Pressures of ’88 Blocked Benefit Cuts : Election Fear Also Chilled Tax Raises in Deficit Talks

A devastating stock market crash finally forced President Reagan and Congress into four weeks of intense deficit-reduction talks, but once they got to the bargaining table, last month’s economic urgency gave way to the pressures of next year’s election.

On Saturday, Reagan hailed the agreement the talks produced to cut $30 billion this year and said it sent “the right message at the right time” to financial markets. But he also strongly suggested that the accord fell short of his hopes.

In his weekly radio address from the Oval Office, the President virtually repeated his comments of the previous day, saying: “This agreement is probably not the very best deal that could have been struck, but we have to begin somewhere.”

Tug of Partisan Warfare

Despite their fear of an economic collapse, the politicians who reached the agreement on Friday--and those who must now vote on spending and tax bills to carry out its promises--have been unable to extricate themselves from the tug of partisan warfare.

After eight years of political infighting, “the scars of those battles are seen in this package,” said Rep. Leon E. Panetta (D-Monterey), one of the negotiators who fashioned the accord, which seeks to trim $76 billion from the deficit over two years.

Two areas of the budget demonstrate those political realities best: Social Security and taxes.

While both offer enormous potential for reining in the deficit, they also are the weapons with which Republicans and Democrats have bludgeoned each other in past elections.

“Democrats have used (Social Security) as an issue, and Republicans have used the tax issue. They’ve used them as a club on each other,” Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.) said.

‘A Good Deal of Fear’

With next year’s elections in mind, he added, “there is a good deal of fear on the part of each that they’ll be subjected to that kind of attack again.”

Social Security has Republicans on the defensive. Democrats don’t want to lose their claim to being the party that rescued the program from past attempts by Republicans to cut it; Republicans, remembering too well how they have been hurt by the issue, are not going to be the first to propose restraint again.

On taxes, the situation is reversed. Republicans do not want to lose their ability to brand Democrats as the party of “tax and spend”; Democrats remember what happened to their candidate, Walter F. Mondale, when he promised a tax increase in 1984, and say they will not vote for new taxes unless Republicans do too.

Such is the mistrust that has developed between the parties that neither wants to open itself to another round of skirmishing on those issues, regardless of their agreement on the need to get the deficit under control.

Up against such formidable political pressures, negotiators had to settle for a package that is winning only lukewarm support on Wall Street, which quickly recognized its limitations.

$5-Billion Windfall

For example, while the ultimate deficit-reduction package claims to reduce the deficit by $30 billion this year, $5 billion of that saving would come from a one-time windfall that would result from refinancing rural electric loans. Some of its other deficit-reduction measures, such as the $1.6 billion expected from cracking down on income tax cheats, are widely dismissed as unlikely to live up to expectations.

“If this is all they do, I think it falls very, very far short of what’s necessary,” Shearson Lehman Bros. Chairman Peter Cohen said Saturday on Cable News Network.

One Democratic Victory

Democrats scored at least one big victory in the package: Rather than accept defense cuts even deeper than the $5 billion in the agreement, Reagan reneged on his pledge to oppose higher taxes and allowed $9 billion in unspecified new taxes to be included in the agreement.

But it is far from clear that Reagan’s party in Congress is willing to follow his lead on taxes.

“It’s sad to see the White House bamboozled into this sort of foolishness,” said Rep. Newt Gingrich (R-Ga.).

While the President will never again be on the ballot, “we’re looking at where we’re at in 1988,” said Rep. F. James Sensenbrenner Jr. (R-Wis.). “That’s what the concern is.”

With the President and GOP leaders of both houses behind the package, “I would think (Republican candidates in next year’s elections) will have some difficulty saying we are the party that wants to raise taxes all the time,” said Rep. Tony Coelho (D-Merced), the House’s assistant majority leader.

Threat by Conservatives

In part because they fear losing this political edge, conservative Republicans in both the House and Senate are threatening to vote against the package, and accept instead $23 billion in painful automatic spending cuts.

Those automatic reductions--half from defense programs and half from domestic spending--went into effect temporarily Friday. Under the Gramm-Rudman law, they will become permanent unless Congress approves legislation carrying out last week’s deficit-reduction agreement or other measures that will chop at least $23 billion from this year’s projected $180-billion shortfall.

“I say bring on the Gramm-Rudman across-the-board cuts instead,” said Sen. William L. Armstrong (R-Colo.). “Bad as they are, at least they are real spending cuts, instead of this phony-baloney package that could only have been cooked up in Washington, D.C.”

‘A Failure of Nerve’

The agreement, he said, “is a colossal failure of political nerve that may have cost us our best chance to bring federal spending under control.”

More than one-fifth of the $1 trillion that the federal government spends each year goes into Social Security, making it the most expensive federal program other than defense.

However, the President ruled the huge retirement program “off the table” at the outset of the talks. Although proposals for curbing Social Security increases were brought up several times, they were quickly shot down.

Recent history explains why lawmakers are leery of tampering with the program.

After Reagan proposed reducing Social Security early retirement benefits in 1981, Democrats struck hard on the issue. It was one reason that Republicans lost 26 House seats in the 1982 election. Not until the system reached the brink of financial collapse in 1983 were lawmakers willing to vote for reductions.

Vote to Curb Increases

In 1985, the Republican-led Senate voted to curb Social Security increases. The move was rejected by both the President and the heavily Democratic House, and the 1986 elections saw the Republicans lose control of the Senate to the Democrats. In several important races, the Social Security vote was a crucial issue.

Social Security’s enormous appeal lies in the fact that, unlike federal benefits programs aimed at low-income people, it is available to all upon retirement. Elderly recipients are well-organized politically and vote in large numbers.

“Because they affect everyone, there’s a very negative reaction when the public sees anyone going after Medicare and Social Security,” said Rep. Henry A. Waxman (D-Los Angeles). “The American people resent the Republicans for trying to cut it. The Democrats would be smart to understand that.”