"We Have Reached Breakpoint"

By Richard Stengel

From the moment they recaptured the Senate last fall, Capitol Hill Democrats set out to prove they were not hopelessly divided and terminally ineffectual. They were determined to show that they could work together, make policy and lead the nation -- in short, that they deserved to take over the White House after 1988. They made a bravura start, quickly passing a clean-water bill over the President's veto and approving the $88 billion highway bill over another Reagan veto. The Republicans, shell-shocked by the midterm election loss and defensive over the Iran-contra affair, were reduced to the role of helpless spectators.

That was the easy part. But when it came to figuring out how to write a budget without boosting the deficit or gutting the military, the newly united Democrats came unglued. As haggling over a 1988 budget resolution split the House and Senate Democrats, Congress came to a near standstill for almost six weeks. The Washington Post derided the "Flubbocrats," and Senate Majority Leader Robert Byrd, stymied on other fronts, threatened to delay the August recess if his dilatory colleagues did not buckle down.

Last week an outside agitator stepped forward and concentrated congressional attention. The unlikely catalyst: Ronald Reagan, who had resolutely ignored Congress's budget dilemma after his own spending plan had been rejected by both Democrats and Republicans. Returning from a humdrum summit in Venice and limping from the continuing Iran-contra revelations, the President was looking for a quick score. So Reagan did what he does best: he took to the airwaves and attacked the old "tax and tax, spend and spend" ways of the Democrats. The assault pushed Byrd and House Speaker Jim Wright into hurried meetings with their deadlocked committees, and by week's end the Democrats had agreed on a $1 trillion spending plan for next year, including a $19.3 billion tax increase that Reagan vows he would veto.

The confrontation hinges on taxes and military spending. The President had proposed a $320 billion defense appropriation; House Democrats wanted $288 billion for defense -- virtually the same as this year -- while the Senate was holding out for $301 billion. The compromise would give the Pentagon $296 billion, but only if the President agreed to hike taxes to help pay for the cost. If Reagan rejected the tax increase, the Pentagon would get just $289 billion. The Democratic resolution attempts to lock Reagan into a damned-if- he-does, damned-if-he-doesn't position, placing the burden of new taxes on his shoulders. It is a game the President insists he will not play.

With the President on the attack and the Democrats determined to force him to face up to a tax increase, the budget battle has become the year's most contentious issue. Although Reagan's television speech sounded hackneyed themes -- and got little public response -- it represents the first salvo of a new campaign. Over the coming weeks, the President will be out on the hustings preaching for his favorite reforms -- a line-item veto, a balanced-budget amendment and two-year budget cycles -- all of which are going nowhere in Congress. The Reagan message is simple. "In the critical matchup between those who want to keep spending your money and raising your taxes, and those of us who resist a return to the old policies . . . we have now reached breakpoint," he said in his speech.

Bashing Congress over the budget may represent the Republicans' best hope for regaining a political edge. Said one senior White House aide: "We're going to stay with this issue. In the fall, when the Iranscam hearings are largely behind us, we'll still be scoring with it." Chief of Staff Howard Baker was reluctant to go along with the confrontational strategy; he tried to remove the tough language from the President's speech, until one of his aides threatened to quit over the matter. "Baker's dying a thousand deaths right now," said a White House source. "He wants to compromise, to make a deal. He has trouble realizing that we've got to hold to an absolute position . . . To concede now would be to give up the last remnants of power that Reagan has."

The first big congressional showdown should come just before the August recess when three legislative issues may be resolved: an increase in the federal debt limit, the reconciliation of the authorizing bills with the budget committee's guidelines, and the need to redress problems in the Gramm- Rudman-Hollings Balanced Budget law. The Democrats will be at a particular disadvantage when they begin earmarking their tax increases: proposals for excise taxes on cigarettes, liquor or gasoline are sure to outrage various constituencies. Says South Carolina Senator Fritz Hollings: "I don't know how ^ we're going to get the Democrats together on taxes. That's going to be the tough one."

Meanwhile, Senate Republicans have indicated their approval for the President's hard line by presenting him with a "veto pencil" more than a foot long. Thus far neither party seems ready to make the tough decisions necessary to pay for the programs it wants; each seems to be trying to maneuver the other further out on a limb. Looking toward the inevitable confrontation between the White House and the Democrats, Hollings predicts, "It's gonna be one big high noon."

With reporting by David Beckwith and Michael Duffy/Washington