But Bush Aides Still Vow to Fight for Key Administration Budget Item : Darman Sees Slim Chance of Capital Gains Cut

President Bush’s budget director conceded Sunday that “chances look to be low” for a key Administration budget priority--reduction of capital gains taxes, but Administration officials still vowed to press ahead with the controversial tax cut plan.

“We’re going to work awfully hard to get the capital gains tax reduction,” said White House Chief of Staff John H. Sununu. And while chances for the plan look dim now because of strong opposition by congressional Democrats, the prospects could improve in the months to come, insisted Richard G. Darman, director of the White House Office of Management and Budget.

Called Windfall for Rich

Bush argues that cutting taxes on capital gains--income a person receives from the sale of assets such as stocks or bonds--would spur the economy, but Democrats charge that the plan would merely line the pockets of the rich. Currently, income from capital gains is taxed the same way as any other kind of income. Under Bush’s plan, most capital gains would be taxed at a lower rate, as has been past practice.

The fate of the idea is one of several unresolved elements in the agreement for next year’s federal budget that the Administration and congressional leaders announced Friday.

When the budget agreement was announced, Administration officials claimed that it would reduce the federal deficit by about $27 billion, but in an interview Sunday on CBS’ “Face the Nation,” Rep. Leon E. Panetta (D-Monterey), chairman of the House Budget Committee, said that only about two-thirds of that amount is real. And even that two-thirds, he said, depends in large part on decisions that Congress and the Administration have yet to make.

Some Gimmicks Too

The budget plan includes roughly $8 billion in real spending reductions, Panetta said, and a similar amount in new revenues. The balance of the agreement involves accounting gimmicks and plans to shift some spending from next year to this year, making the deficit worse for the current fiscal year, which ends Sept. 30.

With major policy decisions yet to be made, Administration officials and congressional leaders fanned out to cover all the major network weekend interview programs seeking to advance their positions in the continuing budget debate. Their statements served mostly to illustrate how much the two sides continue to differ over deficit reduction and how much each side would like the other to be the first to propose higher taxes.

Darman, interviewed on ABC’s “This Week With David Brinkley,” Sununu, on “Face the Nation,” and Treasury Secretary Nicholas F. Brady, on NBC’s “Meet the Press” each defended the capital gains proposal and lauded the budget agreement as a major first step toward reducing the deficit without raising taxes.

Foes Assail Proposal

Democrats, including Panetta on CBS, Senate Budget Committee Chairman Jim Sasser (D-Tenn.) on ABC and Senate Majority Leader George J. Mitchell (D-Me.) on Cable News Network’s “Newsmaker Saturday,” each denounced the proposed capital gains cut, depreciated the budget agreement as “minimalist,” in Sasser’s words, and insisted that eventually Bush would have to propose higher taxes to really make a dent in the deficit.

“I am not going to engage in a second level of negotiations with the Administration unless everything’s on the table,” Panetta said.

“We’re going to have everything discussed and negotiated,” responded Sununu, “but it’s a question of who brings it to the table.”

As the maneuvering continues, the most pressing immediate question is how to plug a $5.3-billion hole that the budget negotiators left in the middle of their agreement. The figure represents additional federal revenue that Congress and the Administration have agreed to raise without actually increasing taxes.

Boost in Asset Sales Seen

The Administration argues that cutting the capital gains tax would accomplish most of that. If the tax is cut, Administration economists say, many people would take advantage of the lower rates and sell appreciated assets. The increase in asset sales, in turn, would bring the government more revenue even with lower rates. Bush proposed the tax cut during the fall campaign and argued strenuously for it.

Democrats reject the idea. The rate cut might spur enough sales to increase revenue the first year but that would only steal money from future years, making the long-term deficit worse, they argue.

In any case, Mitchell said, Bush’s proposal would “provide an enormous increase (in income) to those at the top” because wealthy families own nearly all the nation’s capital assets. Given that the income disparity between rich and poor in America has increased noticeably in the last decade, “that’s the last thing we need in our society today,” he said.

If Democrats stick to their opposition and the capital gains reduction does not pass, the way out of the current dilemma may be to extend some taxes that are currently set to expire, Sasser said. For example, he noted, the current federal excise tax on airplane tickets, which raises about $3 billion a year, is set to expire at the end of this year.