Bush Backs Down in Fight for Capital Gains Tax Cut

President Bush on Thursday abandoned his confrontational strategy aimed at forcing Congress to approve a capital gains tax cut this year, all but throwing in the towel on his top legislative goal.

Although vowing to pursue other means to persuade lawmakers to reduce capital gains taxes, the White House issued a statement late in the day promising to drop its efforts to attach the measure to legislation needed to keep the federal government operating.

“The congressional process has bogged down,” Bush said. “Now, the stalemate must be broken.”

To ensure that Congress moves quickly to approve an increase in the national debt limit so that government default on its loans can be avoided next week, Bush agreed to set aside his capital gains proposal for now. The Administration is certain to renew its campaign for a capital gains tax cut next year.

“I deeply regret the tone of partisanship that has entered the economic policy debate,” Bush said. “I would very much have preferred a fair and balanced debate--and vote--on the merits.”

Bush campaigned actively in 1988 on his capital gains proposal to reduce taxes on profits from investments in stocks, real estate and other assets, saying that it would help spur economic growth. He elevated the proposal to his highest legislative priority this year and won approval of it in the House. But Democrats mounted an all-out effort in the Senate to stop the tax cut, arguing that it is little more than an unneeded windfall for the wealthy.

Senate Republicans have been struggling in vain for weeks to break the Democratic blockade of the capital gains measure. Although the GOP lawmakers already had conceded that they lacked the necessary 60 votes to overcome a filibuster, they continued to threaten to force Democrats to choose between accepting the tax cut or shutting down the government.

But Democrats refused to blink first, resulting in a legislative logjam that has prevented action on nearly every important bill pending before Congress.

Democrats welcomed Bush’s move to end the impasse but cautioned that there still are details that must be worked out with the White House.

“We are heartened by the (President’s) statement indicating an apparent decision to terminate the effort relating to capital gains,” Senate Majority Leader George J. Mitchell (D-Me.) told reporters after meeting with other Democratic lawmakers.

Senate Budget Committee Chairman Jim Sasser (D-Tenn.) said that Bush’s move brings the White House and Democrats “very, very close” to an overall budget deal. “If we get agreement, we can move very quickly.”

Earlier in the day, Senate Minority Leader Bob Dole (R-Kan.) provided the first signs of the GOP concession. After meeting with top Administration officials, he told Democrats that “no capital gains amendment will be offered” if they agree to drop all other extra provisions, except one canceling a Medicare tax for catastrophic illness and another repealing the “Section 89” law that requires business to offer all employees equal treatment for fringe benefits.

Bush, tacitly acknowledging that he could not break the impasse without at least temporarily setting aside capital gains, called on lawmakers to send him an immediate increase in the debt ceiling, which is needed to allow the Treasury Department to borrow additional money by next Wednesday.

The White House backed away from Dole’s initial proposal, however, saying that Bush wants separate votes on catastrophic care and “Section 89.” He also demanded that Congress adopt a $14-billion deficit-reduction measure, saying that the current bills pending on Capitol Hill fall far short of that goal. He vowed to keep in place the $16.1 billion in automatic spending cuts imposed last month under the Gramm-Rudman budget law until Congress meets his test.

“I will not accept a (deficit-reduction) bill that fails to do the job that should be done,” Bush said. “If the Congress cannot agree . . . we will continue to impose $16 billion in across-the-board spending cuts--as the law requires--for as long as it takes to reach agreement on a fiscally responsible bill.”

Meanwhile, the increase in the minimum wage approved on Wednesday by the House stalled Thursday in the Senate when a Republican maverick, Sen. Steve Symms of Idaho, blocked a vote on the measure long sought by Democrats. Earlier this week, Bush reached agreement with congressional Democrats on a compromise that raises the minimum wage and establishes a lower “training” wage for younger workers.

But Symms objected to a vote on the minimum wage bill, threatening to propose that it be amended to include the capital gains tax cut as well.

Dole told reporters that he did not intend to follow through on Symms’ threat to use the minimum wage bill as a vehicle for forcing a vote on capital gains. But later, Dole spokesman Paul Jacobsen retracted that statement, saying: “All options are open, including minimum wage.”

And Dole said in a later statement that, although Republicans had abandoned efforts to add capital gains to the key budget legislation, they would “redouble efforts to win support for capital gains” on other bills.