income tax.
sions include a 5-cent-a-gallon in-
lion from the estimate the govern-
crease in the gasoline tax, effective
The political strain that the nego-
ment made in July.
tiations have engendered was illus-
Dec. 1, and an additional 5-cent in-
They said the plan would bring the
trated by the absence from the Rose
crease effective July 1. There would
Garden meeting of two top Republi-
also be a separate tax on petroleum
federal deficit down by $40 billion
that Richard Darman, the budget di-
next year and by $500 billion over
cans, Sen. Bob Packwood of Oregon
and Rep. Newt Gingrich of Georgia,
rector, said would increase the per-
five years. But at the same time they
gallon gasoline tax an additional 2
agreed to extend the Gramm-Rud-
who were upset over the tax policies
cents.
man deadline for a balanced budget
in the agreement.
In addition, the package includes
to fiscal 1996 from 1993.
But the Democratic leaders, who
higher taxes on cigarettes and a 10
Bush said he expected that enact-
may face their own rebellion from
percent tax on automobiles with
ment of the plan would stimulate the
the liberal wing of their party,
price tags over $30,000, boats with
economy and lead to lower interest
agreed to sell the plan.
price tags over $100,000 and jewelry
rates. But White House officials later
As he announced the accord, Bush
and furs over $5,000.
said the economic projections under-
pledged, "I will do everything I can
(Ray D. Pethtel, commissioner of
lying the plan also assume that oil
to lay aside partisanship here and to
the Virginia Department of Trans-
prices will fall.
take the case for this deal to the
portation, said "we'll have to take a
Bush began selling the package to
American people."
careful look at the agreement" to
Congress, which took the first step
Both the president and the con-
determine, among other things, if the
yesterday of approving a stopgap
gressional leaders noted that while
additional revenues will be used en-
spending bill that will keep the gov-
the negotiations had been difficult,
tirely for deficit reduction.
ernment in operation through Friday
the hardest task now lies ahead -
("I haven't seen the details," Peth-
and also avoid steep automatic
getting members of the House and
tel said, but "we are concerned that
spending cuts that were to take ef-
Senate to go along with the package.
any increase in the price of gasoline
fect today.
Despite the swift approval by the
could affect consumption and that
Even as Bush began his sales
two chambers of the stopgap spend-
would affect our revenue base."
pitch, dozens of rank and file mem-
ing bill and the delay in automatic
bers of Congress attacked the agree-
spending cuts, the absence of Pack-
(The highway department, heavily
wood and Gingrich could foreshadow
dependent on gasoline taxes and oth-
ment. Republicans were made angry
some of the difficulties.
er fees such as titling and sales tax-
by the tax increases and Democrats
by the cuts in domestic spending.
Under the complicated procedure
es, has already been hit hard by reve-
the negotiators have worked out to
nue projections that will fall about
The compromise, a product of four
try to assure that the House and
$131 million less than anticipated
months of negotiations between the
Senate approve the final package in-
this biennium.)
White House and congressional lead-
tact, lawmakers will face a series of
The package would also raise the
ers, would impose steep spending
deadlines over the next three weeks
limit on wages subject to a 1.45 per-
cuts in popular programs, particu-
to consider the specific spending
cent tax that workers and their em-
larly Medicare, while raising taxes
cuts and tax increases their leaders
ployers pay to finance the hospital
on petroleum products as well as
have recomended.
portion of the Medicare program.
gasoline, cigarettes, luxury items
If the deadlines are not met, law-
The tax applies to the first $51,300
and alcoholic beverages. But the So-
makers would be faced at each step
and would rise to $73,000.
cial Security program was spared.
along the way with the alternative of
The 3-cent-per-bottle wine tax will
The agreement, however, forced
a government shutdown and the im-
increase to 24 cents, the 16-cent tax
tough political decisions upon Bush.
position of the automatic spending
on a six-pack of beer will go to 36
He gave up his long-sought goal of a
cuts.
cents and the $12.50-per-gallon li-
cut in the capital gains tax rate and
Over five years, the budget pack-
quor tax will grow by $1.20.
accepted a Democratic proposal
'age would cut $170 billion from mili-
While the president did not get the
that would decrease the amount of
tary programs and $119 billion from
capital gains tax cut, he did win, a
deductions that Americans with in-
benefit programs like Medicare,
package of more narrowly targeted
comes over $100,000 can take on
farm subsidies and civil service re-
tax breaks totaling about $25 billion
their federal income tax returns.
tirement. The package would raise
over five years.
$134 billion in new revenue from
higher taxes and user fees for vari-
Richmond
Times-Dispatch
Monday, October 1, 1990
Massive shortfall
remains despite deal
Despite deal,
big deficit
remains
Analysis
By Tom Raum
Associated Press writer
WASHINGTON - Once again, an
that the economy doesn't totter into
11th-hour budget compromise has
a recession.
delayed fiscal chaos. But the agree-
So the final figures could be much
ment that President Bush insisted
worse.
yesterday was not "smoke and mir-
Compare the $253 billion level
rors" will still leave a gaping budget
with the target in the Gramm-Rud-
deficit.
man budget balancing law of $64
For it to work, the agreement's
billion.
major initial impact must be psycho-
It would. take -spending cuts of
logical. It must give financial mar-
some $130 billion to get spending in
kets enough confidence that interest
line with that target - not the $40
rates will begin to drop.
billion of the agreement or the $100
Even though the plan announced
billion talked about over the past few
weeks.
at a hastily arranged Rose Garden
ceremony holds out the promise of
Thus, the balanced budget that
deeper savings down the road, it will
President Reagan once promised by
not prevent the fiscal 1991 deficit
1983, and which the current Gramm-
from setting a record.
Rudman law required by 1993, is
once again receding from grasp.
Ironically, even as congressional
Now, budget negotiators don't en-
and White House budget negotiators
vision a budget in balance until near
were putting the finishing touches on
the end of the century.
the deal to pare the federal deficit by
"The markets are not looking at
$40 billion in the new fiscal year,
the Gramm-Rudman-Hollings tar-
budget officials were raising the es-
gets as if that's reality, the ones in
timate of the deficit by a similar
current law," Darman said.
amount.
No one really believes "we're on a
Just a week ago, budget negotia-
path to meet those targets," he con-
tors were talking about a $250 billion
ceded. "That's been obvious for
shortage in the absence of spending
months if not more than a year."
cuts and tax increases.
Bush made two major concessions
Now, even with the budget agree-
in the course of the talks: first agree-
ment, a deficit of $254 billion is
ing, in July, to back away from his
forecast.
"no new taxes" pledge; and then, just
That's because yesterday, Budget
within the past few days, abandoning
Director Richard Darman increased
his insistence on a lower capital
the estimate for the fiscal 1991 defi-
gains tax rate.
cit to $293.7 billion.
Did Bush give up more than he
That's up from the $100 billion he
gained? "I don't think we're going to
estimated in January and the $231
get into the hot rhetoric of what gain
billion he estimated in July. He
or loss there is in terms of - politi-
blamed economic performance and
cal terms," White House chief of
the spiraling costs of the savings and
staff John Sununu said Sunday.
loan bailout for the latest revision.
And that new figure assumes that
oil retreats from $40 a barrel to $21
to $24; that a shooting war doesn't
break out in the Middle East; and
The Washington Times
WASHINGTON, D.C.
FRIDAY,
SEPTEMBER 28, 1990
Budget bargainers seem inches closer
By Major Garrett
closer on the thorny issue of capital
FOUR BUDGET
and Frank J. Murray
gains tax cuts, pushed by President
THE WASHINGTON TIMES
Bush.
SCENARIOS
Officials said Republicans
1. Near miss.
Budget negotiators reported no-
dropped the demand to cut the rate
ticeable progress yesterday, but
from 33 percent to 15 percent in ex-
Budget summit produces a deal,
Congress still was forced to call a
change for indexing capital gains to
which Congress passes.
rare Sunday session to consider a
President Bush signs a temporary
protect profits from the effects of
omnibus spending bill called a
temporary law that would spare the
inflation.
continuing resolution. The bill
nation drastic cutbacks in govern-
Democrats countered that the
waives the $105 billion in
ment services.
rate would be acceptable only if tax
Gramm-Rudman cuts and funds
White House negotiators and the
rates for wealthy Americans were
services until the deal is enacted
congressional leadership ex-
raised enough to compensate for the
through normal legislation, a
changed new proposals that nar-
loss in revenue indexing would
process that could last up to two
rowed differences in the area of do-
weeks
bring.
mestic spending cuts.
Capital gains taxes are paid on the
2. Bush's call.
"It looks pretty close right now,"
profits of stocks, bonds, land and
Budget summit crumbles and
said White House Chief of Staff John
other assets from the time of pur-
government heads to
Sununu. "The chances of us getting
chase to the time of sale. With index-
Gramm-Rudman spending cuts.
an agreement today are 3 in 8. It's
ing, taxes would apply only to pre-
Congress fails to pass an
like Jell-O, it's not ready until it's
inflation profits.
alternative budget package now
ready."
House Democrats have prepared
being drafted by House
If a deal is not reached by Monday,
an omnibus spending bill that would
Democrats. Bush employs a
the start of fiscal year 1991, more
10-year-old legal opinion to fund
delay Gramm-Rudman cuts for 20
"essential government services"
than $105 billion in spending cuts
days while Congress implements the
and allows budget cuts to hit other
under the Gramm-Rudman-Holl-
1991 budget. The president has
programs harder. Airplanes fly
ings deficit-reduction law will com-
vowed to veto that proposal unless it
and meat is inspected.
mence. Congress called the Sunday
contains a budget agreement pro-
3. Furlough fallout.
meeting to pass a budget deal -
duced by the summit.
should one emerge - or an alter-
Budget summit fails, Democrats
Regarding budget talks, Mr. Bush
nate, temporary funding bill to keep
push to delay Gramm-Rudman
toned down his anti-Democratic
the government afloat.
cuts but Bepublicans defeat the
rhetoric yesterday while cam-
measure and allow only a bill that
Negotiators talked long into last
paigning in the Midwest.
maintains key government
night. But it was clear that even if an
At a Cleveland fund-raiser for gu-
services. Other cuts go into effect
agreement were reached early this
bernatorial candidate George Voino-
and thousands of government
morning, Congress would be unable
vich, Mr. Bush inexplicably omitted
employees are sent home on
to consider it fully today. Congress is
references to the Democratic Party.
unpaid furloughs.
set to adjourn by 2 p.m. in obser-
Just a day before he had blamed
4. Government goes bust.
vance of Yom Kippur.
the budget impasse on congres-
Officials said pesky differences
Budget summit fails, no
sional Democrats and promised to
short-term spending bill is
remained on tax policy and methods
take that message to "every state in
passed, and Gramm-Rudman is
to enforce the massive budget deal,
the union." He even erroneously ac-
not waived. Under this, the most
which is designed to trim spending
cused them of failing to offer a bud-
unlikely scenario of all, the sun
by $50 billion in 1991 and $450 billion
get package, an assertion he later
rises Monday and the government
more over the next four years.
has no money to operate and
retracted.
Said Budget Director Richard
shuts down until a legislative
"You can't do it every speech," said
Darman:
remedy is found.
Press Secretary Marlin Fitzwater
"Maybe tomorrow [we'll get an ag-
when asked to explain the new tone.
reement]," he said. "I just can't tell
Meanwhile, House Democrats ac-
last night.
you. Who would have thought that it
cused the president of ducking the
"You're witnessing the most ex-
would be going on this long."
talks, claiming his presence was
pensive circus on the face of the
Democratic officials close to the
necessary to seal a deal.
earth," countered Rep. Jim Light-
talks expressed optimism that
Rep. Robert Wise Jr., West Vir-
foot, Iowa Republican. "The amount
agreement could be reached before
ginia Democrat, appeared on the
of horse manure spread around
the Sunday session. If that occurred,
House floor with a milk carton plas-
would put the fertilizer industry out
the budget package would be at-
tered with a likeness of Mr. Bush,
of business."
tached to a short-term omnibus
similar to carton notices describing
Angry rank-and-file members of
spending bill Congress likely would
missing persons. Raising it, Mr.
both parties decried the seemingly
pass to block Gramm-Rudman cuts.
Wise asked:
endless negotiating process. Some
"People are optimistic at this
"Have you seen this man? It's
declared open warfare on the budget
point," said House Speaker Thomas
George Bush. Mr. President, get to
deal, which, when announced, likely
Foley. "The odds are we're going to
the summit where you belong," he
will include cuts to Medicare and
succeed."
said.
farm subsidies, and tax increases on
Both sides appeared somewhat
Mr. Bush returned to Washington
fuel, alcohol and cigarettes.
The Washington Times
WASHINGTON, D.C.
FRIDAY, SEPTEMBER 28, 1990
Workers' wallets feel fear of furlough
By Matt Neufeld
THE WASHINGTON TIMES
A 20-year government secretary
afford even one day every two
went to buy two pairs of shoes she
weeks," said Richard O'Gara, 38, a
really needed. But she told the store
transportation industry analyst with
to hold the second pair; she just
the Maritime Administration for 14
couldn't afford to spend the extra $50
years. "I'm not sure the people ma)
right now
ing the decisions are aware of that.
Another federal secretary, Paula
The people making thedecisions are
Chandler, supplements her pay-
not in that bracket."
check with a part-time job at a de-
Mr. O'Gara, however, said talk of
partment store. But that's looking
budget cuts even affects his spend-
less reliable now, she said, because
ing habits. "For myself, I have to go
fewer people are shopping.
into some savings," he said.
Federal workers, upset at the
Mrs. Chandler, 27, has worked in
prospect of being furloughed, are al-
the office of the secretary of trans-
ready changing their habits. They
portation for six years and makes
are cutting out spending for any-
about $22,000 a year. She said
thing other than essentials and try-
dipping into savings is an option -
ing to save whatever they can.
if a person has any savings
While budget negotiations contin-
far as savings, I don't have
ued yesterday on Capitol Hill and
anything to fall back on," she said.
A federal lawyer said that many
congressmen took to the floors of
fellow workers have already started
their respective houses to complain
about the pace, talks were expected
telling their children to expect a
leaner Christmas.
to continue through the weekend.
Tens of thousands of government
"Everybody I know has been sav-
workers could be automatically fur-
ing for at least a month, deferring
loughed if no budget agreement is
bill payments, getting as liquid as
possible," said the trade commission
reached by Monday. In random in-
lawyer, who asked not to be identi-
terviews outside the Department of
fied. "Frankly, it's been my experi-
Transportation in Southwest yester-
day, workers fretted about the finan-
ence that not that many people in the
cial hardship the furloughs could
federal government have much in
cause.
the way of savings."
Richard Toye, an employee for
Budget shortfalls have led to fur-
eight years in the transporation sec-
loughs of some workers for a day or
retary's personnel office, said dis-
two in the past, and furloughs have
been threatened each year since the
cretionary spending has to be cut or
Gramm-Rudman-Hollings deficit-
stopped totally.
reduction law took effect. But fed-
"You cut out extra things: going to
eral workers now seem genuinely
the movies, going out to get some-
worried.
thing to eat," said Mr. Toye, 27, who
The secretary, who works for the
makes about $26,000 a year. "I've
been trying to save up for a house.
Urban Mass Transportation Admin-
istration, said the shoes are no lux-
Maybe I'll have to delay those plans
ury for her. "I need them," she said.
a little bit."
But with the prospect of a 20 per-
Mr. Toye had sharp words for leg-
cent cut in her paycheck, "I'm not
islators: "I'm kind of upset the Con-
spending any money - just for what
gress and the president are in this
I need. It's hard when you're living
budget battle and they're not going
within your income as it is. Being
to be affected. Maybe if they took a
threatened with losing a few days'
few days' cut in pay? I've only heard
pay is hard - even one day."
one or two congressmen say they'd
Mrs. Chandler, who works part
take a cut in pay. They'll still be get-
time at a Hecht's store, said: "People
ting their $100,000 salaries."
aren't buying like they used to. They
He said that while he cuts out "ex-
have sale after sale after sale, and
tra activities," single-family house-
people aren't coming in to buy."
holds "cut out things like clothes for
Employees said the impending
their children."
cuts would cause the most harm to
Such situations are ironic to the
lower-level secretaries and clerks
UMTA secretary, who joined the fed-
who annually make $18,000 to
eral government because "this is
$22,000. Many of those workers are
supposed to be a secure job. It defi-
single, minorities and parents of
nitely wasn't because of pay, because
young children, they said.
the government gets paid less than
private industry."
"These are the people who can't
A co-worker, a DOT employee for
22 years, had a suggestion: "To me it
would make better sense right now
to put most of the restrictions on the
programs we fund, rather than on
the individual employees."
The Washington Times
WASHINGTON, D.C.
FRIDAY, SEPTEMBER 28, 1990
Even Sunday dinner wouldn't
escape budget cuts
By Joyce Price
and Atmospheric Administration,
THE WASHINGTON TIMES
said arrangements have been made
Expect meat and poultry short-
to keep all weather stations open un-
til Oct. 15.
ages, a staggering disruption of air
travel and even contaminated blood
The FAA's flight reduction plan
supplies if no budget deal is reached
would not start up until Oct. 4.
by Monday, government officials
"Meanwhile, you can expect extra-
and industry analysts warn.
ordinary delays on those first three
It could also mean 1.6 million chil-
days," said William Jackman, a
dren would not be vaccinated
spokesman for the Air Transport As-
against contagious diseases, elderly
sociation of America.
patients would face long delays in
Airlines will be canceling flights
processing Medicare claims and
that do the least business, he said.
hundreds of thousands of students
But many tickets for those flights
from low-income families would be
already have been sold.
denied a college education.
It's certain the flight reduction
These are real possibilities if Con-
plan will "result in real inconve-
gress and the president fail to reach
nience for everyone," not just be-
a budget agreement by Monday, the
cause of the cancellations, but "be-
first day of fiscal 1991. The cuts
cause the basic schedule has to be
averaging 32.4 percent for most
changed," Mr. Jackman said.
agencies - would be automatic un-
The automatic budget cuts also
der the 1985 Gramm-Rudman-
would mean furloughs of meat and
Hollings law. The deadline could be
poultry inspectors for the U.S. De-
extended through a continuing res-
partment of Agriculture, who must
olution, but President Bush has said
inspect every meat carcass and bird
he would veto such a measure.
to be sold in interstate commerce.
If the cuts are imposed and con-
Dennis Kaplan, a USDA spokes-
tinue for a long time, they would
man, said the nation's 7,800 meat and
have "disastrous consequences for
poultry slaughterhouses and pro-
consumers," said Michael Waldman,
cessing plants would have to be
director of the Congress Watch divi-
closed four days in the first two
sion of Public Citizen, a consumer
weeks of the fiscal year because of
advocacy group.
an absence of inspection services.
Norman Ornstein, resident
"And we estimate we'd have to close
scholar and congressional analyst
them an additional 133 days over the
for the American Enterprise Insti-
rest of the year," he said.
tute, put it this way: "If taken to ex-
The net effect, Mr. Kaplan said,
treme, it could make the embargo of
would be a meat and poultry
Iraq look like a vacation."
shortage. "The meat and poultry in-
Mr. Ornstein and others doubt the
dustry could not operate for a third
situation would continue for more
of the year, so a third of the meat and
than a few days. Mr. Waldman said
poultry on the market today wouldn't
no member of Congress running for
be there. Assuming demand is still
re-election could expect to retain his
there, there would be major price
seat if the chaos was not eased by
increases."
election time. "People already are
Sara Lilygren, spokeswoman for
mad at incumbents," he said.
the American Meat Institute, said:
Rep. Jerry Lewis, California Re-
"Fresh meat would probably be im-
publican and chairman of the House
pacted first, but processed meat also
Republican Conference. said
would be heavily impacted later.
vers or Congress "are beginning to
Everything our industry makes is
realize there will be screaming from
consumed. We don't have stockpiles
the rooftops" over Gramm-Rudman
of meat products."
cuts and that "the screams will be
Mr. Ornstein observed. "In just
immediate."
three weeks to a month, there would
Airports and supermarkets would
be no meat or poultry."
feel the immediate effect, experts
A 32 percent budget cut also
said.
would force the Food and Drug Ad-
Furloughs of air traffic control-
ministration to "severely curtail all
lers would force the Federal Avi-
its inspection and review oper-
ation Administration to cancel a to-
ations," according to Kevin Moley,
tal of 6,000 daily flights at 39 of the
assistant secretary for management
nation's busiest airports.
and budget for the Department of
"This would be done to get the
Health and Human Services. In a
traffic down to a level that could be
memo to HHS Secretary Louis Sulli-
safely handled by the air controllers
van, Mr. Moley said this "opened the
on the job," said FAA spokesman
possibility of contaminated blood"
Fred Farrar. The number in the
and delays in reviewing new drug
tower on any given day, he said,
applications.
would be about 80 percent of the
FDA inspections of blood banks
norm.
have been "essential in keeping
At one point it appeared that a
blood banks up to snuff," said
budget impasse would shut down
Thomas Asher, chairman of Hema-
250 weather stations, eliminating all
Care, a commercial blood services
night flights. But Reed Boatwright,
organization in Sherman Oaks, Calif.
spokesman for the National Oceanic
Major Garrett contributed to
this report.
The New York Times
NEW YORK, FRIDAY, SEPTEMBER 28, 1990
AGREEMENT NEAR, BUDGET TALKS TURN TO SOCIAL SECURITY
By SUSAN F. RASKY
Special to The New York Times
WASHINGTON, Sept 27 - White
The Democrats have proposed an in-
ize any tax break on their asset sales
House and Congressional budget nego-
crease in the tax that Social Security
until they file their returns in April
tiatiors, in substantial agreement on
recipients now pay on a portion of their
1992. Capitial gains, the profits on the
most elements of a budget deal, today
beneifts, arguing that this would re-
sale of real estate, stock, timber and
returned to the politically explosive
quire wealthier retirees to bear a big-
other assets, are currently taxed at the
subject of cuts in Social Security in a
ger share of the burden. Under current
same rate as ordinary income, or 28
search for the final savings needed to
law, Social Security beneficiaries who
percent for most taxpayers.
meet their deficit reduction goals.
are single and have incomes above
While Democrats continue to insist
Both sides have agreed that savings
$25,000 a year are taxed on 50 percent
that the indexing must be offset by
in Social Security are needed, but dif-
of their benefits, while married recipi-
some tax increase for the wealthier
ents with incomes of more than $32,000
Americans, who would benefit most
ferences remain on how to apportion
are taxed on 50 percent of their bene-
from it, they note that Republicans
the burden. The decision to even look
fits. Democrats are discussing raising
may have an easier time finding such
for savings in the Social Security pro-
that level to 85 percent.
an offset under indexing because the
gram is so perilous for both parties,
"Increasing the tax is one giant step
amount of revenue involved would be
particularly in an election year, that it
towards making Social Security a
SO much smaller.
could risk any chance for compromise.
means tested program," said Repre-
Democrats have suggested an offset-
sentative Bill Archer of Texas, the sen-
ting tax increase that would place a
Differences Are Narrowed
ior Republican on the House Ways and
floor on deductions for wealthier tax-
The negotiators, who planned to
Means Committee. Such a tax increase
payers, a proposal SO far rejected by
meet late into the night, have narrowed
may prove nearly as unpoular with
Republicans who say it amounts to a
their differences to two basic issues:
rank-and- file Democrats, which is one
tax rate increase. Conceptually, the
of the reasons the Democratic leaders
the Social Security savings and a way
proposal accomplishes the same thing
spent much of today huddled in meet-
as a ceiling on itemized deductions, es-
to pay for an Administration proposal
ings trying to decide if they were pre-
sentially reducing the amount of de-
that would exclude the portion of the
pared to even contemplate it.
ductions to which higher income tax-
profit on capital gains attributable to
The discussion of increasing taxes on
payers would otherwise be entitled.
inflation.
Social Security benefits represents a
The Democratic proposal is based on
White House negotiators formally
sharp turnaround from discussions
a suggestion by Representative Don
advanced the proposal, known as in-
only a few months ago about cuts in So-
Pease, a liberal Democrat from Ohio
dexing, today as an alternative to the
cial Security taxes. Senator Daniel Pat-
and a member of the Ways and Means
outright cut in the capital gains tax
rick Monynihan, a New York Demo-
Committee. Mr. Pease offered it to the
rate that President Bush has long
crat, caused a political firestorm in
negotiators in June as a way of raising
both parties earlier this year with a
sought. The emergence of the indexing
revenue and increasing the tax burden
proposal. yesterday injected a new
proposal to reduce the payroll taxes
for wealthier Americans without an
that finance the Social Security sys-
outright increase in tax rates.
mood of optimism into negotiations
tem.
A deduction ceiling was, in fact, sug-
that had come to a virtual deadlock on
Mr. Moynihan has long complained
gested at one point in the negotiations
the tax issue.
that surpluses in the Social Security
by the White House Budget Director,
Foley Is Optimistic
trust fund that were intended to pay
Richard Darman. But Mr. Pease and
benefits to the generation of babies
other Democrats see the notion of a
The House Speaker, Thomas S. Foley
born after World War II in the early
floor on deductions as more politically
of Washington, said he hoped a deal
part of the 21st century were being im-
palatable for both parties than a ceiling
was imminent, telling reporters that
proprerly used to mask the size of the
because it would not discourage contri-
the negotiators have "tentatively
Federal deficit. He has argued that un-
butions to charities or raise the anger
agreed" to much of the budget pack-
less the Government removes the So-
of the housing industry.
age. Democratic leaders have sched-
cial Security trust fund from its deficit
Assuming the proposal applied to
uled a rare Sunday session of Congress
calculations, the surplus should be re-
married taxpayers with taxable in-
to hold votes on a stop-gap spending bill
turned to workers in the form of a cut
come of more than $100,000, $50,000 for
needed to keep the Government run-
in the Social Security payroll taxes.
single taxpayers, it would work like
ning after Sept. 30, the end of the fiscal
Looking for $50 Million Cut
this: A married couple with taxable in-
come of say $200,000 would subtract
year, with or without a budget agree-
Officials close to the deliberations
$100,000 from that amount. They would
ment.
said Democrats cannot meet the
then take 5 percent of the remaining
However, Social Security cuts were
budget neogtiators' goal of reducing
$100,000, or $5,000, which would become
so unpopular with elderly voters in the
domestic spending by $120 billion over
their deduction floor.
1982 and 1986 Congressional elections
five years unless they find savings in
They would thus be able to deduct
that no one on Capitol Hill was flatly
the Social Security program. Over all,
from their income anything in excess
predicting that a deal would take place
the negotiators are seeking to cut the
of the $5,000 deduction floor.
or that Social Security would be in the
deficit by $50 billion in the fiscal year
Budget negotiators have been dis-
final package.
1991 and $500 billion over five years.
cussing a number of variations on the
Democrats must also decide whether
formula to determine which income
But the Democrats, who have held
a stop-gap spending bill would also in-
levels and deduction percentages
themselves up as champions of Social
clude a delay in huge automatic spend-
produce the most revenue and the most
Security, are under great pressure. Of-
ing cuts that take effect on Oct. 1 under
desirable distribution of the additional
ficials involved in their deliberations
provisions of the Gramm-Rudman-
tax burden.
said the Senate majority leader,
Hollings budget-balancing law. Presi-
George J. Mitchell of Maine, told his
dent Bush has said that in the absence
House counterparts today that he was
of a budget accord, he will veto a bill
not certain that he could deliver
that calls for such a delay.
enough votes from Democratic sena-
Negotiators spent part of the day
wrestling with the Administration's
tors to assure passage of an alternative
Democratic budget. Democrats had
latest proposal, the indexing capital
gains for inflation. The proposal would
hoped that if negotiations with the
permit investors who sell assets to ex-
White House failed, they could get a
clude from their income tax the portion
plan of their own through Congress.
of profits solely attributable to infla-
The Republicans' Social Security
tion. Officials close to the the delibera-
proposal is a one-time delay of two
tions said the indexing plan would cost
months in the annual cost-of-living ad-
the Treasury about $4.5 billion in lost
justment in Social Security benefits.
revenue over five years, considerably
less than the $21 billion revenue loss for
But Democrats argue that such a delay
the actual cut in the capital gains tax
is unfair because it would amount to
rate that Mr. Bush had sought.
lower benefits for even the poorest reti-
The officals said that as currently
rees.
structured, the proposal would begin
the indexing arrangement on Jan. 1,
1991. That means that while it would
apply to both current and newly ac-
quired assets, investors would not real-
The New York Times
NEW YORK, FRIDAY, SEPTEMBER 28. 1990
Capital Gains: Plus, Minus or Neither?
By PETER PASSELL
To President Bush, cutting taxes on
families whose incomes have aver-
capital gains is a matter of common
aged $200,000 or more over the last
sense: a lower rate, he says, would
five years. Just $4.8 billion in capital
mean more investment without sacri-
gains income will go to families with
ficing tax revenue. To most Congres-
incomes of less than $50,000.
sional Democrats, a break in the tax
That raises the prospect of stretch-
rate on capital gains would amount to
ing an income gap that widened
a windfall for the rich and a giant step
sharply during the Ford, Carter and
back from the goal of taxing all forms
Reagan Administrations. For some
of income equally.
experts, that is more than enough
But economists are generally less
reason not to change.
eager to assign the capital gains initi-
"Any kind of differential for capital
ative a permanent place in heaven or
gains," said a senior adviser to Sena-
hell. A cut in the capital rate would in-
deed distort economic incentives and
tor Bill Bradley of New Jersey,
"would erode the carefully balanced
enrich wealthy Americans at the ex-
reform of 1986 and lead to increased
pense of the Treasury Department,
tax rates on ordinary income."
many argue. But there is still a plau-
But others said the current treat-
sible case to be made for special
ment of capital gains income did not
treatment of capital gains as part of a
really meet a rigorous test of tax neu-
broader change in the tax system.
trality. Taxing capital gains income
Until 1986 only a portion of the in-
at regular rates penalizes those who
come from profits on the sale of as-
hold assets in periods of inflation. For
sets were taxed as income, effec-
example, someone who bought an
tively reducing the maximum rate on
asset for $25,000 in 1978 and sold it to-
capital gains to 20 percent. But when
day for $50,000 would pay taxes on the
the maximum income tax rate was
$25,000 gain. But since prices have
reduced, the capital gains preference
doubled in 12 years, the entire gain is
was dropped. The effective maxi-
an effect of inflation. That is why
mum bracket is now 33 percent.
budget negotiators are said to be con-
The architects of the Tax Reform
sidering a compromise of adjusting
Act of 1986 considered this move to-
gains for inflation, or indexing.
ward tax neutrality as a shining
achievement. No longer, they argued,
One giant catch, says Henry Aaron,
would decisions about investment be
an economist at the Brookings Insti-
distorted by considerations of how in-
tution in Washington, is that indexing
come would be realized or when.
would offset only one bias, leaving in-
tact another that effectively reduces
Taxes As Incentives
the tax on long-held gains. Under cur-
But like many other Americans,
rent law taxes are deferred until
George Bush never abandoned the
property is sold, allowing gains to
idea of using taxes as incentives.
compound untouched. Equally impor-
From his first days on the campaign
tant, the law gives investors leeway
trail, he has been pressing for capital
to realize capital gains in years when
gains tax relief as an inducement to
their incomes (and tax rates) are
invest.
low.
A tax cut would induce investors to
Mr. Aaron offers a more general
take profits, the Treasury contends,
objection to indexing capital gains.
increasing tax revenue in the short
Taxes are affected by inflation in
run. And in some instances it would
myriad ways, he says. Changing one
induce investors to sell assets during
without changing all could produce
their lifetime, generating revenue
major distortions in the system.
that would otherwise be lost entirely
Tax brackets have been indexed
because heirs never pay taxes on
capital gains. By the Administra-
since 1986, ending "bracket creep"
that automatically increased reve-
tion's reckoning, a 30 percent exclu-
nues by billions a year. But taxes on
sion - the equivalent of a maximum
interest income have not been in-
23 percent bracket - would generate
dexed. This year an investor who
an additional $12 billion in revenue
over the next five years.
earns 8 percent on a bank deposit will
The staff of Congress's nonpartisan
pay taxes on the entire 8 percent,
even though three-quarters of the re-
Joint Tax Committee disagreed, say-
ing that while revenue would increase
turn will already have been wiped out
by inflation.
in the first two years, over five years,
losses would exceed $11 billion.
But inflation works in both direc-
Other economists are skeptical that
tions. Interest paid by homeowners
a general tax break on profits from
has not been indexed, effectively dou-
sales of assets would stimulate in-
bling the tax break on the average
vestment in the sort of high-risk inno-
mortgage deduction. By the same
vations that President Bush wants to
token, inflation artifically increases
encourage. James Poterba, an econo-
the value of business deductions for
mist at the Massachusetts institute of
interest and depreciation.
Technology, points out that the bulk
If capital gains are indeed indexed,
of capital for risky new ventures now
Mr. Aaron said, interest deductions
comes from sources that would not be
had better be indexed, too. Otherwise
affected by tax changes - notably
investors would be able to buy prop-
pension funds. Thus to be effective,
the tax break would have to draw in
erty with borrowed money, get the
benefit of inflated interest deductions
investors with little experience in the
for years and then pay little tax when
area of venture capital.
they sell the property for a profit.
Hardly anyone, though, disputes
the charge that most of the direct
benefits from a capital gains break
would go to an affluent minority. By
the Administration's estimate, $27
billion of the $49 billion in capital
gains this year will be realized by
New
Bork
Times
NEW YORK, FRIDAY, SEPTEMBER 28, 1990
Social Security: A Tinderbox Both Parties Handle Gingerl
By MICHAEL ORESKES
Special to The New York Times
WASHINGTON, Sept. 27 - There are
At least 39 million Americans re-
few subjects more perilous for politi-
ceive regular benefit checks from So-
cians, particularly in an election year,
cial Security, and million more have
than the suggestion that they might be
parents or grandparents who receive
tampering with Social Security.
benefits and plan to receive benefits
That is the reality that budget nego-
themselves some day.
tiators were dealing with as they gin-
The subject is so sensitive that many
gerly searched for budget savings to-
Democrats rebuffed the suggestion of
day in this most sacred of all American
cutting the payroll tax imposed to pay
benefit programs.
Social Security because pollsters told
"We've seen that in the past to be a
them that it made many Americans
very explosive subject," said Gov.
nervous that the tax cut might endan-
Richard F. Celeste of Ohio, chairman
ger their Social Security payments.
of the Democratic Governors' Confer-
Tony Coelho, a former Representa-
ence.
"We've been up and down that hill
tive from California, was a leading ar-
many times," said Representative Bill
chitect of the Democratic strategy to
Archer of Texas, the ranking Republi-
invoke Social Security as an issue.
can on the Ways and Means Commit-
"In 1982 we were looking for an issue
tee. "There's a concern about doing
to run the campaigns to try to offset
anything to the elderly."
Reagan," Mr. Coelho said, "and we de-
In the course of the 1980's the issue
cided to take on the issue of Social Se-
curity."
was highly partisan as well. In both
1982 and 1986 the Democrats depicted
Democratic candidates tried to tie
the Republicans as a threat to Social
Republicans wherever they could to a
Security and made big gains in the
budget plan, offered in 1981 by David A.
elections those years.
kman, a budget director under
President Ronald Reagan, that would
Indeed, Republicans often cite the
have cut Social Security.
1982 campaigns Democrats ran
That issue, combined with a reces-
against Republicans on Social Security
sion that developed in the final weeks
as the start of the cycle of negative
of the campaign, led the Democrats to
campaigning that came to dominate
a gain of 26 seats in the House,
politics in the decade.
But there was a downside, Mr.
"The Republicans feel as burned on
Coelho said. "It became a motherhood
this issue as the Democrats feel burned
issue much stronger than we ever ex-
on the tax issue," said Anita Dunn,
pected,' he said. "You couldn't even
communications director of the Demo-
tinker with the system when you
cratic Senatorial Campaign Commit-
needed to.
tee. In a political sense, for the Demo-
On Capitol Hill there is a growing an-
crats to agree to changes in Social Se-
ger toward the elderly and their lobby-
curity, and thus weaken one of their
ists. Last year, some older people
best issues, is the rough equivalent of
staged an uprising against a program
President Bush's willingness to aban-
to provide insurance against the soar-
don his no-new-taxes pledge.
ing costs of catastrophic illnesses.
With 40 days until the midterm elec-
They were happy to receive benefits,
tions, there are few members of Con-
but many objected to premiums. In
gress who would voluntarily want to go
Chicago, some threw themselves in
to their districts to explain any curtail-
front of the car carrying Representa-
ment of Social Security benefits.
tive Dan Rostenkowsi, chairman of the
America's older citizens are among
Ways and Means Committee. The pro-
the nation's most potent constituencies.
gram was repealed.
They vote at higher rates than most
Representative Leon E. Panetta,
other Americans. Indeed, their partici-
chairman of the House Budget Com-
pation rate went up while for younger
mittee, said the debacle of the cata-
Americans it went down. In addition,
strophic health care program was a
their organizations, lead by the Amer-
warning of the storm that would greet
ican Association of Retired Persons,
any changes in Social Security. "What-
swing great weight on Capitol Hill.
ever happened on catastrophic," he
said, "multiply that by two."
The Philavelphia Thaquirer
Friday, September 28, 1990
Budget agreement reported near
By R.A. Zaldivar
Inquirer Washington Bureau
WASHINGTON - Congressional
Leader Robert H. Michel (R., III.),
and administration negotiators
Treasury Secretary Nicholas F. Bra-
closed in on a budget deal yesterday
dy, and budget director Richard G.
amid signs that the logjam over Pres-
Darman.
ident Bush's proposal on a capital-
The two sides are looking for a
gains tax cut was breaking up.
combination of spending cuts and
"We're in the last two minutes,"
tax increases that would bring the
said White House chief of staff John
1991 deficit down by $50 billion and
H. Sununu. "This is where it is. It's
save $500 billion over five years.
like basketball."
The five-year package would in-
Rumors swept the Capitol and the
clude about $130 billion in new taxes,
credit markets last evening that a
$170 billion in reduced military
deal had been reached, prompting a
spending and $100 billion to $120
denial from House Speaker Thomas
billion in cuts from benefit programs
S. Foley (D., Wash.).
such as Medicare and farm subsidies.
"The odds are we are going to
The two sides have agreed on
succeed," said Foley. "But there is no
about $60 billion in new revenues,
truth to the suggestion we have es-
including higher taxes on beer,
sentially succeeded."
wine, liquor, cigarettes and gasoline.
Said one Democrat: "It's a teetering
Democrats were initially insisting
process now."
on a new top income tax rate, but
Republicans said there were still
they are now putting forward a plan
differences over the means for en-
to limit deductions for wealthy tax-
payers.
forcing a five-year agreement, and
over the Democrats' reluctance to
At a closed Republican strategy ses-
sion yesterday, discussion centered
cut benefit programs.
on how to make sure future Con-
Bush's proposal to cut the capital-
gresses honor-any agreement.
gains tax rate had recently snarled
"If it's clearly not enforceable, the
the talks, but a source familiar with
Republicans are not going to support
GOP strategy said the President has
it, said Sen. Bob Packwood
told his negotiators that he wants a
(R., Ore.), who attended the meeting.
budget deal more than he wants capi-
"It's a bilateral contract between
tal gains.
Congress and the administration,
Negotiators were considering a va-
and each side has to have the means
riety of "pro-growth" alternatives to
to enforce it," Packwood added.
the tax cut, including tax breaks for
Republicans want tougher auto-
entrepreneurs, tax-advantaged "en-
matic spending cuts than under the
terprise zones" in economically de-
Gramm-Rudman-Hollings deficit-re-
pressed areas, and some form of in-
duction law, and fixed annual spend-
dexing capital gains to adjust for
ing caps on domestic programs, de-
inflation.
fense and foreign aid.
The indexing approach has little
A failure to reach a deficit agree-
support among Democrats. A Con-
ment by the start of the new fiscal
gressional Budget Office study con-
year on Monday would mean that
cluded that, since much of the gain
automatic spending cuts of more
on assets like property and stocks is
than $85 billion would take effect.
due to inflation, indexing may cost
But a deal reached in the budget
more than an outright tax cut.
talks is not assured of approval on
The talks resumed shortly before
the House and Senate floors. Mem-
4:30 p.m. in a conference room in
bers are wary of voting for spending
Foley's office suite at the Capitol.
cuts and tax increases on the eve of
For the last two weeks, negotia-
an election.
tions have been conducted by a
Said Sen. Trent Lott (R., Miss.):
group made up of Foley, Sununu,
"Anything that's draconian will have
House Majority Leader Richard A.
difficulty passing."
Gephardt (D., Mo.), Senate Majority
Leader George J. Mitchell (D.,
Maine), Senate Minority Leader Bob
Dole (R., Kan.), House Minority
Los
Aug
Times
FRIDAY, SEPTEMBER 28, 1990
BUDGET: An Accord May Be Near
By WILLIAM J. EATON
TIMES STAFF WRITER
WASHINGTON As
Rudman law to Oct. 20 and provide
Even so, Democrats had a field
optimistic rumors swept
funds to keep the government
day in the House, demanding that
the capital, White House
operating when the new fiscal year
Bush stop campaigning for Repub-
and congressional budget
begins Monday, even if there is no
licans in the Midwest and return to
negotiators were reported
budget deal.
Washington to deal with the budg-
Thursday to be moving
President Bush has threatened
et crisis.
closer to a deficit-cutting
to veto any such legislation, how-
"If the President spent as much
agreement that would
ever, to keep the heat on the
time raising money for the country
avert a $100-billion cut-
negotiators to produce an accord
as he does for Republicans, there'd
back in federal outlays on
that they have been working on for
be no deficit at all," said Rep.
Monday.
more than four months.
Lawrence J. (Larry) Smith (D-
Even as the bargaining
"We're a little bit in the pre-
Fla.).
teams raced against the
cincts of reaching a conclusion,
GOP speakers replied in kind,
clock, however, Democrat-
rather than in the wrap-up stage,"
with Rep. Jim Lightfoot (R-Iowa)
ic and Republican sources
said House Speaker Thomas S.
declaring: "The amount of horse
cautioned that major issues
Foley (D-Wash.). "A good deal
manure we're spreading here this
still must be resolved be-
has been agreed to tentative-
morning could put the fertilizer
fore the two sides can
ly. We still hope to succeed-
industry out of business."
achieve the bipartisan goal
the odds favor it-but there's still
of a five-year, $500-billion deficit-
the possibility of failure."
Rep. Jerry Lewis (R-Highland),
By
afternoon, however, there
reduction package.
was an atmosphere of expecta-
Moreover, rank-and-file mem-
chairman of the House Republican
tion on Capitol Hill as rumors
bers of both parties who heard
Conference, said that the negotia-
circulated that a deal had been
tors appear to be "on the brink" of
initial reports of tax increases and
an agreement but still far from
struck, prompting Foley to deny
spending cuts already tentatively
approved said that the proposals
wrapping up the entire package.
that any agreement had been
Unresolved issues include the
reached.
could run into a buzz saw of
extent of cuts in federal benefit
And when House Majority Lead-
opposition once the package comes
to the House and Senate floors.
programs such as Medicare and the
er Richard A. Gephardt (D-Mo.)
nature of the hotly debated tax
announced the Sunday session, he
Congressional sources said that
provisions, he added. Rather than
said: "We're still working in this
the negotiating teams discussed a
Democratic plan to raise income
pushing its original capital gains
summit, trying to produce an
proposal, Lewis said, White House
agreement. I don't know whether
taxes on more affluent Social Secu-
there will be one or not."
rity recipients and a Republican
officials were talking about
"growth incentive elements,"
But, Gephardt added that if there
proposal to delay cost-of-living
adjustments for those who get
without defining them precisely.
is a breakthrough, both Democrats
federal benefit checks.
Lewis, however, said that many
and Republicans will want to out-
Republicans would have problems
line the details to members of
resident Bush's representa-
with the prospective final package
Congress firsthand rather than let
P
because it appears to "tax more and
them read secondhand accounts in
tives, who earlier had insisted
spend too much" from their view-
the newspapers.
on a sharp cut in capital gains
point.
taxes, altered their position to back
House Democrats scheduled a
a concept called "indexation,"
Similarly, Rep. Ronald V. Del-
caucus this morning to get a prog-
which would exempt from taxation
lums (D-Berkeley) said that the
ress report from their negotiators
24-member Congressional Black
only that part of an investment
on the latest developments in the
profit attributable to inflation.
Caucus opposes the prospective
budget discussions, which began
Democrats, however, insisted
budget agreement on grounds that
last May 15 but only began to show
that Indexation would still cost the
it "further savages already deci-
real movement this month.
government substantial revenue
mated programs in housing, health
and advocated an increase in the
care, education and job training."
top income tax rate from the exist-
"I think both [Republican and
ing 28% to about 33% to offset it,
Democratic] caucuses will have
the sources said.
trouble swallowing this," said an
The talks were spurred by a
aide to a key Democratic senator.
bipartisan desire to avoid a crush-
"The only way it's going to work is
ing blow to government services
if the President sells it to the
that otherwise would take place if
American people and takes the
automatic spending cuts take effect
politics out of it."
Monday, reducing outlays on de-
Meantime, Bush toned down his
fense and many domestic programs
rhetoric, after having placed the
by about one-third.
blame on Democrats for blocking a
The House and Senate will meet
budget summit agreement in cam-
in extraordinary Sunday sessions
paign appearances Wednesday.
to consider a Democratic plan to
But he continued to press for a
delay cuts required by the Gramm-
settlement before the scheduled
slash in federal spending Monday.
"It isn't too late to act," the
President said. "Don't delay one
day longer. Prove to the American
taxpayer once and for all that we
can deal with this impossible defi-
cit."
The Detroit News
Thursday
SEPTEMBER 27,1990
Impact: All will feel it if there's no budget deal
By Richard A. Ryan
Monument and the Statue of Liber-
Cutbacks in the Veteran Affairs'
NEWS WASHINGTON BUREAU
ty, will be open only five days a week
medical care funds would be limited
instead of the usual seven.
to two percent, a reduction that VA
WASHINGTON - If the federal
Without a budget agreement, the
director Donald Smith said would
budget mess bores you, consider this:
Gramm-Rudman law requires federal
not affect medical care delivery at
By Monday, it could hit home
spending to be cut by at least $85
VA hospitals. Even so, cutbacks in
with canceled flights at Detroit Met-
billion. Because nearly two-thirds of
administrators and maintenance
ro Airport, a shutdown of Michigan
federal expenditures, including So-
workers might force the hospitals to
meat plants, slower services at many
cial Security payments and other
limit admissions.
federal offices, and shorter hours at
entitlement programs, are exempt
The VA operates a medical center
national parks.
from the automatic cuts, the remain-
in Ann Arbor, and hospitals in Allen
Those are just a few of the disrup-
tions expected to begin if a budget
ing one-third of the budget must take
Park, Battle Creek, Saginaw and
hard hits.
Iron Mountain.
deadlock between Congress and
President Bush is not resolved by
"The American people don't need
James Verdier, deputy director of
this weekend. Without a budget
this," Bush said Wednesday. "A cut-
the Michigan Department of Man-
agreement, automatic spending cuts
back of this scope is going to hit
agement and Budget, said Michigan
will go into effect across the federal
hard. It's going to hit home and its
is preparing for a $290 million dollar
going to hit many, many people."
loss in federal aid next year if the
bureaucracy when the government's
new fiscal year starts next week.
Morton Edelstein, a spokesman
budget impasse is not resolved.
Talks on Capitol Hill continued
for the Federal Aviation Administra-
The loss would affect Michigan's
Wednesday-amid reports that Bush
tion's regional office in Chicago, said
ability to provide child care, assis-
airline arrivals and departures will be
tance to the elderly, low income
may be willing to drop his insistence
sharply curtailed at the nation's
home energy assistance, job training,
for a cut in the capital gains tax, a
demand that has been the major
busiest airports because air traffic
alcohol and drug abuse treatment,
obstacle to a budget deal.
controllers and federal airline inspec-
and to administer unemployment
Hundreds of federal workers ral-
tors will be sent home.
compensation programs.
"This kind of reduction in federal
lied outside the Capitol at noon to
At Detroit Metropolitan Airport,
demand a quick solution. They car-
he said, the 104 scheduled airline
spending is a further hit on the
ried signs reading, "Congress, you do
arrivals between 2 p.m. and 6 p.m.
national economy," Verdier said, in-
your jobs so we can do ours. "Federal
weekdays will be slashed to 56. The
creasing the odds of a recession.
workers also protested in Detroit.
scheduled departures for the same
In the Senate, lawmakers voted
hours will be cut from 88 to 38.
overwhelmingly to apply the spend-
Because U.S. Weather Service
stations also are scheduled to shut
ing cuts to the salaries of members of
down at night, commercial flights
Congress and top executive branch
after 6 p.m. will be prohibited.
officials, including Vice-President
"People are calling and asking us
Quayle and Cabinet members -
if they can take a trip," Edelstein
items now exempt under the
said. "We tell them go ahead, but
Gramm-Rudman budget-cutting
there may be tremendous delays. We
law.
are not going to jeopardize safety."
Federal officials cited these as
Jim Green, a spokesman for the
examples of the impact on Michigan:
Food Safety and Inspection Service,
Flights into and out of Detroit
said the Department of Agriculture is
Metro Airport during daylight hours
mailing a letter to its 7,300 meat and
will be sharply curtailed. Flights after
poultry inspectors today, telling
6 p.m. will be canceled.
them to take four days off beginning
All 277 Michigan meat and poultry
Oct. 9.
processing plants will be forced to
Without inspectors present, the
shut down for four days - Oct. 9
nation's 6,700. meat and poultry
through 12 - because U.S. Depart-
slaughter and processing plants, in-
ment of Agriculture inspectors will
cluding the 277 in Michigan, will
be put on unpaid furlough.
have to stop production.
All 23 Internal Revenue Service
Sarah Wreford, a spokeswoman
offices in Michigan will be closed for
for the IRS in Detroit, said Michi-
one to five days in early October.
gan's 2,000 IRS employees will be
forced to take one to five days off,
There may be long lines at Michi-
forcing delays in tax collections, au-
gan's unemployment compensation
dits, and tax trials in which IRS
centers.
agents are scheduled to testify.
Social Security offices will work
Federal drug and custom agents
shortened hours Monday through
will be similarly affected.
Thursday, and close Friday. But pen-
And the Social Security Adminis-
efit checks should not be delayed,
tration has ordered all 63,000 em-
and won't be cut.
ployees across the country to go on
Michigan's national parks will
unpaid furloughs 16 hours a week,
have shortened hours, while more
starting Monday. Michigan's 794
employees in 34 Social Security of-
famous sites, such as the Washington
fices would be affected.
THURSDAY, SEPTEMBER 27, 1990
(3)
President
Noting that sequestration would
force a $100 billion cut in federal
spending, Bush said: "A cutback of this
Softens On
scope is going to hit hard, and it's
going to hit home and it's going to hit
many, many people.
The president said he had done his
Gains Tax
part to produce a budget agreement,
even scrapping his 1988 campaign
pledge of "no new taxes." He added: "I
took a lot of political heat."
By Robert L. Koenig
The president said that "emotions
and Lawrence M. Rourke
on this budget debate are running
Post-Dispatch Washington Bureau
high." And with that, he placed the
WASHINGTON With the dead-
blame for the budget impasse on the
line fast approaching for mandatory
Democrats.
federal budget cuts, negotiations to
Before delivering this attack on the
produce a compromise budget intensi-
Democrats, Bush said aboard Air
fied Wednesday as President George
Force One: "We're still working hard
Bush seemed to soften his demand for
in a good bipartisan spirit there."
a cut in the capital-gains tax and Dem-
ocrats delayed a showdown vote.
The president said the Democrats
The moves indicated that Bush and
had not offered their own budget plan
the Democrats, who control both
- a statement immediately rejected
houses of Congress, were finally mak-
in Washington by Foley.
ing progress toward a package of tax
While Bush was on the road attack-
increases and spending cuts that
ing his opponents, he seemed to be
would avoid the reductions that other-
following a different tactic back in
wide would be required on Monday.
Washington.
But nothing was guaranteed, as
What appeared to be a major con-
House Majority Leader Richard A.
cession by the president came when
Gephardt, D-Mo., announced that ne-
Senate Minority Leader Bob Dole, R-
gotiations were continuing into
Kan., said Bush might be willing to
Wednesday night behind closed doors
stop insisting upon a cut in the capital-
in Speaker Thomas S. Foley's office on
gains tax rate.
Capitol Hill.
Dole said Bush was signaling his
The core group of budget negotia-
willingness to compromise through a
tors included the Senate and House
deal that would drop the capital-gains
Democratic and Republican leaders
plan he championed for months in
and White House Chief of Staff John
exchange for other methods that he
H. Sununu, Treasury Secretary Nicho-
believed would stimulate the
las F. Brady and Budget Director
economy.
Richard G. Darman.
Under current law, capital gains -
Meanwhile, Bush was in Chicago on
profits realized on the sale of assets
a political trip. He told reporters
held for investment are taxed
aboard Air Force One that Democrat-
ordinary income rates. Bush wants
ic and Republican budget negotiators
preferential treatment i: the range of
know "if my presence there would be
helpful, I'm available."
a 17 to 20 percent top rate. The highest
ordinary rate is now 33 percent.
The negotiations took on an air of
frenzy, as both Democrats and Repub-
House Minority Whip Newt Ging--
licans maneuvered to put blame on
rich, R-Ga., said the president might
the other if the negotiations were un-
accept corporate tax breaks designed
successful. They also laid the ground-
to encourage businesses to expand in
depressed urban and rural areas and
work for blaming one another for
whatever might come out of negótia-
to encourage research and
reinvestment.
tions in the way of spending cuts and
tax increases.
With the possibility of a compro-
While speaking at a political rally in
mise developing, House Democrats
Akron, Ohio, Bush painted a bleak pic-
postponed until today a debate on a
ture of what sequestration, as re-
resolution that would delay the se-
quired by the Gramm-Rudman bud-
questration date beyond the Oct. 1
get-balancing law, would do to the
deadline.
country.
The Dallas Morning News
Dallas, Texas, Thursday, September 27, 1990
Budget deadline nears as parties
argue over blame
By Susan Feeney
Washington Bureau of The Dallas Morning News
WASHINGTON - The White
However, he said, "We have yet.
fect.
House and congressional Demo-
to see a comprehensive plan" cover-
With the November elections
crats swapped accusations Wednes-
ing spending cuts, incentives for
slightly more than one month away,
day over who was to blame for the
economic growth and changes in
lawmakers weighed the potential
federal budget impasse as pressure
the budget process.
political fallout from a failure to
mounted to meet Monday's dead-
During the eighth frenetic day
reach an agreement. Would massive
line.
of the latest round of intensive
cuts or a deadline postponement in-
Both sides in the budget talks of-
talks between the White House and
crease voter anger? Would Demo-
fered separate proposals to circum-
the Democratic-controlled Con-
crats, Republicans or both be
vent or blunt the effects of the mas-
gress, both sides held out hope that
faulted?
sive, $105.7 billion spending cuts
an agreement could be reached. But
"There is no way to say with any
that could take effect Monday un-
some suggested it might come after
certainty who gets blamed,"
der the Gramm-Rudman-Hollings
several days of the automatic spend-
lamented a top aide involved in the
deficit reduction law if no accord is
ing cuts, in a process called seques-
budget issue.
reached.
tration.
"We are getting down to the end
Still, House Majority Leader Dick
of the game," said Rep. Bill Frenzel
Gephardt of Missouri promised:
of Minnesota, ranking Republican
"We' Going to use every available
on the Budget Committee.
hour to reach a solution before
Wednesday began with a
Monday, the start of the new fed-
glimmer of hope when Republican
eral fiscal year. He said Congress
lawmakers emerged from a meeting
may be called back Sunday. after
with President Bush saying he
the Friday-Saturday Yom Kippur
might accept substitute provisions
Jewish holy day, to continue work.
geared to bring economic growth
Meanwhile, Democratic leaders
instead of his proposed reduction in
vowed to bring to the House floor
the capital gains tax rate - a main
on Thursday a stopgap plan to delay
stumbling block in the budget nego-
the Gramm-Rudman cuts until Oct.
tiations.
20 and allow the federal govern-
But Mr. Bush, speaking later at a
ment to operate normally while
political fund-raiser in Akron, Ohio,
talks continue.
infuriated Democrats when he said,
Republicans, who believe the
"The hang-up is not on capital
threat of the automatic cuts is nec-
gains. the hang-up is with the Dem-
essary to bring about a budget
ocrats on Capitol Hill."
"If and when the ax falls," the
agreement, vowed to fight any post-
ponement. And Mr. Bush, en route
president said, "the Democratic
to Akron, accused Democrats of
Congress knows it will be held ac-
wanting "to kick the can down the
countable. and I will take that mes-
road."
sage to every state in the union. It is
their fault."
If Mr. Bush vetoes the Demo-
Democrats called two successive
crats' plan - as he has threatened
Capitol Hill news conferences to
- and lets the severe cuts take ef-
blast the president.
fect, "everybody should know it's
: House Speaker Tom Foley of
George Bush doing it, not the Con-
Washington and Senate Majority
gress," said Rep. Ronald Coleman,
Leader George Mitchell of Maine
D-El Paso.
said .Mr. Bush was "badly mis-
Democrats also began working
informed," when he made the accu-
Wednesday on a separate, independ-
sations. "A series of proposals and
ent budget plan and threatened to
dounterproposals" have been made
push to Mr. Bush's desk if no agree-
and continue to be made, Mr. Mitch-
ment is reached.
ell Democrats have opposed
Others on Capitol Hill called for
any origenge in the capital gains tax,
forging an agreement exclusively
arguing that it would benefit only
between Democratic and Republi-
the rich,
can lawmakers - without the
The complaints led Mr. Bush to
White House - and then present-
apologize later during a speech in
ing it to Mr. Bush.
Chicago: "They say they have put a
Also, Republicans offered legis-
package, or at least a series of pro-
lation that would give the president
posals, on the table in private nego-
greater leeway in spending to pro-
tiations. I accept the fact that in pri-
tect citizens' health and safety if
vate negotiations there have been
the Gramm-Rudman cuts take ef-
such proposals. I apologize for
mispeaking on that point."
The Dallas Morning News
Dallas, Texas, Thursday, September 27, 1990
Texans' layoff plans are few
By Scott Hunt
Washington Bureau of The Dallas Morning News
WASHINGTON - While as many
as a million federal workers face fur-
"We are perfectly willing to plan
(for cuts), and if it happens, we're
loughs if a budget stalemate persists,
willing to bear our fair share of the
most members of the Texas congres-
reductions," said Carlton Carl, the
sional delegation say they haven't
spokesman for the Dallas Democrat.
planned for salary cuts or layoffs in
"We'll make whatever adjustments
their offices.
are necessary consistent with every
Most of the 29-member delegation
other branch of government."
said it still was too early to plan for
the automatic spending cuts that will
In the Senate, a spokesman for
come Monday, if Congress and the
Sen. Lloyd Bentsen, D-Texas, said the
White House do not reach a budget
senator was "trying to reach an
accord.
Still, a few Texas congressmen
agreement on the budget so that
have decided to suffer along with
(sequester) doesn't happen." And the
the federal employees who face fur-
spokesman, Jack DeVore, said Mr.
loughs under the cuts - officially
Bentsen did not expect the negotia-
tors "to fail."
called sequestration - required by
the Gramm-Rudman law.
Other members of the Texas dele-
A Dallas Morning News survey of
gation said they were waiting to as-
the delegation found that Reps. Joe
sess the outcome of the budget talks
Barton, R-Ennis; Steve Bartlett, R-
and for guidelines from House and
Dallas; J.J. "Jake" Pickle, D-Austin;
Senate leaders before making any
Dick Armey, R-Euless; and Charles
contingency plans.
Stenholm, D-Stamford, supported
"I don't know of any offices that
pending legislation to cut congres-
are doing anything except trying to
sional salaries.
avert these Gramm-Rudman cuts,"
Rep. Jack Fields, R-Humble, said
said Jeff Patterson, spokesman for
he was considering such a move.
Rep. Mike Andrews, D-Houston.
"I feel an obligation to live under
And Paul Rogers, a spokesman for
the law," Mr. Barton said. "I will not
Rep. Ron Coleman, D-EI Paso, agreed,
keep the money. Some of us think we
saying: "It's premature to have con-
ought to practice what we preach."
tingency plans for Gramm-Rudman.
And, Mr. Fields noted: "We're con-
We can come up with an agree-
ment."
stitutional federal employees.
I
support the concept that we should
Rep. Albert Bustamante, however,
be no better or no worse than other
said he had no plans to sequester his
federal employees."
own salary if federal employees are
Mr. Pickle said he was even con-
furloughed as a result of across-the-
board cuts.
sidering "voluntarily" cutting his
own salary if the Gramm-Rudman
"I just need to pay the rent," the
cuts occur.
San Antonio Democrat quipped. "The
"I think members of the execu-
rent is half my paycheck. There are
tive branch and members of Con-
other guys who can afford it - the
millionaires."
gress ought to be affected by seques-
As for his staff, Mr. Bustamante
tration and furlough," he explained.
said, "If worse comes to worse, we
A spokesman for Rep. John
might have to eliminate a position."
Bryant, D-Dallas, however, said such
legislation amounted to "political
posturing" by Republicans, who are
the main sponsors of the legislation.
The Dallas Morning News
Dallas, Texas, Thursday, September 27, 1990
U.S. budget cuts would put crimp in air travel
By Martin Zimmerman
Staff Writer of The Dallas Morning News
States."
Imagine you're sitting in a DC-10 on the
That stopgap measure of systemwide flight
taxiway at Dallas/Fort Worth International
delays will last for three days. Then, at 3 a.m.
Airport, 18th in line for takeoff while a
Oct. 4, the FAA's program of forced flight can-
thunderstorm snarls traffic into and out of
cellations will begin. At D/FW, that will mean
the airport.
288 fewer arrivals and departures per day. At
Now, imagine that same thunderstorm is
Love Field, it will cause 92 cancellations a day.
sitting over every airport in the country,
Exactly how the airlines intend to manage
delaying thousands of flights and pushing
the disruption is a mystery at present.
the nation's air travel system to the brink
FAA officials say the flight delays will be ap-
of chaos.
portioned among the airlines according to
It sounds like the script to Airport 1990.
their share of each airport's passenger board-
But it could happen Monday if federal
ings. It will be up to the carriers, the FAA says,
budget cuts force the Federal Aviation Ad-
to determine which flights will be canceled
and which cities will see air service curtailed.
ministration to begin furloughing air traf-
The FAA has asked the airlines to report by
fic controllers around the United States.
noon Friday how they intend to revise their
"Everybody is going to feel it," said Bill
schedules. Until then, the airlines are with-
Jackman, spokesman for the Air Transport
holding most details.
Association. "There's going to be disrup-
American Airlines Inc., the nation's largest
tions for millions of Americans."
carrier, says only that it plans to accommodate
It was unclear Wednesday whether the
all passengers, even if flights are canceled.
FAA and other federal agencies will indeed
Delta Air Lines Inc. said it intends to maintain
be forced into major cutbacks Monday.
some level of service in all of its markets.
There remains hope a budget compromise
As a consolation for the airlines, the disrup-
could be worked out between Congress and
tion comes in the midst of their annual post-
the administration before the automatic.
Labor Day travel slump with plenty of empty
cutbacks stipulated by the Gramm-Rudman
seats to accommodate passengers bumped from
law.
canceled flights.
But if the cutbacks occur, the impact will be
But, asked Mr. Turk, "what are you going to
severe. The FAA plans to reduce its air traffic
do at Thanksgiving and Christmas? Look at it
controller workforce by 25 percent. That alone
this way: No air traffic controllers, no Santa
will force cancellation of 3,000 departing
Claus."
If the air traffic control disruptions are
flights daily, the association estimates, out of a
daily scheduled total of 18,000 nationwide.
short-lived, the impact on air fares should be
Worse, anticipated cutbacks at the National
minimal. Although canceling flights will make
Weather Service will sharply curtail the flow of
airline seats a scarce commodity, most discount
weather information to controllers and pilots.
tickets for travel next week were purchased
That will further disrupt flights, particularly at
weeks ago and will still be good for travel at
night, and could result in an overall reduction
reduced prices.
of scheduled air service of 40 percent, analysts
However, if the crisis drags on, the airlines
could sharply curtail the number of discount
say.
fares offered.
"I would expect to see horrendous delays
"The law of supply and demand is certainly
during the peak periods of the day, like five in
at work in the marketplace, and tickets will go
the afternoon," said Paul Turk of the consult-
for a premium," Mr. Turk said. "If a flight's run-
ing firm Avmark Inc. "You'll also see a substan-
ning, you can bet it will be full, and there will
tial curtailment in night operations."
be no reason to discount seats."
Beginning Monday, assuming the cutbacks
go into effect as scheduled, air traffic controll-
While a headache for travelers, the possible
ers will hold flights on the ground at airports
schedule cutbacks would severely affect air-
around the country, attempting to even the
line finances, which are already reeling from
flow of aircraft on the airborne highways that
sharply higher fuel costs following Iraq's inva-
sion of Kuwait.
link U.S. cities.
It will be similar to the system the FAA uses
"It'll be nothing but a disaster," said Scott
when bad weather shuts down certain airports
Hamilton, co-editor of the Commercial Aviation
and flights are held until the weather clears.
Report newsletter.
The difference, notes Southwest Airlines Co.
"The strong carriers like American and
counsel Jim Parker, is that "it will be like one
Delta will lose a lot of money depending how
big thunderstorm over the whole United
long this thing goes on. As for the weak carri-
ers like Pan Am, TWA and Eastern - this con-
ceivably could spell life or death for them."
Mr. Hamilton drew a parallel with the air
traffic controllers strike in 1981, which drasti-
cally curtailed air traffic. The walkout was "an-
other nail in the coffin" for struggling Braniff
Airways, which the next year filed for bank-
ruptcy, he said.
The Dallas Morning News
Dallas, Texas, Thursday, September 27, 1990
Workers worry jobs will suffer, bills will mount
By Tracy Everbach
A government employee for 21
Staff Writer of The Dallas Morning News
years, Ms. Vandever said she has
Three federal auditors huddled
budget crisis is resolved. Weather
been threatened with furloughs for
around a lunchroom table Wednes-
forecasters - vital to flight opera-
as many years as she can remember.
day, penciling in their work sched-
tions - also would be furloughed.
But this year, "I'm not spending any.
ule for the next few weeks. They
The result, some experts fear, could
extra money on anything.
carefully marked X's through days
be a 40 percent reduction in sched-
Other government employees
uled airline flights.
said they have been preparing for
they wouldn't get paid.
Initially, flights would be de-
years for a possible furlough.
The auditors and most of the
layed. But at 3 a.m. on Oct. 4, the
"I hate for my salary to be cut,
other 40,000 federal employees in
the Dallas-Fort Worth area - like
FAA would impose a massive flight
but I've been expecting this for four
their colleagues across the nation
cancellation program at big air-
or five years," said Myrtle Walker, a
- will face unpaid furloughs start-
ports around the country.
secretary-typist for the Labor De-
ing Monday if Congress fails to
The airlines are expected to tell
partment. "I have money saved, and
agree on tax increases and spend-
the FAA on Friday how they would
I've talked to my landlord and oth-
apportion those cancellations
ers I owe. They said they under-
ing cuts.
among their markets.
stand."
The auditors in the Earle Cabell
On Wednesday in the federal
"But I'm not worried," she said.
Federal Building cafeteria didn't
building cafeteria, three employees
"There are many times they (Con-
concern themselves Wednesday
with the specifics of the Gramm-
of the Internal Revenue Service col-
gress) have made this decision
lection division traded furlough
overnight."
Rudman-Hollings Act of 1985, which
would force huge budget cuts in
worries.
Federal agencies across Texas
most federal agencies. They were
"I'm down here as a single par-
are preparing to slash their budgets
worried about how they would pay
ent," said Debra Tate, who said she
if Congress doesn't resolve the situ-
their bills if their salaries are cut
supports two of her three children.
ation by Monday.
by as much as half.
She said that if she is fur-
In San Antonio, which is home to
And they were frustrated about
loughed, she will try to find jobs on
five major military installations,
how their work would suffer if fur-
her unpaid days off through a tem-
Air Force and Army officials have
notified more than 17,000 civilian
loughs are imposed.
porary agency.
"It seems like it would be such a
"We're already cutting into our
employees that they may be fur-
waste," said one of the auditors,
savings," Ms. Tate said.
loughed.
who declined to give his name be-
Her lunch companion, Sandra
"If all civilian employees were
cause he was worried about reper-
Wolfe, said the uncertainty of the
furloughed, the government would
cussions from his supervisor. "It
situation bothers her.
realize a savings of $2 million in sal-
(furloughs) would put everyone so
"We're in the Middle East and I
aries each day," said Phoebe Brown,
far behind. And we're going to have
can understand helping other coun-
public affairs director at Kelly Air
to make it up sooner or later by
tries, but we need help here," Ms.
Force Base.
working overtime. They're (the
Wolfe said. "We're just hanging in
In Houston, Johnson Space Cen-
government) going to give us the
the balance. Something has to
ter officials said they do not expect
money back one way or another."
give."
furloughs to interfere with the Oct.
The auditors, among about 300
Members of Congress "don't un-
6 shuttle mission. The mission will
who work for the Defense Depart-
derstand what it's doing to people,"
carry a sun-orbiting solar science
ment in Dallas and Fort Worth,
said their co-worker, Marsha Spen-
probe called Ulysses.
have been told that they may be fur-
cer.
"We need to get Ulysses flying,"
loughed without pay for 40 hours
Ironically, if she and other IRS
said space center spokesman Jeff
every two weeks through Novem-
collection agents aren't able to col-
Carr.
ber.
lect and process checks because of
The space center's plan, if the
"It makes it hard to make any
the furloughs, the government
cuts go into effect, is to furlough
kind of plans," the auditor said.
won't receive money it is owed, she
every civil service employee for
"Are the congressmen getting cut?
said.
one day in the first two weeks of the
Is (President) Bush getting cut? It
"That money just will be sitting
fiscal year.
seems like we're all in this to-
there," she said.
U.S. Customs Service officials
gether."
About 2,300 IRS employees in the
said crossings on the Texas-Mexico
This isn't the first time federal
Dallas area are represented by
border and international trade will
employees have been warned about
Chapter 46 of the National Treasury
be bogged down if the spending
possible furloughs. Several workers
Employees Union. Vice president
cuts take place.
recalled having to take half-days off
Thomas Fishell, a tax examiner,
without pay in years past to meet
said the union is worried that if the
"All 2,248 customs employees in
furloughs are lengthy, workers will
the Southwestern region have
budget requirements.
But this year, the projected cuts
leave the agency for jobs in the pri-
received furlough letters," said
are massive - up to $100 billion of
vate sector.
spokeswoman Judy Thompson. "As
the $1.2 trillion federal budget for
a result, we are looking at a 40 per-
"These people are going to have
cent reduction in services and a ter-
the fiscal year beginning Monday.
to go out and find work," Mr.
The cuts would add up to about a
rific impact on the ability to do our
Fishell said. "They don't have the
third of the budget in many agen-
jobs efficiently."
luxury of taking unpaid leave."
cies. And the deadline Oct. 1 is
The Border Patrol may have to
Judy Vandever, a secretary for
inching closer without a resolution.
cut operating hours and close some
the Treasury Department, said the
The budget cuts would affect
ports temporarily, she said. Also,
threat of two- to four-day furloughs
more than just federal employees.
customs may have to reduce fuel
every week couldn't come at a
They pose the worst threat to the
purchases for airplanes and agents"
worse time. She and her husband
U.S. airline industry since the 1981
cars.
just bought a new house.
air traffic controllers strike.
Officials at U.S. Border Patrol of-
The Federal Aviation Adminis-
"Where will we get the money to
fill in the void?" she asked. "It's just
fices along the Texas-Mexico border
tration has said it will cut its work-
a day-to-day situation."
said employee reductions would re-
force by 25 percent unless the
sult in fewer patrols and fewer in-
vestigations to round up illegal
aliens and participate in drug inter-
dictions.
BOSTON HER
Thursday, September 27, 1990
President may
compromise to
win budget pact
WASHINGTON - Pres-
Nov. 6, Election Day," and
Georgia, the No. 2 House
ident Bush may be willing
"Congress, you do your
Republican, said the al-
to drop his demand for a
jobs so we can do ours."
ternatives could include
cut in the capital gains
The rally was organized
corporate tax breaks de-
tax, Republican congress-
by the American Federa-
signed to prod businesses
men said yesterday, a
tion of Government Em-
to operate in ailing urban
compromise that could
ployees, which represents
and rural areas.
spur a budget agreement
700,000 federal workers.
The developments OC.
and avert disruptive cuts
Inside the building, the
curred as negotiators re-
in government services.
Senate voted overwhelm-
sumed their search for a
Bush said nothing about
ingly to apply the spend-
package of tax increases
his reported change in po-
ing cuts to the salaries of
and spending cuts that
sition as he campaigned
members of Congress and
could reduce the deficit by
for GOP candidates in
top Executive Branch of-
$500 billion over five
Ohio. Instead, he said "the
ficials, including Vice
years.
hangup is with the Demo-
President Dan Quayle and
Hanging over them was
crats," whom he accused
members of the Cabinet
the prospect of $85 billion
of refusing to do their part
- items now exempt
in potentially disruptive
to cut the deficit.
under the Gramm-Rud-
cuts set to take place au-
"If and when the ax
man budget-cutting law.
tomatically Monday - re-
falls, the Democratic Con-
After a morning meet-
ductions that could result
gress knows that it will be
ing at the White House,
in furloughs for as many
held accountable," he
GOP lawmakers said
as 2.1 million federal
said. "And I will take that
Bush might accept items
workers and curtail gov-
message to every state in
he believes would spur the,
ernment programs from
the union."
economy instead of a
air traffic control to food
Hundreds of unionized
lowered capital gains tax.
inspections.
federal workers rallied
"He might be willing to
If the cuts are put in
outside the Capitol at
look at other alternatives
place, affected domestic
noon to demand a quick
in the growth area," said
programs would be
solution to the crisis. They
Senate Minority Leader
slashed by 32.4 percent
carried signs reading,
Robert Dole (R-Kan.).
and defense programs by
"Your furlough begins
Rep. Newt Gingrich of
35.3 percent.