At Long Last, Bush Talks Taxes : Politics: Faced with an exploding federal deficit, the President finally used the word he promised he never would: taxes. Actually, though, what he said was ‘revenues.’

“The story of the 1980s is quite simple,” Sen. Daniel Patrick Moynihan (D-N.Y.) once said. “The United States borrowed a trillion dollars from the Japanese and gave a big party.”

The party’s over. Last month we found out what the story of the 1990s is going to be: Who pays the bill?

The bill for the savings-and-loan fiasco--the worst financial disaster in the nation’s history--is somewhere around $150 billion. If the bill isn’t paid, with interest and inflation it could end up costing $500 billion. That’s half a trillion dollars--$2,000 for every man, woman and child in the United States. Or in terms more comprehensible to the average citizen, more than 20,000 times as much as Madonna made last year.

Even without the S&L; bailout, next year’s federal budget deficit is expected to reach $160 billion. Who’s going to pay? Last week we got the answer. You are, gentle taxpayer.

President George Bush got spooked because the budget talks with Congress were about to collapse. With no progress toward reducing the deficit, one of two things could happen. Interest rates might continue to rise and throw the economy into a recession. Or, across-the-board budget cuts might go into effect and throw the economy into a recession.

Bush knows One Big Thing: His presidency cannot withstand a recession. Ronald Reagan knew One Big Thing, too, but it was a different thing. Reagan had a thing about taxes. In 1982, Reagan took the country through the worst recession since the 1930s. It didn’t destroy him because everybody knew Reagan had a plan (“Stay the course”), and low taxes were part of the plan.

Reagan was elected to straighten the economy out. If that meant enduring a recession, so be it. No pain, no gain. Bush was elected to keep the recovery going. If that means jettisoning his campaign pledge on taxes (“Read my lips--no new taxes”), so be it. A man’s gotta do what a man’s gotta do.

And so last Tuesday, Bush uttered those fateful words, “new taxes.” Actually, he didn’t utter them. He released them in a brief statement. And he didn’t say, “new taxes.” He said, “tax revenue increases.”

The President’s supporters immediately acclaimed him for showing bold leadership. “I think the President’s actions were an exercise of leadership and that’s why he was elected President,” Treasury Secretary Nicholas F. Brady asserted.

Bush probably did the right thing. We have been living beyond our means for too long, and everyone knows this country cannot straighten out its financial mess without higher taxes. The problem isn’t so much what Bush did. It is the way he did it. The White House tried to insist nothing had changed. If this was an act of leadership, it was the most evasive act of leadership in memory.

It was almost certainly no coincidence that Bush released his statement on taxes the same day South African leader Nelson Mandela addressed a joint session of Congress. That same day, Bush announced a plan to restrict offshore oil drilling. He also proposed a free-trade zone in the Western hemisphere. For good measure, the Administration announced a compromise plan to protect the northern spotted owl.

That’s a lot of news for one day. And a lot of stories to divert public attention. Still, Bush had to be worried about headlines like the one in Wednesday’s New York Post: “Read My Lips--I Lied.”

GOP supply-siders could hardly believe what had happened. They insisted Bush wasn’t talking about a tax hike at all. “He very explicitly didn’t say, ‘Raise taxes,’ ” House minority whip Newt Gingrich (R-Ga.) explained. “He said, ‘Seek new revenues.’ ”

Nice try. But Senate Majority Leader George J. Mitchell (D-Me.) was there when Bush wrote the statement. Explaining that all the participants understood it to be “new and significant,” Mitchell said, “Any attempts by White House officials or other Republicans to describe this statement otherwise are totally inconsistent with what occurred today and with what the statement itself says.”

There is a word for what Bush was doing last week, and it is not leadership. It is equivocation. The President has so far failed to go before the American people and explain what he is trying to do.

As conservative political consultant David A. Keene put it, President Bush is giving up a “key defining issue without what might be viewed as a significant explanation.”

In fact, there is a significant explanation for what the Administration is doing. It is trying to revive the sluggish economy by stimulating economic growth.

This is not only sensible. To conservatives, it is ideologically correct. The Administration wants to use the private sector to stimulate economic growth, by lowering interest rates and making it easier for families to buy homes and for companies to expand. Democrats traditionally favor the public sector--more government spending. But that means either more borrowing or higher taxes.

It’s not so hard to talk to the American people about these things. Presidents do it all the time. Not Bush, however. He prefers the bipartisan approach. He makes deals with Congress, preferably in secret. Then he announces the results in a Rose Garden ceremony and receives the thanks of a grateful nation.

In his statement on Tuesday, Bush listed the elements of a deficit-reduction package “that can be enacted.” In addition to “tax revenue increases,” the package included reforms in entitlement programs, cuts in other domestic spending, “growth incentives” and “orderly reductions in defense expenditures.” The President added, “The bipartisan leadership agree with me on these points.”

Indeed, they do. Speaking for the Democrats, House Speaker Thomas S. Foley (D-Wash.) immediately said, “We are not here looking for political advantage.” He added, “I think someone who is complaining about taxes being raised in the budget summit will have to complain against both parties and the President.” In other words, we’re all in this together.

The Democrats said they would reciprocate the President’s gesture by discussing painful cuts in programs that are close to Democrats’ hearts, like Medicare, Social Security and farm subsidies.

A perverse kind of bargaining is going on. Democrats say to Republicans, “If you slash your wrists, we’ll slit our throats.”

Democrats are even talking about raising energy taxes and excise taxes that fall most heavily on the poor. Congress is also considering a deal with Bush on capital gains: The Administration gets a cut in the capital gains tax rate, and, in return, the Democrats get to raise income-tax rates for the wealthy. What a deal!

The Democrats are buying into the President’s program because it is the responsible thing to do. They don’t want to be accused of stalling deficit negotiations now that they’ve gotten Bush to say uncle. Politically, a bipartisan deal like this means that the Republicans and the Democrats sink or swim together. The fate of both parties is tied to the performance of the economy.

The deal is not entirely balanced, however. If the economy improves, who gets the credit? Bush, of course. If the economy sags, who gets the blame? Both the President and Congress. That’s why Bush wants to make the deal with Congress. It gives him political cover.

A lot of economists believe that if the deficit-reduction deal goes through, the economy is likely to fail. The problem is not that reducing the deficit is wrong. It is that the deal is coming at the wrong time. The U.S. economy is weak right now. A deal to cut spending and raise taxes could push the economy over the edge into a recession before the interest-rate stimulus starts to work.

The budget deal is a gamble. And Bush is making sure the Democrats share the risk.

Two constituencies oppose a bipartisan budget deal: conservatives and liberals. Conservatives were outraged when Bush agreed to a tax hike, and they wasted no time in letting their feelings be known. Ninety Republicans--more than half the Republicans in the House--signed a letter to Bush, “A tax increase is unacceptable.”

“I don’t want to use the word ‘betrayed,’ ” Sen. Malcolm Wallop (R-Wyo.) said, using precisely that word, “but people feel they are the victims of some ill-conceived actions.”

Liberals believe that what the Democrats ought to do is not just cut the deficit; they should try to re-order national priorities. Why not use the peace dividend for new public investment in education, health care and transportation? These things are critical to the nation’s economic security, but they are not likely to be provided for by the expansion of the private sector.

Liberals are also concerned about the kind of tax increases likely to be in the budget deal. Last week, 134 House Democrats--again, more than half--signed a letter to Foley warning that they would not support “any agreement with the White House that puts a further burden on (middle-income) families rather than the very wealthy.”

The tax issue does not split Republicans and Democrats. It splits both parties. Each party has a governing wing that supports a budget deal and an opposition wing that is suspicious of any deal. If the economy improves, the governing wing of each party should retain control. If the economy falters--watch out.

The GOP is running out of issues. “Now that communism is no longer a big issue, taxes were really the party’s principal rationale,” said Dan Mitchell, a conservative economist at the Heritage Foundation. “What are they going to turn to? I am not sure they are going to win a lot of elections on the flag amendment.”

If the GOP no longer offers low taxes, what does it have to offer white middle-class voters? Opposition to abortion rights?

Bush’s answer is management. The GOP can do a better job of managing peace and prosperity. That’s a good answer--as long as we have peace and prosperity.

In the end, the Bush Administration is not about ideology. It is about competence. Could it be that we elected Bush and ended up with Michael S. Dukakis?