Bloody budget battle returns to Capitol


WASHINGTON -- Budget talks degenerated into a budget brawl yesterday, as Democrats and Republicans accused each other of thwarting an agreement to cut the federal deficit.

After negotiators broke off 10 days of cloistered negotiations at Andrews Air Force Base, congressional leaders and White House officials met briefly yesterday and decided to resume bargaining today at the Capitol.

"There are sharp differences on almost every issue, and to suggest otherwise is nonsense," said House Minority Whip Newt Gingrich, R-Ga.

Despite the partisan acrimony, agreement appeared closer yesterday than when the negotiators first took their calculators to Andrews. The goal is to craft an agreement that would cut $50 billion out of next year's deficit and $500 billion from the government's accumulated debt over the next five years, and pressure to reach that goal is rising: If a deal has not been struck by the Oct. 1 start of the new fiscal year, the Gramm-Rudman law will lop billions of dollars from most federal programs, curtailing federal programs and possibly leading to furloughs.

"Right now, it's a game of chicken," said one senior Democratic staff aide. "The question is, who's going to blink first?"

Already, both sides have blinked on a number of sensitive issues. According to documents obtained by The Sun, Republican and Democratic negotiators have tentatively decided to increase a number of politically sensitive excise taxes and user fees.

The bargainers agreed to increase tobacco taxes by 8 cents from the current 16 cents a pack: by 4 cents in 1991 and 4 cents in 1993. That increase would bring an additional $5.9 billion into federal coffers over the next five years. Both sides also agreed to raise taxes by an unspecified amount on wine, beer and all other types of alcoholic beverages, raising $13.6 billion over the same period.

Likewise, an anticipated 10 percent luxury tax on high-priced cars, stereos, furs and the like would be expected to earn $9 billion. An excise tax on chemicals that deplete the ozone layer in the Earth's atmosphere would bring in $500 million. Raising various user fees, such as the Airport Trust Fund aviation excise tax, the Leaking Underground Storage Tank trust fund tax and a harbor maintenance tax, would be expected to earn an additional $14.2 billion.

Meanwhile, negotiators have settled the most prickly questions regarding the size of the defense budget and have begun to circle in on an agreement to trim about $120 billion from anticipated government expenditures for Medicare, agricultural price supports, federal retirement benefits and a plethora of other mandatory spending obligations.

One Bush administration budget official categorized remaining differences in these areas as "split-the-difference disagreements" of the kind Congress routinely dispenses with. "They could be settled in about three hours," the official said.

Unfortunately, the negotiators say, the sharpest disputes are not so easily resolved. Least easily settled among them appears to be President Bush's long-held goal for a reduction in the capital gains tax rate, which Republicans contend would stimulate the economy.

"The problem, as I think you know, centers around the insistence of the administration to reduce the capital gains tax," said House Speaker Thomas S. Foley, D-Wash. If the capital gains issue could be resolved, said Senate Majority Leader George J. Mitchell, D-Maine, "the rest would come together quickly."

The problem, as Democrats see it, is that a capital gains tax would primarily benefit the well-off. Currently, the tax rate imposed on income from the sale of such assets as stocks and real estate is as high as 33 percent. The Republicans would reduce that rate to 15 percent, a move Democratic leaders say would prove a boon to people who earn more than $100,000 a year.

Republicans bridle at that charge, saying that they have offered to increase taxes paid by the well-to-do to compensate for any windfall that might accrue from a cut in the capital gains tax rate. Republicans had, for example, proposed to offset part of the capital-gains reduction by limiting the state and local income tax deductions available to people with incomes over $200,000.

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