Schaefer says Gramm-Rudman cuts would 'wreak havoc' in Md. In angry Washington, budget fight turns partisan


WASHINGTON -- After weeks of studied restraint, Democrats and Republicans tore off their muzzles yesterday and attacked each other for failing to come up with a deficit-slashing budget deal.

The bitter words underscored the gulf between the two parties on the budget issue, muddying prospects for agreement on a deficit-reducing plan before Monday, the start of the new fiscal year and the day when automatic budget cuts are supposed to carve $85 billion out of the federal budget.

If the automatic cuts take effect, government services would be disrupted on a massive scale and tens of thousands of government employees would be furloughed.

But if congressional leaders and White House officials manage to devise a budget deal that cuts $50 billion out of the upcoming fiscal year's deficit and an additional $450 billion during the next four years, the cuts will not materialize.

"It can be avoided if they do what they should," President Bush, referring to members of Congress, told reporters aboard Air Force One en route to a political fund-raiser in Ohio.

While the threat of massive cuts is supposed to push Congress and the White House toward a deal, yesterday's rhetoric also suggested that it had drastically shortened tempers as the nation's elected leaders frantically looked to assign blame for failure to reach an agreement.

"It's the Congress," Mr. Bush continued. "I would now say the Democrats in Congress have not come forward with a package."

Later, he directly criticized the Democrats, saying "it's their fault for holding up getting a budget agreement."

The president's remarks drew a swift retort from Democrats, already fearful that the public would blame budgetary paralysis on Congress and, by extension, the majority Democrats.

"We don't need this kind of armchair criticism. . . . What he said was false and counterproductive," said House Majority Whip William H. Gray III, D-Pa., who admonished Mr. Bush to "stop acting like a party chairman and start acting like a president."

Similarly, Senate Majority Leader George J. Mitchell, D-Maine, called the president "badly misinformed" for asserting that the Democrats had yet to come forward with a budget proposal.

"The president's statement creates a highly misleading and damaging impression about our participation in these negotiations," Mr. Mitchell said. "It cannot stand unchallenged."

The harsh exchange appears to have been triggered by President Bush's frustration over the fate of his proposal to cut the capital gains tax rate. Republicans have insisted in its inclusion in any deficit-reduction package, asserting that a reduction in the tax rate on investment income would spur the economy. Democratic budget negotiators have been just as adamant in their opposition, contending that a rate cut would serve chiefly as a windfall to the rich.

Yesterday, key Republicans said the president might be ready to abandon his demand for a cut in the capital gains tax rate, removing perhaps the main obstacle to agreement.

"He might be willing to look at alternatives in the growth area," said Senate Minority Leader Bob Dole, R-Kan., as he and other GOP lawmakers left the White House after a morning meeting with the president. Those alternatives, Mr. Dole and others said, might include such economic growth incentives as tax credits encouraging research and development or business investment in poverty-stricken inner cities.

The president himself refused to comment on Mr. Dole's statements, suggesting to some a tacit endorsement of the remarks. When asked if he would be willing to retreat from his demand for a capital gains tax cut, Mr. Bush did not respond directly, answering instead that "the Republicans know what I want when I talk about growth" and adding that "we will continue to press hard for incentives for capital investment."

In closed-door negotiations, however, Republicans continued to press for a newly diluted version of the original capital gains tax proposal -- by indexing to inflation.

Last year, House Democratic leaders embraced that indexing approach as an alternative to a rate-cutting proposal that had been advanced by Representative Ed Jenkins, D-Ga.

Mr. Jenkins' plan passed anyway, although it eventually was killed in the Senate.

This year, however, those same Democrats say they will not allow any indexing plan to become part of an eventual budget deal.

"It's still a capital gains cut," said one senior Democratic aide. "That's just not going to fly."

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