Politics 88 : GOP Candidates Share a Dilemma: How to Cope With Inherited Deficit

George Bush was sitting on a stool in a cavernous vehicle repair training shop in Casper, Wyo., listening to the students--divorced single parents, the unemployed, dropouts--talk about their new pride in learning how to fix a bus or a tractor.

“There is this big struggle in Washington where everybody says balance the budget, get the deficit down, cut spending,” Bush told the students. “Then you come here and see things that are really helping people, and you’ve got to figure out how to set the priorities, and it’s not easy.”

Bush’s perplexed comments reflect a basic dilemma facing not only him but the other Republican presidential candidates as well: how to cope with the enormous federal deficit left behind by President Reagan. For all the GOP candidates, a determination to cut deficits clashes with a desire to boost spending in popular areas such as health and education after years of austerity.

Bush, the front-runner, and Kansas Sen. Bob Dole, his closest rival, are hammering each other over the Iran-Contra scandal and personal finances. But on the budget, they offer roughly the same, mixed message: a promise to close the deficit while still somehow providing a shot in the arm for some programs.

Little Precision

Neither candidate has spelled out his deficit-cutting strategy with much precision. Dole advocates a spending freeze, although he would exempt Social Security and some other programs. Bush, even less explicit, like Dole wants authority to veto specific items of spending bills, although he has not said which ones he would veto.

Unable to distance themselves from Reagan’s popular stand against higher taxes, both Bush and Dole insist that taxes should not be part of the solution.

The vagueness of both candidates on where cuts would come, combined with a seemingly rock-hard stand against new taxes, would appear to undermine their claims that they will make the tough choices on reducing the deficit.

But many economists, at least so far, have not lost faith. The vice president and the senator are “pragmatic Washington politicians” who can fashion a “grand compromise” of spending cuts and tax increases, said Delos Smith, an economist with the Conference Board, a business research organization.

Smith and others believe either candidate would tackle the budget problem through a combination of limited spending reductions, a handful of high-profile program expansions and some selected tax increases.

This kind of budget deal, added James Christian, chief economist of the U.S. League of Savings Assns., “doesn’t have much sizzle” for a political bumper sticker. But it has one great virtue, he said--it is the best way to tackle the deficit, which is expected to exceed $150 billion this year.

Mixed Bag

The other four Republican candidates offer a mixed bag of prescriptions for the deficit ailment. While former Secretary of State Alexander M. Haig Jr. would take about the same approach as Bush and Dole, Rep. Jack Kemp of New York and former Delaware Gov. Pierre S. (Pete) du Pont IV argue that economic growth can eliminate the deficits, and former evangelist Pat Robertson would immediately whack $100 billion worth of spending out of the budget.

Economists have little patience with the offbeat proposals. Economic growth would have to reach unprecedented levels to generate the tax revenue sought by Kemp and Du Pont, they argue, and the public would not tolerate spending cuts of the magnitude envisioned by Robertson.

“If Robertson thinks it’s possible, good luck,” said Christian. “That may sound great from the stump, but it won’t play that well when you try to get the actual numbers cut.”

Robert Dugger, chief economist for the American Bankers Assn., urged instead a much more modest “mix of non-military and military cuts . . . along with some revenue increases.”

Jerry Jordan, chief economist for First Interstate Bancorp. of Los Angeles, believes neither Bush nor Dole wants to reduce spending because because government has grown too big. Rather, they believe deficits retard business activity.

“I want to be the President who finally does something about the budget deficit that is mortgaging our future,” Bush says on the campaign trail. Dole calls the deficit “public enemy No. 1.”

Bush, less specific than Dole on what to do about the deficit, says the President should have the power to veto individual items in spending bills. Relying at least in part on economic growth to cut into the deficit, he also calls for boosting business activity--and hence income tax revenue--by cutting the capital gains tax rate from 28% to 15%.

Dole, by contrast, advocates freezing spending levels for many government programs, with no growth to compensate for inflation. A freeze, he concedes, is “not the best way and not my preferred way of doing business,” but it would “save money and cut the deficit without raising taxes.”

Dole’s freeze already has begun melting. At first he proposed a one-year freeze on all government programs except food stamps, welfare and other benefits for the poor. When Kemp accused him of imperiling the annual cost-of-living increase for Social Security benefits, Dole exempted that gigantic program.

‘Tied to Reaganomics’

“Bush is more tied to Reaganomics than Dole is,” said Jeff Faux, president of the Economic Policy Institute, a liberal research organization. “It’s hard for him to shake the Administration line about not cutting military spending or raising taxes.

“Dole, like traditional Republicans, is worried more about the deficit. Dole also recognizes the winds are now blowing in another direction, and he will make the case for compassion.”

Both the leading candidates would increase spending for some programs. Dole would spend more on health care for the poor and drug rehabilitation, and he would ease the financial burden imposed by nursing homes. He says he would make offsetting cuts in other areas, but has declined to say where.

Bush wants to increase spending on the space program, vocational education and college student aid for the poor. For the middle class, he would set up tax-free savings accounts for college. “I want to be the education President,” Bush says.

Kemp, whose enthusiastic but complex speeches on economic policy often leave voters puzzled, is an unqualified optimist. He is convinced that the federal government can solve its deficit woes without higher taxes and still expend social services.

He scornfully refers to his opponents as “Herbert Hoover” Republicans who would repeat the mistakes of 1931 and 1932 by raising taxes and tariffs, policies that “sent us off the cliff.” He has consistently opposed any tax increases since congressional passage in 1981 of his plan for massive reductions in individual and corporate tax rates.

As President, Kemp would call for a one-year spending freeze on all programs except Social Security, defense and those “genuinely” designed to help the poor.

Capital Gains Tax

Kemp says the country can grow out of the deficit by cutting taxes on capital gains, putting a cap on spending and lowering interest rates to 5% by 1989 through looser monetary policy by the Federal Reserve. Reduced interest rates would cut the cost, now about $140 billion a year, of interest on the national debt.

Many economists argue that business cannot expand fast enough to produce the revenues needed to make a significant cut in the deficit. Economists fear that the growth envisioned by Kemp would push industry near the limits of factory capacity, with bottlenecks in supplies and deliveries causing a resurgence of inflation.

Du Pont, proud of his eight years as Delaware governor, marches alongside Kemp in considering growth as the way out of the deficit. “The point is, a balanced budget can be achieved without tax increases,” he says.

Du Pont also proposes stringent spending controls, including elimination of the $26-billion farm subsidy program, although he would redirect much of those funds to extensive training and education programs for welfare recipients.

To Haig, the budget should be put on a “glide path” toward balance in the mid-1990s. He would begin with initial savings on the spending side of $20 billion to $30 billion a year and “would not even look to revenues until every area of the domestic and defense budget had been scrutinized for reductions.”

Pat Robertson would eliminate the “immoral” budget deficit with a constitutional amendment mandating a balanced budget and a Cabinet that would include private-sector waste-busters such as H. Ross Perot, whom Robertson touts for defense secretary.

Although he calls for toughened national defense and increased aid to the Contras and other anti-communist guerrilla movements, Robertson insists that $30 billion to $40 billion can be eliminated from the Pentagon budget through better management.

Strongest Denunciation

Among all the candidates, Robertson is strongest in rhetorical denunciation of the budget deficit and promises to eliminate it fastest--two years. “The way to balance the budget,” he said in Mississippi recently, “is to stop waste and mismanagement in Washington, not to raise the taxes on the American people.”

On one deficit-cutting technique, all the Republican candidates agree: They would give the President the authority to veto individual items in spending bills.

The line-item veto, says Du Pont, would “help keep a check on federal pork-barrel programs.” And Bush uses the line-item veto as an effective applause-winner in almost every campaign stop.

But even here, the GOP candidates appear doomed to disappointment. Reagan has advocated a line-item veto for years, only to be denied by a Democratic Congress that does not want to give the President the power to knock highly cherished projects out of appropriations bills.

Staff writers John Balzar, Frank Clifford and Bob Secter contributed to this story.

HOW REPUBLICANS WOULD TRIM THE DEFICIT

BUSH

Give President authority to veto line items of spending bills. Cut capital gains tax rate from 28% to 15%. Increase spending for education and retraining. Permit tax-exempt savings for college expenses. Do not raise taxes.

DOLE

Freeze spending at current levels for most programs, but exempt Social Security and programs for the poor. Enact line-item veto authority. Reduce capital gains tax rate to 20%. Spend more for Medicaid and nursing home costs. Do not raise taxes.

DU PONT

First priority is keeping inflation down. Phase out the $26-billion-a-year farm subsidy program. Gradually convert Social Security into a private retirement program. Enact line-item veto authority. Do not raise taxes.

HAIG

Cut spending by $20 to $30 billion a year. Enact line-item veto authority. Raise taxes only as a last resort. KEMP

Cap federal spending. Urge the Federal Reserve to ease monetary policy to encourage lower interest rates and cut government borrowing costs. Enact line-item veto authority. Do not raise taxes.

ROBERTSON

Cut $100 billion in spending in the first year and balance the budget in the second year. Eliminate welfare programs. Realize substantial savings through better management. Enact line-item veto authority. Raise taxes.