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Bush Would Campaign for a Tax Increase

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TIMES STAFF WRITERS

President Bush, turning aside criticism from his own party, declared Friday that if he and Congress can agree on a deficit reduction package, then he will campaign actively for it--even if that means pushing for higher taxes.

Bush said that he had abandoned his “read my lips” pledge not to raise taxes because an “enormous” budget deficit now threatens the nation’s economic health and that his shift has put budget negotiations with Congress “back on track.” And he expressed hope that agreement can be reached within a month--a timetable many in Congress consider highly optimistic.

“If and when we come up with a program that raises revenue,” Bush said, “. . . why then I will go out there and advocate strong bipartisan support for this.”

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He called the budget summit talks “a make-or-break effort at responsible government” and pointed out that, unless agreement is reached before October, the sequestration provisions of the Gramm-Rudman deficit reduction law will result in automatic cuts of nearly $100 billion in government services.

“The potential results are Draconian cuts in defense, student grants and a wide array of other necessary domestic services. And, to avoid this, tough decisions must be made,” he said. “And leadership is needed, and that is exactly what Administration officials are seeking to provide . . . .”

The President, whose reversal on taxes touched off a firestorm of criticism from Republican conservatives, looked relaxed and confident at a hurriedly called press conference. He portrayed his move as the kind of decision required of presidents.

“Arrows have been flying, front, back, sideways, but that’s what I get paid for,” he said. “And, when you make a change that people see as a dramatic shift,” he said, “you’ve got to batten down the hatches and take the heat.”

After what he called two days of “slings and arrows,” Bush said he has a comfortable feeling that, “if I do my job right” and it helps facilitate budget negotiations and achieve an agreement, “then I can go to the American people and say: ‘Look, we’ve all had to give or take a little on this. But this agreement is going to be good for future generations, it’s going to be good for the economy, it’s going to be good for jobs.’ Then people will say: ‘Look, we support the President.’ ”

As President, he said, he must “look at the big picture and the welfare of this country, and put it ahead of my own strongly held preferences and everything else.”

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Bush said that he had expected the “fairly intense” flak he has encountered from fellow Republicans but indicated that he thinks it will be short-lived. Research shows that “these firestorms come and go,” he said, recalling a previous “furor something like we’re hearing now” when taxes were raised in 1982 during the Ronald Reagan Administration.

Although pressed on the issue, Bush repeatedly refused to discuss which taxes might be raised. Budget negotiators, he said, have agreed not to disclose details of their discussions.

As for how GOP congressional candidates should deal with the fallout from his shift in election campaigns this fall, Bush said that he would tell them: “Now look, you’ve got to look at the big picture here. Stay with your position. Advocate what you believe and what you--tell your constituents what you’ll try to do, and then just stay a little bit open-minded so when we get an agreement . . . that is good for the country, then you can say, ‘Well, we can accept this . . . .’ ”

However, conservative Republicans critical of Bush’s decision contend that he is in danger of condoning higher taxes without getting substantial spending cuts or other concessions from Democrats in return.

“I haven’t heard a coherent explanation from the White House of what they want to accomplish at the end of the road,” Rep. Vin Weber (R-Minn.), a leader of House conservatives, said in an interview. “Our goal should be to get a capital gains tax cut. That’s more important than any particular action on the deficit.”

But, while many Republicans were roasting Bush, Democrats--who have faulted him as failing to show leadership on domestic issues--hailed him as a statesman.

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“He’s starting to act like a President,” House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) said after Bush’s news conference.

For Bush, the impact of his switch on taxes may depend in large part not only on the long-term health of the economy but also on how the Democrats handle the tax issue. If they insist on the kind of progressive tax package they favor, according to conservative analyst Kevin Phillips, “Bush could really be in a box.”

The Democrats want to impose an income tax rate of 33% on those in the highest income brackets to eliminate the “bubble” in the current tax code, which allows taxpayers in the top brackets to pay a maximum rate of 28% while some taxpayers with lower incomes are taxed on part of their income at 33%.

One of the key questions of the budget negotiations is whether in the long run Bush might agree to this change in return for congressional acceptance of his proposal to cut the capital gains tax rate.

Having indicated that new taxes are necessary, Bush would risk a middle-class backlash if he argued against ensuring that the rich contribute a fair share to deficit reduction. At the same time, he risks a further undermining of his support on the right if he accepts higher income tax rates on the wealthiest taxpayers.

When a reporter observed that some members of the President’s own staff have signaled that a deal might be reached with Democrats supporting a cut in capital gains taxes and Republicans supporting elimination of the income tax “bubble,” Bush replied that he could not comment in detail. But he added: “I wouldn’t put too much trust in that one.”

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Democrats have been adamant about not going along with a capital gains tax cut, which Bush has strongly favored since his 1988 campaign, unless the President agrees to an increase in the rate at which the highest incomes are taxed.

“The package should leave the federal tax code no less progressive than it is today,” Rep. Don J. Pease (D-Ohio) said. “Over the past decade, low-income Americans have seen their real income go down and their real tax burden go up.”

Even as Bush defended his switch on taxes, budget negotiators, at their final session before the July 4 recess, debated how deeply to cut military spending, one of the most controversial issues of their talks.

Sen. Pete V. Domenici (R-N.M.), ranking Republican on the Senate Budget Committee, sharply opposed a proposal by House Democrats to cut defense outlays by $16 billion in the first year and by $270 billion over five years.

Domenici contended that a reduction of $9 billion in the first year and a five-year cut of $150 billion would be preferble and not as disruptive as the plan advanced Thursday by Rep. Leon E. Panetta (D-Carmel Valley) and House Democratic leader Richard A. Gephardt of Missouri.

“There was a spirited debate,” Gephardt said afterward.

Sen. Jim Sasser (D-Tenn.), chairman of the Senate Budget Committee, said that there was disagreement on the size of the first-year cut but that everyone agreed that there would be a “substantial reduction” in Pentagon spending as part of a $50-billion deficit-cutting package.

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Gephardt, noting that the talks would be resumed on July 10, said: “We’ll be prepared then to enter tough, serious negotiations” in hopes of reaching an agreement before Congress leaves town on Aug. 3 for a monthlong recess.

Although Gephardt and Bush expressed hope that a budget accord could be reached before the August recess, partisan differences that must be resolved on both spending cuts and tax increases will make that timetable hard to achieve.

After the initial flurry of questions about taxes, Bush was asked a question about the Middle East by Michael Gelb of Reuter. The President jumped on it, interrupting the question to say: “Good, Michael. I was hoping we’d get to another one.”

But, in the end, the President had little to say in response to the question, which focused on a letter he had just received from Israeli Prime Minister Yitzhak Shamir. “I am concerned about a deadlock in the peace process,” Bush said. “The status quo is unacceptable to everybody.”

Bush, who is pressing for the inclusion of Palestinians in talks with Israel, said: “We are not going to give up on that kind of solution to this problem.”

On the controversy over bailing out failed savings and loan institutions, Bush said: “The size of the savings and loan problem is terrible, and we are trying very hard to go after the criminals and to have in place rules and regulations so that this will never happen again, and to protect the depositors.”

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The news conference took place just before Bush left Washington on a two-week trip that is taking him first to his vacation home in Kennebunkport, Me., then to a summit meeting of the North Atlantic Treaty Organization in London on July 5 and 6, and then to Houston for the annual economic summit conference of the major industrial democracies.

He said that the NATO meeting would make clear that the alliance, born at the start of the Cold War four decades ago, “has a broadened agenda besides just military.”

The President acknowledged that there are differences within the alliance over financial assistance for the Soviet Union. Such support has been favored by West Germany--at a time when Bonn is seeking Soviet support for the unification of West Germany and East Germany--but the United States has been reluctant to go along with such proposals.

Staff writers Tom Redburn and William J. Eaton contributed to this story.

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