Down to The Final Wire

By LAURENCE I. BARRETT WASHINGTON

For nearly five months White House and congressional negotiators haggled over ways to contain the deficit before more havoc was wreaked on the economy and mandatory spending cuts went into effect. But partisan sniping and a sheer lack of political courage frustrated a deal. By last week the Oct. 1 deadline for the $100 billion sequestration had raised the pressure to such suffocating levels that politics should have been choked out of the equation. Instead the negotiations grumped into the weekend amid fears that the pact made at the top might be undone by the congressional rank and file.

At times it seemed that the only consensus was on the need to pare $50 billion from the deficit in fiscal 1991, which begins this week, and $500 billion over five years. Achieving those goals, however, demands distasteful medicine -- higher taxes and reduced spending -- just weeks before congressional elections. Putting added pressure on the negotiators were new statistics underscoring how badly the economy is faltering. Last week, for instance, the Commerce Department pegged economic growth in the second quarter at an anemic 0.4%.

A breakthrough seemed imminent early last week when one of George Bush's most controversial proposals -- to reduce the capital-gains-tax rate, ostensibly to stimulate economic growth -- fell from the table. First, Senate ; G.O.P. leader Bob Dole broke with the White House by proposing that capital gains be separated from a larger deficit-reduction package. His House counterpart, Bob Michel, joined in. "We're in trouble," admitted a Bush adviser. "We got no support." Reeling from the defections, the Administration lashed out at the Democrats. In a campaign speech for G.O.P. candidates in Ohio, Bush hyperbolically insisted that if the dreaded sequester were to occur, "the Democratic Congress knows that it will be held accountable." Retorted House Democratic whip Bill Gray: "We ask him to stop acting like a party chairman and to start acting like a President."

But as the invective flew, the negotiators continued to meet far into the night in House Speaker Tom Foley's conference room. The "Gang of Eight," three from the Administration and five from the Hill, inched forward by discussing a compromise that would include a modest variation on the capital- gains scheme: instead of a cut in the rates, the value of assets sold would be indexed so that profits resulting from inflation would be exempt from taxation.

Progress stalled after the Democrats demanded a trade-off: higher income tax rates on the wealthy. Budget Director Richard Darman, Bush's chief representative, countered by calling for large cuts in entitlement programs. Democrats were already fretting about the possibility that Social Security, Medicare and other programs with broad constituencies may have to be slashed. Having earlier agreed to slicing $130 billion from entitlements over five years, the Democrats retreated to $100 billion. For the moment at least, both parties were hiding from reality in their familiar ideological bunkers: Republicans trying to minimize tax increases, Democrats attempting to protect popular programs. Over the weekend Congress worked toward a short-term budget extension that would briefly defer the reckoning.

Thus for the fourth time in five years Washington had failed to produce a budget by its own, self-imposed deadline. All concerned concede that Washington-style budgetmaking is a disgrace. Ideas for rationalizing the process, to curb both spending mania and cliff-hanging melodrama, have been as numerous as attempts to cure the common cold -- and just as ineffectual.

Bush continues to promote a constitutional amendment to require a balanced budget. The President also pleads for the line-item veto, which would permit him to excise specific parts of large-appropriations bills. The proposed amendment is an illusion: it would have to allow for unforeseen contingencies such as war, and it would not have much impact for several years. The line- item veto, a scalpel wielded by 41 Governors, might be more difficult to use on the highly complex federal budget.

Some other proposed changes seem more promising, at least on paper. Last year Republican Senator Pete Domenici of New Mexico introduced a bill to shorten the ordeal. It would require the President to submit a two-year spending plan, instead of the current annual one, and to substitute a joint budget committee for the present House and Senate units, which often disagree. Most important, it would convert the budget outline Congress is supposed to produce in April to a joint resolution requiring the President's signature. That would foster serious early bargaining between the White House and Capitol Hill. "Any confrontation would occur up front," says Domenici, "not in the days just prior to the new fiscal year."

Ideas like these win applause from think-tank experts but have failed to arouse much enthusiasm on Capitol Hill. The real problem is not with the budgetmaking process but with those who are in charge of it. The Gramm-Rudman- Hollings law was billed as the magic bullet that would blow away both the deficit ogre and the obstacles to orderly action. Gramm-Rudman has proved to be a dud. Overhauling the machinery yet again would help only if its operators were able to muster the will to run it properly. But if they could manage that, no overhaul would be necessary.

With reporting by Michael Duffy and Nancy Traver/Washington