Bush: Ignore My Lips

“The Congress will push me to raise taxes, and I’ll say no, and they’ll push, and I’ll say no, and they’ll push again, and I’ll say to them, “Read my lips: no new taxes.”

— George Bush, accepting his nomination at the 1988 Republican Convention

“Read my lips: I was lying.”

— Update suggested by NBC-TV’s David Letterman last week

A comic overstatement, of course — but the President was suddenly playing mysteriously coy. After hundreds if not thousands of repetitions that made “read my lips” the most memorable line of the 1988 campaign, Bush last week practically invited Congress to start pushing, with a hint that his lips might now frame something other than a flat no. The President asked congressional leaders to join Administration officials in a “summit” meeting to plan, at long last, a real whack at the runaway budget deficit. His spokesman, Marlin Fitzwater, said Bush wanted the talks to start with “no preconditions” and proceed “unfettered with conclusions about positions taken in the past.” Meaning, everyone assumed, that a tax increase could at least be seriously discussed, and Bush just might let himself be talked into one.

Or was that what the President meant? Edward Rollins, co-chairman of the Republican Congressional Campaign Committee, estimated that a tax hike might cost the G.O.P. ten of its 176 seats in the House; 19 of the 45 Republican Senators signed a letter begging Bush in effect to “say it ain’t so, Mr. President.” The White House and its allies almost did. After a meeting with Bush, Alan Simpson of Wyoming, the assistant Senate Republican leader, insisted that the President was not talking about income taxes, for heaven’s sake. Maybe excise taxes, or energy taxes, or a kind of national sales tax, or something or other, but never income taxes. Bush’s chief of staff, John Sununu, speaking as “a senior White House official” — a transparent disguise — then gave a novel definition of what “no preconditions” meant. The Democrats, he said, were free to propose a tax boost, but “it’s our prerogative to say no. And I emphasize the no.”

Sununu, whose task was to keep the Republican right quiet until the summit concluded, apparently did his job with far greater zeal than Bush intended. Sununu’s efforts almost torpedoed the summit before it started. Democrats immediately took them as confirmation of their darkest suspicions — that Bush is again trying to portray the Democrats as the high-tax party, by euchring them into proposing an increase that he could either virtuously reject or pretend had been rammed down his throat as the price for shrinking the deficit. “Now I wonder if this ((summit invitation)) is a good-faith effort or whether political traps are being set,” said House Budget Committee chairman Leon Panetta.

Fitzwater disavowed the comments by Sununu. Speaking before the chief of staff was officially identified as the source, he even called the tone of the remarks “crazy.” Bush himself apologized to House Speaker Thomas Foley by telephone and reassured him that “no preconditions” meant . . . well, no preconditions. So the week ended with negotiations still scheduled to start Tuesday but no one willing to predict success. “It very well could be that the budget summit will putter into nothing,” said New York Democratic Congressman Charles Schumer. Similar meetings in 1987 and last year yielded mostly a collection of one-shot gimmicks and minor moves that served less to slash the deficit than to put off the day when something real and painful would have to be done.

On the other hand, Budget Director Richard Darman and, of all people, Sununu, in a less theatrical configuration, appear to have convinced Bush that the day of reckoning can no longer be postponed. To begin with, the economic projections that the Administration used when it drew up Bush’s $1.2 trillion budget proposals last winter have turned out to be far too optimistic. (Democrats, who think the phrase “too clever by half” might have been invented to describe Darman, grumble that he should have known that when he made those projections.) Corporate profits have dropped, reducing the federal tax take. Interest rates have gone up, rather than down as predicted, raising the amount the Government must pay on its borrowings. And the rescue of ailing savings and loan associations is running up greater than expected expenses practically by the hour, an estimated $45 billion this year.

To meet the Gramm-Rudman-Hollings Act requirement of a deficit no greater than $74 billion in fiscal 1991, which starts Oct. 1, it had been thought that a cut of $36 billion, in itself a tall order, would be needed. But Darman publicly recalculated last week that a reduction of $60 billion to $100 billion was necessary (depending on whether S&L bailout costs were treated as part of the official budget). If the White House and Congress cannot agree on such a reduction, Gramm-Rudman would force an automatic cut in spending (called a sequester) of that magnitude, divided roughly half and half between military and civilian expenditures but exempting Social Security and many other entitlement programs.

Darman and Sununu had earlier convinced Bush that the nation — and the Republicans — could not stand a sequester of $60 billion or more. Says one official: “It would be so draconian that you would be closing VA hospitals, free ((school)) lunches, education assistance, food stamps, as well as a lot of the military. The Democrats would be all over us for shutting down the Government.” Darman and Sununu also persuaded Bush that negotiations to avoid such a sequester had to start now. They could not wait until September, the traditional time, because that would be only two months before the congressional elections, and campaigns would be in full swing. As one official put it, “The political flak we’ve seen develop here in the past 24 hours would be ten times worse in September.”

A common assumption is that the summiteers will remove the cost of the S&L bailout from the budget. But there will be strong resistance to cutting the remaining $60 billion off the deficit. There is a legitimate concern that so huge a whack would put too great a strain on the economy, which, though it has so far avoided recession, is growing at a snail’s pace, 2.1% in this year’s first quarter.

Whatever deficit reduction might be agreed on would probably be divided about equally between spending cuts and tax increases. But which taxes? The most obvious target is the least likely. The White House in practice has already revised the “read my lips” pledge to mean no new income taxes. Bush has gone along with increases in other levies, such as the Social Security payroll tax, and has actually proposed hikes in excise taxes and so-called user fees, a term to which the White House has given an extraordinarily broad definition. But all signs are that the President will hang tough against any increase in income taxes, lest he make a total mockery of his campaign rhetoric.

Higher “sin” taxes on such goods as liquor and cigarettes are relatively uncontroversial but would raise only about $10 billion next year, well short of what is needed. Energy taxes would pull in serious money, $20 billion next year with a $5 per bbl. tax on imported and domestic oil, but in the past they have ignited sectional conflicts. Higher gasoline taxes would disproportionately hurt Westerners, some of whom virtually live in their cars, while an oil-import tax penalizes Northeasterners, who heat their homes largely with petroleum from overseas. There is much talk about sliding around these difficulties by imposing a single tax on all forms of energy production and consumption — oil, coal, hydroelectric, natural gas, domestic, imported, what-have-you. Besides treating sections of the country more or less equally, such a tax would promote conservation and possibly help the trade balance by discouraging imports. But there are also objections. Since it would have to be based on the BTU (British thermal unit) content of various fuels, it would be hideously complex to calculate and collect, and it would harm some American industries that remain competitive in world trade largely because of their access to fairly cheap energy.

Even if sufficiently heavy tax increases can be agreed on, there remains the difficult task of slashing spending on the scale required. It might force some reductions in Social Security, which Democrats have resisted about as feverishly as Republicans have damned higher taxes. So it is not surprising that Washington and the financial community abound with cynics who think the summit will end with nothing more than a few minor tax boosts and spending cuts and another rewrite of Gramm-Rudman to stretch its deficit-reduction targets. Bruce Thompson, a former Assistant Treasury Secretary and now a Merrill Lynch vice president, predicts that “the Gramm-Rudman targets will be recalculated to get to a balanced budget in, say, the year 2000,” not 1993, as required under current law. In any case, the nation will need some luck to escape paying a stiff price for its politicians’ unconscionable delay in cutting deficits. If big tax increases and sharp spending cuts do not tip the economy into recession quickly, continuing high interest rates, almost inevitable if deficits remain huge, might do so eventually. The decline could come around 1992 — when Bush is running for re-election.