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Pressures of '88 Blocked Benefit Cuts : Election Fear Also Chilled Tax Raises in Deficit Talks

November 22, 1987|KAREN TUMULTY | Times Staff Writer

WASHINGTON — A devastating stock market crash finally forced President Reagan and Congress into four weeks of intense deficit-reduction talks, but once they got to the bargaining table, last month's economic urgency gave way to the pressures of next year's election.

On Saturday, Reagan hailed the agreement the talks produced to cut $30 billion this year and said it sent "the right message at the right time" to financial markets. But he also strongly suggested that the accord fell short of his hopes.

In his weekly radio address from the Oval Office, the President virtually repeated his comments of the previous day, saying: "This agreement is probably not the very best deal that could have been struck, but we have to begin somewhere."

Tug of Partisan Warfare

Despite their fear of an economic collapse, the politicians who reached the agreement on Friday--and those who must now vote on spending and tax bills to carry out its promises--have been unable to extricate themselves from the tug of partisan warfare.

After eight years of political infighting, "the scars of those battles are seen in this package," said Rep. Leon E. Panetta (D-Monterey), one of the negotiators who fashioned the accord, which seeks to trim $76 billion from the deficit over two years.

Two areas of the budget demonstrate those political realities best: Social Security and taxes.

While both offer enormous potential for reining in the deficit, they also are the weapons with which Republicans and Democrats have bludgeoned each other in past elections.

"Democrats have used (Social Security) as an issue, and Republicans have used the tax issue. They've used them as a club on each other," Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.) said.

'A Good Deal of Fear'

With next year's elections in mind, he added, "there is a good deal of fear on the part of each that they'll be subjected to that kind of attack again."

Social Security has Republicans on the defensive. Democrats don't want to lose their claim to being the party that rescued the program from past attempts by Republicans to cut it; Republicans, remembering too well how they have been hurt by the issue, are not going to be the first to propose restraint again.

On taxes, the situation is reversed. Republicans do not want to lose their ability to brand Democrats as the party of "tax and spend"; Democrats remember what happened to their candidate, Walter F. Mondale, when he promised a tax increase in 1984, and say they will not vote for new taxes unless Republicans do too.

Such is the mistrust that has developed between the parties that neither wants to open itself to another round of skirmishing on those issues, regardless of their agreement on the need to get the deficit under control.

Up against such formidable political pressures, negotiators had to settle for a package that is winning only lukewarm support on Wall Street, which quickly recognized its limitations.

$5-Billion Windfall

For example, while the ultimate deficit-reduction package claims to reduce the deficit by $30 billion this year, $5 billion of that saving would come from a one-time windfall that would result from refinancing rural electric loans. Some of its other deficit-reduction measures, such as the $1.6 billion expected from cracking down on income tax cheats, are widely dismissed as unlikely to live up to expectations.

"If this is all they do, I think it falls very, very far short of what's necessary," Shearson Lehman Bros. Chairman Peter Cohen said Saturday on Cable News Network.

One Democratic Victory

Democrats scored at least one big victory in the package: Rather than accept defense cuts even deeper than the $5 billion in the agreement, Reagan reneged on his pledge to oppose higher taxes and allowed $9 billion in unspecified new taxes to be included in the agreement.

But it is far from clear that Reagan's party in Congress is willing to follow his lead on taxes.

"It's sad to see the White House bamboozled into this sort of foolishness," said Rep. Newt Gingrich (R-Ga.).

While the President will never again be on the ballot, "we're looking at where we're at in 1988," said Rep. F. James Sensenbrenner Jr. (R-Wis.). "That's what the concern is."

With the President and GOP leaders of both houses behind the package, "I would think (Republican candidates in next year's elections) will have some difficulty saying we are the party that wants to raise taxes all the time," said Rep. Tony Coelho (D-Merced), the House's assistant majority leader.

Threat by Conservatives

In part because they fear losing this political edge, conservative Republicans in both the House and Senate are threatening to vote against the package, and accept instead $23 billion in painful automatic spending cuts.

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