Budget Summit Approached With Caution : Deficit: The President and Congress are trying to dodge the political fallout of Gramm-Rudman cuts. Both sides are suspicious.

Call it “Nightmare on Pennsylvania Ave.”

The driving force behind the budget negotiations that start today between the Bush Administration and congressional leaders is the fear of political bloodletting this fall if automatic spending cuts are not prevented from going into effect.

Unless politicians from both parties can reach agreement on a plan to curb the deficit by a lesser amount, the Gramm-Rudman deficit law would require eliminating as much as $100 billion from a host of popular domestic and defense programs. For those federal activities unprotected from the Gramm-Rudman meat ax, the cuts could hack 20% to 45% from hundreds of crucial spending programs.

“We could put air traffic controllers on a four-day week. So much for public safety,” House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) warned in a speech last week. “Spending on anti-drug activity would be cut by about $2 billion. . . . Now that’ll send a clear message to the criminal class.”

At the White House, the most horrible scenario would be an economic recession next year that might threaten the 1992 reelection prospects of President Bush.

Administration officials argue that it is crucial to wrap together a more limited package with perhaps a total of $50 billion in spending cuts and tax increases to avoid the political backlash and the harsh economic impact from slashing $100 billion. They also hope that a budget agreement would prod the Federal Reserve into lowering interest rates to stimulate economic growth.

As a result, all parties to the budget negotiations have a stake in burying Gramm-Rudman this year.

“Across-the-board spending cuts of the magnitude now contemplated are too big for (either Congress or) President Bush to swallow,” said Thomas Mann, director of political studies at The Brookings Institution, a Washington think tank.

The budget negotiations, which are expected to stretch out for at least several weeks if not well through the summer, begin against a backdrop of mutual suspicion.

Senate Majority Leader George J. Mitchell (D-Me.) told reporters Monday that “there remains a high level of resentment and skepticism” over Bush’s motives after White House Chief of Staff John H. Sununu’s remarks last week convinced many Democrats that they could be walking into a Republican trap designed to blame them for higher taxes.

Meanwhile, the White House strategy is to avoid a backlash from the Republican right and to find a way to placate middle-class taxpayers for betraying Bush’s well-known “Read my lips: No new taxes” stance.

With such a highly charged political atmosphere, it’s understandable why both Democrats and Republicans want to conduct the nasty business of budget negotiations behind closed doors. Their hope, as in Agatha Christie’s “Murder on the Orient Express,” is to produce an overall deficit agreement in which they all participate without leaving any evidence behind that might convict anyone of a specific crime.

Gramm-Rudman was designed to create the threat of a crisis in order to force the White House and Congress to reach a deficit compromise. It may finally be succeeding in that goal this year. But it was never contemplated that the law, which aims at a balanced budget by gradually lowering the deficit ceiling each year, would demand such Draconian budget cuts.

In January, the White House relied on optimistic economic assumptions to produce a spending blueprint claiming that the $64-billion deficit target for the 1991 fiscal year could be reached with $36.5 billion in spending cuts and revenue increases.

But several things have happened since then to swell the deficit for the fiscal year that begins Oct. 1. Higher interest rates are driving up the cost of federal borrowing, while weaker economic growth has slowed the flow of tax revenues into the government’s coffers.

Even with a mixture of spending cuts and tax increases, it would be impossible to squeeze $100 billion out of the federal deficit without throwing the economy into a recession.

Times staff writer Paul Houston contributed to this story.

KEY PLAYERS AT BUDGET SUMMIT

THE WHITE HOUSE TEAM

Budget Director RICHARD G. DARMAN--Chief instigator of the emergency summit. He has warned for months that the slowing economy and rising costs of the S&L; bailout would push the deficit as much as $100 billion over Gramm-Rudman targets. Is calling for a $50-billion deficit reduction. Favors spending cuts and in the past has used automatic spending cuts mandated by the Gramm-Rudman budget-balancing law as leverage on Democrats. At present, he is coy on new taxes, but hints that congressional Democrats must cede more budget-making authority to the Administration as the price of new taxes.

Treasury Secretary NICHOLAS F. BRADY--Of the White House budget players, he is the closest personally to President Bush, with a shared Yale background. He is concerned more with the long-term impact of mounting deficits and debt, less with short-term politics. He is likely to let Darman take the lead in nitty-gritty of the talks. Less of a zealot than White House Chief of Staff John H. Sununu on no new taxes, nevertheless he will push hard for a capital gains tax cut as the price for any tax increase.

White House Chief of Staff JOHN H. SUNUNU--Apparently reveling in his inside-the-Beltway role as Trojan Horse for the Republican right on most issues, last week he raised hackles by hinting at certain Bush veto of any tax proposal. A possible bad cop to Darman’s good cop in the negotiations, he may push hard to make a presidential line-item veto on future budgets the bottom-line trade-off for any new taxes. Conservatives cast him as last-ditch defender of the no-new-taxes pledge that they see as vital in an election year.

CONGRESSIONAL DEMOCRATS

House Majority Leader RICHARD H. GEPHARDT (D-Mo.)--He is the partisan point man in the House, an institution that Democrats have controlled for 36 years. He is ambitious and a likely future presidential candidate--factors that won’t diminish apparent personal animosity between him and Bush. He has made managed trade and Japan-bashing his main policy priorities. He could adopt a populist, tax-the-rich approach and is likely to push any proposal that yields Democrats a political advantage in the short term.

Senate Budget Committee Chairman JIM SASSER (D-Tenn.)--A down-the-line, even doctrinaire advocate of liberal Democrats’ agenda of less defense spending and more domestic programs, he wants Republicans to make the first move toward the new taxes needed to cut the deficit and help finance domestic programs.

House Budget Committee Chairman LEON E. PANETTA (D-Carmel Valley)--He is less doctrinaire than Sasser, less partisan than Gephardt. He sees the deficit problem as a long-term economic menace and believes that the solution lies in the bipartisan light of higher taxes balanced by some cuts in entitlement programs.

House Ways and Means Chairman DAN ROSTENKOWSKI (D-Ill.)--He is one of the hereditary barons of the Democratic House leadership but has a close working relationship with Bush, a former Ways and Means colleague. A key player in the bipartisan compromise that reformed the tax system in 1986, he will insist on a role in framing any new taxes. As tough a partisan as Gephardt, he is enough of an old-time Chicago pol to prefer a deal that works over a deadlock that’s ideologically pure. He has waffled between support and opposition to Bush’s proposal for a capital gains cut in the past. He offered a fish-or-cut-bait plan to raise taxes and cut entitlements two months ago that was met with deafening silence.

CONGRESSIONAL REPUBLICANS

House Minority Whip NEWT GINGRICH (R-Ga.)--He is a one-time GOP New Right Young Turk, a partisan fighter somewhat mellowed in the party leadership. He sees political danger in entitlement cuts in an election year while denouncing new taxes and could buy a deficit package that raises revenues through user fees and consumption taxes, so long as current income tax levels are not changed. He will push the line-item veto and other reforms.

Ranking Senate Budget Committee Republican PETE V. DOMENICI (R-N.M.)--A problem-solver and moderate, he has looked for bipartisan solutions to the budget deficit since the early 1980s. Distrusted by GOP right as too willing to compromise on the tax issue, he is likely to support the Administration hard line on budget process reform. He also is likely to back enthusiastically any compromise Bush and his White House team can work out.

Sen. PHIL GRAMM (R-Tex.)--Architect of the Gramm-Rudman deficit-reduction machinery and its automatic threat of across-the-board spending cuts, this former Democrat is a born-again supply-sider who will fight tax increases to the bitter end--then perhaps accept them, if the deal includes the line-item veto. Unpredictable and cerebral, the former academic has finely honed political instincts and ambitions to inherit the conservative mantle as Bush’s successor in White House in 1996.

Besides President Bush, other Administration participants include Defense Secretary Dick Cheney, domestic policy adviser Roger B. Porter and Michael J. Boskin, chairman of the Council of Economic Advisers.

Other congressional Democrats: Senate Majority Leader George J. Mitchell (D-Me.); House Speaker Thomas S. Foley (D-Wash.); Sen. Wyche Fowler Jr. (D-Ga.); House Majority Whip William H. Gray III (D-Pa.); Senate Appropriations Committee Chairman Robert C. Byrd (D-W.Va.); Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.); House Appropriations Committee Chairman Jamie L. Whitten (D-Miss.).

Other congressional Republicans: Senate Minority Leader Bob Dole (R-Kan.); House Minority Leader Robert H. Michel (R-Ill.); Mark O. Hatfield (R-Ore.), ranking minority member on the Senate Appropriations Committee; Bob Packwood (R-Ore.), ranking minority member on the Senate Finance Committee; Bill Frenzel (R-Minn.), ranking minority member of the House Budget Committee; Silvio O. Conte (R-Mass.), ranking minority member of the House Appropriations Committee, and Bill Archer (R-Tex.), ranking minority member of the House Ways and Means Committee.