1,000 Points of Spite

By LAURENCE I. BARRETT WASHINGTON

If, as George Bush warned last Tuesday, "no nation can continue to do business the way the Federal Government has been operating and survive," the U.S. is in peril. So it seemed for several tumultuous days in Washington last week. Only two nights after the President's nationally televised address, an angry coalition of right-wing Republicans and liberal Democrats revolted on the floor of the House, overwhelming and sinking a bipartisan plan to rein in the rampaging deficit. The uprising left the government without a budget or the authority to spend money for the fiscal year that began Oct. 1, forcing the layoff of thousands of nonessential government employees, at least temporarily.

How long the shutdown would last and how deeply it would bite remained uncertain. Fortunately, it went into effect on the Columbus Day weekend, giving Congress and the President three more days to strike an agreement before most government employees were due to report to work. On Friday evening, while congressional leaders scrambled to rejigger the deficit-cutting plan to make it more acceptable, the House overwhelmingly passed a short-term continuing resolution that would have funded government operations for a week. The measure was approved by a voice vote in the Senate hours later.

But on Saturday Bush vetoed the resolution, calculating that the outcry from outraged citizens denied access to Social Security offices, national monuments and federal services would stampede Congress into quickly adopting a budget resolution along the lines of the defeated pact. After an attempt to override the veto failed, negotiations between Congress and the White House resumed. To break the impasse, it appeared for a time that the factions might agree to a trade: Democrats would go along with a cut in the capital-gains tax favored by the President; Republicans would accept the hike in income taxes on the wealthy that the Democrats demand. Such a swap had been explicitly rejected during the five-month budget talks that produced the original plan.

The sorry spectacle damaged everyone who took part in it. For Bush, who had invested much of his political capital to promote the deal reached after contentious negotiations with congressional leaders, the fiasco was the worst setback of his presidency. For the congressional hierarchies of both parties, which had pledged to deliver majorities of their followers in support of the accord, it was a humiliating reminder of their powerlessness. For the frustrated voters who have watched for months as their elected representatives dithered and delayed real action on the nation's most harrowing domestic problem, it was further proof that shortsighted political self-interest is the strongest and most destructive force in Washington today.

The plan was a politician's worst nightmare. With midterm elections looming in less than a month, rank-and-file members of Congress were being asked to endorse the unpalatable idea that voters should pay more taxes while receiving less in the way of public services. Faced with that painful -- albeit necessary -- proposition, the lawmakers simply cut and ran, ignoring Federal Reserve Chairman Alan Greenspan's admonition that "failure to enact the agreement would produce an adverse reaction in financial markets that could undercut our economy."

Bush and his congressional allies had been unhorsed because they committed a brave though flawed act of statesmanship. On Sept. 30 they had agreed on a sweeping program to cut deficits $500 billion over five years by inflicting short-term pain on almost every American in exchange for the long-term gain of fiscal sanity. To smooth enactment of the package, they had tacitly agreed that neither party would use it against the other for electoral advantage.

Bush and most of the ranking members of Congress did their part. For the first time, the President took to prime time to promote a specific legislative measure, labeling the deficit -- which is expected to exceed $300 billion in fiscal year 1991 -- "a cancer gnawing away at our nation's health." George Mitchell, the Senate Democratic leader, followed Bush on the networks. Instead of delivering the usual rebuttal, Mitchell seconded the President's motion for bipartisanship. When many lawmakers began to rebel, Senate Republican leader Bob Dole scolded them for cowardice. "You pay a penalty for leadership," he said. "If you don't want to pay the penalty, maybe you ought to find some other line of work." But neither those stinging words nor Bush's suggestion that lawmakers "blame me" for the hardships the pact would impose managed to sway most members of the House, who feared that supporting the austerity package would alienate voters.

. Around the country, challengers began to attack incumbents who were willing to stick with the program. Some G.O.P. strategists detested the concept of a bipartisan deal because it blurred the distinctions between Republican and Democratic candidates. Said Ed Rollins, head of the Republican Congressional Campaign Committee: "What we need desperately is an angry President to go out in the last 21 days arguing that there must be wholesale change in the makeup of Congress."

Whatever an individual legislator's reasons for defecting, it was easy to find fault with the agreement, because it was a collection of uneasy compromises that displeased even its authors. House majority leader Richard Gephardt, one of the plan's most diligent architects, conceded that he was "deeply disappointed with the results we achieved." For one thing, vague provisions designed to promote economic growth might benefit only oil producers and investors with deep enough pockets to take risks on investing in small companies. Almost everyone else would be socked immediately. It could hardly be otherwise in the largest assault on the deficit ever, a plan that would have raised $135 billion in taxes, lopped off $300 billion in government services and saved up to $65 billion in interest payments on the national debt. The plan's highlights:

-- Higher federal excise levies would be slapped on a variety of products ranging from beer, cigarettes, gasoline and home heating oil to expensive jewels, furs and yachts.

-- While income tax rates would not be altered, two changes would nick the affluent. The cap on income subject to the Medicare payroll levy of 1.45% would be raised from $51,300 to $73,000. Any individual or couple earning above $100,000 would face a minor limitation on deductions from taxable income.

-- There would be some tax relief as well. Poor working families with children would benefit from an increase in the "earned income tax credit," though the exact impact of that was unclear. Producers of oil, natural gas and ethanol would get breaks, ostensibly to encourage domestic energy production.

-- The murkiest set of provisions -- designed to assist economic growth -- would introduce a large new loophole for those who buy stock in certain types of companies capitalized at less than $50 million. Regulations for this measure have not been written; critics charged that the scheme would create a new set of tax shelters -- dodges that do little for the economy but benefit those who can strain large profits through porous rules.

-- Reductions in a variety of spending programs, military and civilian, along with increased fees for many services would make up the lion's share of deficit reduction. Pentagon spending would fall a total of $67 billion during the first three years, not counting the cost of the Persian Gulf operation. Farm supports would shrink by $13 billion, civil service pensions by $8 billion, guaranteed student loans by $2 billion, assistance to veterans by $2.7 billion. Jobless workers would have to wait two weeks before receiving unemployment compensation.

-- The single most controversial hit would be absorbed by Medicare recipients. Regardless of their income, they would be required to pay higher premiums for Part B coverage, which covers doctors' bills. The deductible they pay before receiving any reimbursement would also rise. Finally, new limitations would be put on the fees charged by physicians and hospitals, raising fears that medical attention may become scarcer for the elderly. These items would save nearly $60 billion over five years, or 12% of the total package.

In political terms the plan's biggest flaw was its perceived failure to distribute the burden equitably. Its reliance on regressive taxes like the levy on gasoline meant that the brunt would fall on low- and middle-income taxpayers. The White House and congressional leadership had hoped to overwhelm qualms about the pact's fairness by arguing that it was the best compromise that could be achieved. But as soon as the plan was presented, the Administration, House Speaker Tom Foley and minority leader Robert Michel promptly found themselves absorbing fire from left, right and center. The plan's Medicare component immediately became one paradigm of the scheme's vulnerabilities. Loreen Gephardt, 81, mother of the House majority leader, seemed to speak for the 33 million other Medicare recipients when she urged her son to leave Medicare alone. "I would rather he wouldn't touch Medicare, because we were already paying pretty much and not getting what we ((received)) before," she said.

Potent lobbies for the elderly soon found an ally in Democratic Congressman Henry Waxman of California. "Senior citizens didn't create the deficit, and they shouldn't be forced to pay for it," he argued. "The elderly are being told they should bear the burden so that we don't have to raise taxes on the very wealthy."

! That attack dovetailed with a surge of protests aimed at the excise tax increases, particularly the 10 cents per gal. on gasoline -- never mind that the U.S. is involved in a gulf crisis partly because of its failure to use energy prudently. Word that there would be a tax break for the wealthy also prompted indignation. The offices of some lawmakers received hundreds of calls protesting the measures. Radio call-in programs got a similar response. At radio station WGST in Atlanta, all three talk shows buzzed with listeners' indignation. Said producer Nancy Zintak: "I haven't heard people this mad about anything in a long time."

Whether this initial rush of rage fully reflected public opinion was unclear. A TIME/CNN poll taken by Yankelovich Clancy Shulman after Bush's televised speech showed that 77% of Americans thought the deficit a "very serious" problem. When asked in general terms about the austerity program, 54% said they opposed it, compared with 36% in favor. But when asked if passing the package was more important than their objections to some of its parts, respondents favored enactment by a clear majority: 59% to 31%.

Such nuances in the public mood went unheard in the shouting of naysayers. Said Linda DiVall, a Republican pollster: "The members in opposition are in sync with what their constituents think." First to exploit this sentiment on the right was Newt Gingrich of Georgia, long a spokesman for Republicans still enthralled with Reaganomics. He temporarily relinquished his post as House Republican whip to lead a crusade against the tax increases at the heart of the measure. "This budget package with its higher taxes will deepen the recession and increase the number of unemployed," he said. Gingrich urged a freeze on discretionary social spending, which would ease pressure on Medicare, and revived the argument for a cut in the capital-gains tax, though that would lose money over the long run.

On the left, David Obey of Wisconsin and other liberals cobbled together an alternative budget proposal, hoping to get a separate vote. "The President's negotiating team insisted on protecting the superrich," said Obey. "This agreement simply continues the march that was started in 1981 when budget and tax changes tripled America's deficits and dropped the word fairness from the vocabulary of the Federal Government." The Obey faction proposed sharper cuts in defense spending and higher income tax rates for those with incomes over $200,000.

In the face of rising protests, congressional leaders urged House members to "hold your nose and vote" for the proposal. Bush gave them as much support as he could, canceling a campaign trip to lobby House members in small groups. While Bush played the good cop -- winning the support of a Florida Congressman by telephoning his sick daughter -- some of his staff engaged in hardball. On Monday chief of staff John Sununu enraged Republicans at a White House meeting by suggesting that the President might actually campaign against members of his own party who opposed the deficit package. When Pennsylvania Congressman Bill Goodling objected, saying, "I know George Bush, and he would never do anything like that," Sununu snapped back, "George Bush is a much nicer guy than I am." (Goodling voted for the plan.) At a session the next day, Michigan Congressman Fred Upton explained that he would vote against the plan because it was "a rotten deal." Erupted Sununu: "What are you smoking?" (Upton voted no.)

The White House sent other small but unmistakable signals of its displeasure to G.O.P. renegades. Two nights before the vote, Ohio Congressman Ralph Regula had planned to impress some constituents by taking them to the presidential box at the Kennedy Center for the Performing Arts to see a play. But that afternoon he got a call from the White House congressional liaison office inquiring about his position on the budget plan. "Leaning against," he replied. His tickets were canceled. New York Congressman Gerald Solomon complained that Bush had telephoned him at his home at 6:45 a.m. to solicit his support and that Sununu made a follow-up call two hours later. "They're threatening me," said Solomon, "and they better not." Like Regula, Solomon voted against the plan.

Despite the arm twisting, the defections mounted. In fact, they were fueled to some degree by resentment of Sununu's strong-arm tactics, which some Republicans derided as "all stick and no carrot." The Democrats had no more success in keeping their members in line. At a White House meeting, Bush and Foley agreed that the Speaker could offer the Democratic majority a carrot: assurances that the most objectionable details in the plan could be changed in the next two weeks, before the final legislation was to be passed. Foley took this word to the Democratic caucus, along with a strong warning: if Democrats were seen as killers of the deal, they would shoulder the blame for the & paralysis in government. Said one member: "Tom was very emotional, very strong."

As the Thursday night debate approached, it briefly appeared that the wooing by Foley and Gephardt would pay off. Ways and Means chairman Dan Rostenkowski, whose committee writes tax legislation, pledged his support with the understanding that he would be able to tighten the proposed investment loophole. It appeared that some Democrats would even be willing to vote for the package in the absence of a Republican majority. Predictions seeped out of the Speaker's office that supporters would probably prevail by the narrowest of margins. If the nose counters could not forecast the critical number -- 218 -- they would delay the showdown until Friday. Yet many members went to the floor still undecided, worrying about November.

The subsequent debate on the House floor probably changed few minds. Michel, whose leadership of the G.O.P. has been cruelly undercut, admonished his followers to focus on the importance of the whole package rather than its objectionable provisions. "We can pick apart the agreement with 1,000 points of spite," he said. "If we do, we'll not only lose the agreement but our ability to govern." Departing from the tradition that the Speaker usually does not take part in floor debates, Foley went to the floor to deliver an impassioned appeal.

As the actual tally began, it appeared that the ayes were winning. But many Democrats delayed casting their votes, watching the electronic scoreboard. They soon realized that Republicans were defecting en masse. All eight G.O.P. Congressmen seeking elevation to the Senate this November voted no. At that point, scores of undecided Democrats rushed into the negative column. Of the 25 Democratic incumbents facing stiff challenges this year, none supported the deal. Eight of the 13 chairmen of the appropriations subcommittees, who usually have great power in shaping the details of spending plans, deserted the Democratic leadership. The final tally, shortly after 1 a.m.: 254 to 179 against the measure. The Democrats opposed it 149 to 108, the Republicans 105 to 71.

On Friday a stunned White House tried to pick up the pieces. Its negotiating team, led by Budget Director Richard Darman, was back in Foley's office seeking a new consensus built on a majority of Democratic votes; the Republican rebels seemed intractable. Said a Bush adviser: "Our Republicans were too stupid to figure out that we weren't going to move in their direction." It appeared that any new deal would, at minimum, have to reduce the cost to Medicare recipients.

Despite last week's chaos, the White House and Congress will doubtless stumble their way to at least a short-term solution to the budget crisis. It is conceivable that they will concoct a much better remedy. But even if a five-year, $500 billion deficit reduction is finally put into place, the cumulative debt will still grow by roughly $500 billion over those five years. That danger alone should stiffen the spine of even the mostly cowardly politician in Washington.

CHART: NOT AVAILABLE

CREDIT: From a telephone poll of 500 adult Americans taken for TIME/CNN on Oct.3 by Yankelovich Clancy Shulman. Sampling error is plus or minus 4.5%. "Not sures" omitted.

CAPTION: Do you approve of the way President Bush is handling his job?

Are parts of the deficit-reduction plan so wrong that it should be voted down, or should it be supported?

If your Representative voted for the plan, would you be more likely or less likely to vote for him in November?

Do you think the deficit-reduction plan is fair to:

Do you favor or oppose these specific parts of the plan?

With reporting by Michael Duffy and Nancy Traver/Washington