Democrats Prance, Republicans Battle as the U.S. Ship of State Starts to Founder : Budget: Instead of dealing with the deficit and solving the S&L; mess, Democrats and Republicans wage a war of recriminations.

Republicans are beginning to smell disaster. The economy is sliding into recession. War in the Middle East poses a danger to oil prices. The savings-and-loan scandal has acquired a new symbol--not Charles H. Keating Jr., the businessman who bought influence in Washington, or Alan Cranston, the senator who sold it, but Neil Bush, the President’s son who traded on it.

The President was forced to abandon his “no new taxes” pledge in June. In July, word of the Administration’s tax proposal leaked out. It was greeted by a torrent of criticism. The GOP is openly split over how to proceed, or even if to proceed, with budget negotiations.

Meanwhile, the federal budget deficit has become the country’s No. 1 concern. For the first time since he took office, President George Bush’s popularity has begun to drop.

The Democrats are enjoying this immensely. They are daring to think previously unthinkable thoughts--like maybe putting up a candidate for President in 1992. (Another Walter F. Mondale? Another Michael S. Dukakis? Why bother.)

The Republican response has been to mount a frantic offensive. Not to avert disaster, but to avert blame. The GOP has started a carefully orchestrated campaign to persuade voters that whatever terrible things happen, it’s the Democrats’ fault.

While the ship of the state is sinking, the Democrats are dancing on the deck and the Republicans are organizing a court-martial. Nobody seems to care that they’re all going to drown.

The budget summit between the Administration and Congress was suspended last week so members of Congress could go on vacation. After three months of negotiations, there is still no discernible progress toward reducing the deficit. “The whole thing isn’t going well,” one budget negotiator reported. “What we need here is a crisis.”

How’s this for a crisis: The 1991 federal budget deficit is now projected to be $169 billion--far more than the $100-billion deficit projected in January. That’s not counting the $100 billion the government says it will need next year for the S&L; bailout--far more than the $50 billion appropriated by Congress last year.

The economy grew by only 1.2% last quarter--far less than projected. That makes five successive quarters of slow growth, the longest period of economic sluggishness since World War II.

And if the President and Congress can’t agree to cut the deficit by $50 billion before October, $100 billion in across-the-board spending cuts will kick in. Want to know what life would be like without the federal government? Here’s your chance to find out.

So far, the following steps have been taken to deal with the impending disaster. Congress has voted to allow a $322-billion increase in the national debt. The federal government now has the authority to go $3.44 trillion into debt--more than $13,000 per person, in case you have your checkbook handy.

The House boldly approved an amendment to remove the Social Security trust fund from federal deficit calculations. Without the Social Security surplus, next year’s deficit would be $245 billion. But we don’t have to worry. The amendment doesn’t take effect until 1992.

The budget negotiators have also agreed to hold uninterrupted bargaining sessions in September, in an isolated location somewhere outside of Washington. Maybe there is a Betty Ford Clinic for financial disorders. If that doesn’t work, Congress may call a lame-duck session for the deficit. Which means that it will take place after the November election, with votes cast by legislators who may have already been turned out of office.

To be fair, Bush did do his part to advance the agenda. He allowed a plan to leak out. The Administration suggested raising the federal excise tax on alcohol. Whereupon wine growers and beer drinkers went nuts, and Anheuser Busch threatened to drive their Clydesdale horses up the steps of the Capitol.

Bush also suggested limiting the amount of state and local income taxes that taxpayers deduct on federal returns. Whereupon the governors went nuts and issued a statement opposing “any restrictions on the deductibility of state and local taxes as unacceptable encroachments on state systems of taxation.”

The Democrats, thoroughly amused by all this, decided not to release any proposal of their own. “We did not pledge that every time the Republicans slit their wrists we would slit ours,” the chairman of the House Budget Committee said. Whereupon Republicans went nuts and started attacking the Democrats.

Some Republicans even criticized Bush. Rep. Newt Gingrich (R-Ga.) said, “I think it was a major mistake to give up on taxes the way the President did. Even though I’m in the budget summit, if we don’t get a very good deal, I am not going to support the summit package.” He added, “I wouldn’t ask any Republicans to vote for it.” That could be a problem for Bush. Gingrich is the House minority whip. His job is to round up GOP votes.

Bush doesn’t know what to do. He praises the Democrats for working with him and then criticizes them for their “wild spending habits.”

Last week, Bush told 150 congressional Republicans that he would break the week-old cease-fire on partisan rhetoric and attack the Democrats for the slow pace of budget negotiations. The President threatened to veto spending bills that exceed his budget requests. (There are no such bills.) He threatened to force Congress to live with the huge spending cuts that will go into effect if there is no agreement by October. (He will have to live with the cuts, too.)

Republicans keep threatening to “go to the people” if they can’t get a good budget deal. If they do, they are likely to get an earful. Bush’s job-approval rating has dropped 9 points over the summer, while 64% disapprove of the way he is handling the deficit.

Moreover, according to another poll, 56% disapprove of the way Bush is handling the S&L; problem. More people blame the Republicans (35%) than the Democrats (19%) for the scandal.

So what are the politicians doing about the S&L; crisis? They are calling each other names. The chairman of the Democratic National Committee called President Bush “the Joe Isuzu of the S&L; industry.” The Democratic governor of Ohio said, “If there is a Willie Horton on S&Ls;, it’s Neil Bush.”

Spooked by the Neil Bush problem, the GOP has decided to go on the offensive. The GOP took out a newspaper ad during the National Governors’ Assn. conference last week that displayed the photos of 12 current and former Democratic members of Congress. The text read, “These are the guys who let the S&L; problem explode into a $325-billion national crisis.”

As the Republican governor of Maine put it, “The Republicans want to make sure people know there’s enough blame to go around.” Indeed there is. Deregulation of business is a Republican idea. Republicans, blinded by deregulatory zeal, allowed thrifts to speculate on high-risk investments, while the taxpayers guaranteed the money. On the other hand, influence-peddling is a Democratic tradition. Congressional Democrats protected the bankrupt S&Ls; in return for substantial campaign contributions.

What exactly is being done about the S&L; crisis? Bush promised, “We will not rest until the cheats and the chiselers and the charlatans spend a large chunk of their lives behind the bars of a federal prison.” That was before his son’s involvement became an issue.

Not to be outdone in the toughness department, the chairman of the Democratic Party said, “Just like the drug dealers, we should hit them hard and then harder. Seize their cars. Freeze their assets. Put them on allowances. Try them, convict them, get restitution and put them in jail.” For the record, he was referring to corrupt business executives, not politicians.

What is going on in Washington is not problem-solving. It is recriminations. The captain is fighting with the crew. Meanwhile, the ship is going down.