Bush, top economic advisers send mixed signals on tax cuts

WASHINGTON — WASHINGTON -- President Bush and his top economic advisers, undecided about what to propose to revive the flagging economy, sent mixed signals yesterday on cutting taxes and on whether to violate last year's budget agreement.

The confusion was clearest on Capitol Hill. On the first day of a series of congressional hearings on tax policy and the state of the economy, the economic advisers at first suggested that giving the economy a quick jolt was more important than holding to the budget agreement.


But they came back from a short lunch saying that breaking the agreement was unacceptable.

The contrary messages seemed to underscore what polls show to be Mr. Bush's most serious political vulnerability: his administration's lack of a coherent economic policy.


The president himself heightened political tension over the economy at a news conference. While his advisers at the hearing were urging lawmakers to work in a bipartisan fashion, Mr. Bush blamed Congress for worsening the economy by not passing measures he had proposed over the last three years.

He said that after revealing proposals in his State of the Union message next month, he would go "directly to the American people, over the heads of the subcommittees and the Congress and say, 'Please support us in helping this economy.' "

Mr. Bush also ordered the speedup of $9.8 billion in federal spending, but economists said the amount was too small to kick life into a $5 trillion economy.

Mr. Bush and his chief advisers are under severe political pressure to take steps to speed the nation's recovery from recession, and the Democrats are determined to tighten the screws at every opportunity.

But the administration seems torn between conservatives who are interested primarily in tax cuts and care little about the budget deficit and moderates who see the deficit as a monstrous long-term weight on the economy.

Mr. Bush and his inner circle may not disagree so much among themselves as they are worried about the potential for political damage.

Early in a long day of testimony before the House Ways and Means Committee, Richard G. Darman, the budget director, said, "Our first objective has to be restoring short-term growth on DTC a basis that is sustainable with respect to long-term growth.

"If we can do that within the budget framework, we should," he continued, "but the first priority is growth."


But the administration's tune changed after a 20-minute break. Asked shortly after lunch whether he believed that the budget deficit should not be "violated," Treasury Secretary Nicholas F. Brady replied, "That's correct. If it was violated, it would raise interest rates."

By the end of the day, Mr. Darman was saying that breaking the budget deal would shock the markets and central bankers around the world.

At his news conference, Mr. Bush vacillated over whether he supported middle-class tax cuts. He had this exchange with reporters:

Question: "Do you think the middle class deserve a tax cut?

Answer: "Listen, I think every American deserves to pay less taxes."

Q: "Do you think, though, that the need is such that that is an area where you would consider breaking the budget agreement?


A: "I don't want interest rates to go sky high. . . . So whatever we do has got to be economically sound."