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Bush, Top Lawmakers Reach Agreement on Deficit Package : Budget: The 11th-hour compromise heads off $85 billion in automatic spending cuts that would have gone into effect this morning. Action is designed to slash the deficit by $500 billion over the next five years.

October 01, 1990|TOM REDBURN and WILLIAM J. EATON | TIMES STAFF WRITERS

WASHINGTON — President Bush and congressional leaders, capping months of often-acrimonious negotiations, reached agreement Sunday on a sweeping package of tax increases and spending cuts designed to slash the federal budget deficit by $40 billion this fiscal year and by a total of $500 billion over the next five years.

The eleventh-hour agreement, which heads off $85 billion worth of automatic, across-the-board spending cuts that would have gone into effect this morning if the talks had failed, was hailed both by Bush and top lawmakers as a historic breakthrough in the decade-long budget stalemate between Republicans and Democrats.

"It is balanced, it is fair and in my view it is what the United States of America needs at this point in its history," Bush said, surrounded by congressional leaders and aides, in a midafternoon ceremony in the Rose Garden outside the White House.

Bush interrupted a round of meetings at the United Nations in New York to return here for the announcement.

House Majority Leader Richard A. Gephardt (D-Mo.), who had led the closed-door bargaining sessions since they began in May, agreed. "The alternative to this agreement is fiscal chaos," he said.

"What delayed us for months is what has divided us for a decade," he added. "The parties to these talks . . . continue to have deep disagreements over values, the role of government and the fairness of our taxes. But we all made compromises in the national interest."

The package, if approved by Congress, would increase taxes on gasoline, cigarettes and alcoholic beverages; raise Medicare premiums; impose a new tax on luxury goods, and scale back itemized deductions for all taxpayers with incomes above $100,000.

Overall, taxes would rise $134 billion over the next five years.

Under the budget agreement, federal spending would be subject to firm caps, reducing government outlays for domestic and military programs by $182.4 billion--with the bulk of the savings likely to come out of the Pentagon's hide.

At the same time, the new budget pact is designed to restrain the growth of long-standing benefit programs such as Medicare and farm subsidies for additional savings of $119 billion.

Under the agreement, the two houses will have until Oct. 19 to pass final compromise legislation needed to carry out the budget pact--including enactment of 13 appropriations bills that are necessary to provide for government spending in fiscal 1991, which begins today.

But the accord--which has already set off howls of protest from dozens of affected interest groups--must still overcome widespread resistance among lawmakers, who fear that angry voters might retaliate by throwing them out of office this November.

"I have great reservations about supporting the agreement until I look realistically at the alternatives," said Rep. Julian C. Dixon (D-Los Angeles). "The impact of the gas tax is going to hit very hard in Southern California. It's not a done deal."

House Minority Whip Newt Gingrich (R-Ga.), also a participant in the budget negotiations, boycotted the White House ceremony and told reporters that he is "still looking at" the accord. Rebellious House Republicans criticized the package and vowed to try to defeat it.

The GOP lawmakers expressed their frustration at a closed-door caucus that was so raucous it could be heard easily in the hall outside.

Rep. C. Christopher Cox (R-Newport Beach), a former aide in the Ronald Reagan White House, called the budget agreement "an economic Yalta. This is a complete sellout. . . . The American people won't buy it and certainly the Republican conference won't buy it."

But congressional leaders expressed optimism that the initial wave of opposition would diminish as lawmakers face an up-or-down vote on whether to approve the deficit-reduction package intact or bring on the automatic cuts mandated by the Gramm-Rudman deficit reduction law.

"The alternative to this package is economic crisis," said Rep. Leon E. Panetta (D-Carmel Valley), chairman of the House Budget Committee, "not only from continuing high interest rates . . . but also from the disastrous . . . Gramm-Rudman cuts that will take effect if the agreement is not approved."

The final compromise, forged in an all-night session that lasted until dawn, would slice $40 billion off the deficit expected for fiscal 1991--a full $10 billion short of the $50-billion reduction that negotiators originally wanted to achieve.

Even with the agreement, the largest deficit-reduction plan ever proposed, the deficit for the new fiscal year still is expected to hit a record $253.6 billion--partly because of the slowdown in the nation's economy.

In a briefing for reporters, Richard G. Darman, director of the White House Office of Management and Budget, acknowledged that a deteriorating economy and the growing cost of protecting savings and loan depositors meant that officials had to struggle harder and harder just to keep the deficit from growing.

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