As President Bush tried to undo the political damage caused by two days of confusion over his tax positions, congressional Democrats pressed ahead Thursday with their own fiscal agenda that could lead to a new confrontation with the White House.
Bush told House Republicans he now believes it would be a ”waste of time” to renew bargaining with the Democrats over a deal that would increase the top income tax rate for the wealthiest Americans in exchange for a lower capital gains tax rate.
Meanwhile House Democrats, led by Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.), unveiled a budget plan that included higher income tax rates for the wealthy and a 10 percent surcharge on taxable incomes exceeding $1 million.
The Democratic plan, apparently aimed at defining the Democrats as the party of tax fairness, proposed easing the tax burden on lower- and middle-income families by holding the gasoline tax hike to 3 cents a gallon, down from the 12 cents agreed on at the recent budget summit. It would also reduce the increase in out-of-pocket costs for Medicare.
The gulf between the Democratic-run Congress and the Republican White House is growing wider as time runs short to avert another government shutdown. Congress is charged with fashioning a five-year, $500 billion deficit-reduction plan by Oct. 19.
House leaders said they expected to have tax proposals on the House floor next week, in the fading hope of being able to adjourn as scheduled next Friday, Oct. 19.
All day Thursday, Democrats and Republicans on Capitol Hill tried to work on their strategies, unsure where Bush stood.
House Republicans, awaiting signals from the White House, also kept moving back the time they had set for a meeting to discuss the budget.
”The schedule changes as fast as the president`s position,” quipped Rep. Steve Gunderson (R-Wis.).
At the White House, officials tried to shake off the impression of indecision and confusion, summoning congressional Republicans for damage-control meetings.
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That approach got off to a bad start. After a morning meeting with the president, the ranking Republican on the Ways and Means Committee, Rep. Bill Archer of Texas, emerged to say the president backed an income tax-capital gains deal. ”He said without equivocation this is what he wanted to do.”
But minutes later, White House spokesman Marlin Fitzwater put out a statement quoting Bush as saying he sees little prospect of successfully negotiating such a tradeoff with the Democrats.
As the day progressed, it became clear that the president had in mind the same deal that the administration had presented privately during the budget summit-a deal rejected by the Democrats. In that plan, Bush had proposed a deep cut in the capital gains tax rate along with a new top income tax rate of 31 percent-which would increase the rate for the 500,000 wealthiest Americans now paying 28 percent but would cut the taxes of 4.5 million upper-income taxpayers who now pay 33 percent.
That income tax change would produce virtually no increase in tax revenue, enabling Bush to say he had remained loyal to the spirit of his no-new-taxes pledge.
The president said he had no illusions that his plan would be accepted by Democrats, who claimed the administration proposal would favor the rich at the expense of middle-class and lower-income families. Democrats said the president`s proposal would mean a $9,097 tax cut for people making over $200,000 but only a $4 tax saving for those earning $10,000 to $20,000.
Bush said additional bargaining with the Democrats on this issue was only likely to produce results that would be unacceptable to him.
The Democrats want to raise the marginal tax rate for families earning more than $162,770 to 33 percent from the current 28 percent, leaving open for the moment the question of whether to offer a capital gains tax break in return.
The Democratic plan also includes a 10 percent luxury tax on expensive cars, furs, jewelry, boats and private airplanes. It raises liquor taxes, although not as much as the budget summit plan did, and increases taxes on beer, wine and cigarettes.
It drops the controversial provision to include state and local workers under the Medicare tax-an anathema to Chicago and Illinois because it would cost them more than $100 million-and includes a hike in the airport ticket tax.
Under their plan, Medicare premiums would remain at $29.90 for 1991 instead of rising, as in earlier proposals; and deductibles would rise to from $75 a year to $100, rather than $125. The plan would also raise the cap on the amount of income subject to the Medicare tax from the current $51,000 to $100,000.
The House Democrats recognized that they would ultimately have to compromise with Bush and the Senate. But leaders said they hoped to have the votes to pass their plan in the House, where Democrats hold a substantial majority.
”I don`t think it`s a bluff on the part of Democrats,” Rostenkowski said. ”I think we`re realists. We realize we have to work in the vineyards of Middle America. I think we will bring a package that has some value in the tax system to Middle America.”
The House Democrats, in their proposal Thursday, did not deal with the issue of lowering the capital gains tax rate, leaving that for Friday. Previously, Senate Finance Committee Chairman Lloyd Bentsen (D-Texas)
suggested a 23 percent rate, rather than the 15 percent put forward by the president. The current rate is as high as 33 percent.
But Bentsen has prepared a new budget plan that does not include either higher income taxes on the wealthy or a cut in the capital gains tax, according to well-placed sources.
Instead, it increases some taxes on the rich by limiting their itemized deductions to 95 percent of what they would otherwise be eligible to take and increasing to $100,000 the amount of their wages subject to the Medicare tax. It includes a 9-cents-a-gallon gasoline tax and incentives for production of alcohol fuels and for oil drilling if the price of oil falls below $28 a barrel.
Sources close to the committee said Bentsen`s plan was designed to attract Republican as well as Democratic support when the Finance Committee meets Friday.
On Capitol Hill, there is some talk of putting off the tough decisions on taxing and spending until after the elections.
But some members are getting nervous about being labled a do-nothing Congress.
”That would be a devastating way to go to the electorate, to say, `We couldn`t agree-re-elect us,` ” said Rep. Henry Hyde (R-Ill.).