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Budget Deficit for 1989 Is Put at $152.1 Billion : Spending: Congress and the White House remain locked in a stalemate over a capital gains tax cut.

October 28, 1989|TOM REDBURN | TIMES STAFF WRITER

WASHINGTON — Congress and the White House remained locked in an acrimonious budget stalemate over the capital gains tax Friday, even as the Treasury Department announced that the deficit for fiscal 1989 remained essentially unchanged for the third year in a row at $152.1 billion.

Richard G. Darman, director of the White House Office of Management and Budget, accused Democratic leaders in Congress of a "gross double standard" for resisting Bush's capital gains proposal. Darman complained to reporters that, while Democrats criticize a capital gains tax cut as a long-term drain on the budget, they are simultaneously pushing their own spending initiatives, such as child care and Medicaid expansion.

But Darman conceded that the White House is willing to accept such measures as part of a compromise if Congress would just go along with the White House's proposed capital gains tax cut.

"We would like to see the stalemate broken," he pleaded.

But he was forced to acknowledge that the chances of winning a capital gains tax cut this year are growing dimmer. Senate Majority Leader George J. Mitchell (D-Me.) has thrown a series of procedural roadblocks in the way of a tax cut.

"Either Mitchell changes his mind for some reason or other," Darman said, "or enough members go through the process enough times" that they would desert the Senate leadership.

When asked about his estimate earlier this month that the odds for a capital gains cut had improved to 8 to 5, Darman insisted that he had intended the prediction as nothing more than a joke. It "was not the product of an entirely rational process," he said.

The budget wrangling continued on another front as well--the bill to raise the statutory limit on the national debt. Without legislation, the debt ceiling will revert next Wednesday to $2.8 trillion from its temporary level of $2.87 trillion, and the Treasury will lose its authority to borrow the additional money it will need to finance the government.

Senate Republicans are seeking to offer a capital gains tax cut as an amendment to that bill on the Senate floor. Their proposal would provide a greater tax break for profits on the sale of investments held for longer periods and it also would exempt from taxation the money withdrawn from a new type of individual retirement account.

Until Thursday, it appeared that the issue would have to be settled by next Tuesday night, or else the government would run out of money. But then the Treasury Department announced that it would sell $17 billion worth of government securities before Tuesday night, thus prolonging the deadline for passing the debt ceiling bill.

Democrats attacked that plan Friday as a politically motivated attempt to buy more time to round up votes for a capital gains tax cut.

"There is absolutely no limit to what they will do to advance their cause," Mitchell said. "It is a transparent political move to get a capital gains tax cut."

Republicans defended the move by Treasury Secretary Nicholas F. Brady to sell the government securities as a prudent action to ensure that Social Security checks go out next Friday. But Democrats insisted that there was never any doubt that Congress would extend the debt ceiling to avoid a government shutdown.

Darman decried the drive in Congress to exempt the Social Security trust fund from the Gramm-Rudman deficit-reduction law. He pointed out that it could have the unintended consequence of threatening the long-run security of Social Security funds by making it easier for lawmakers to spend the surplus on new social programs.

"Simply taking Social Security out of the Gramm-Rudman calculations is a step in the wrong direction," he said.

The $152.1-billion deficit for fiscal 1989, which ended Sept. 30, was slightly lower than the $155.2-billion deficit of fiscal 1988 and a bit above the $149.7 billion in 1987.

Revenues totaled $990.8 billion in 1989, up from $908.2 billion in 1988. Outlays rose to $1.14 trillion from $1.06 trillion.

With the deficit stalled at about $150 billion, Congress is considering ways to modify Gramm-Rudman, which calls for a balanced budget by 1993. While most of the proposals would have the effect of delaying the day when the federal deficit is eliminated, Darman suggested that lawmakers should strengthen the law through a number of reforms, including eliminating a loophole that allows increased spending once the fiscal year has begun.

He said also that there should be a provision requiring lawmakers to have a separate vote if they want to reverse the automatic spending cuts that are triggered when Congress fails to reach the deficit target.

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