Don’t Let Recession Fears Derail Deficit Talks, Lawmakers Warn

Congressional leaders said Monday that the threat of a recession, which has been aggravated by the turmoil in the Middle East, should not deter White House and congressional negotiators from seeking a substantial cut in the federal budget deficit.

House Speaker Thomas S. Foley (D-Wash.) told reporters that lawmakers should resist the “beguiling” arguments that “the economy will be too weak for” the $50 billion in spending cuts and tax increases the bargainers hope to achieve.

“It is tremendously attractive to members of Congress to think that this whole problem of the budget summit might just conveniently disappear a month before elections,” Foley said. “We ought not let the easy decisions predominate.”

Even before the Persian Gulf crisis, the economy had been lackluster: The civilian unemployment rate rose sharply in July to 5.5% and the economy grew only 1.2% in the past 12 months, the smallest increase since the last recession ended more than seven years ago.

And if the U.N. Security Council succeeds in implementing the total embargo on Iraq and Kuwait it approved Monday, oil prices will likely skyrocket--along with the chances of recession in the United States. That would make it a bad time to put a further drag on the economy with new taxes and reduced federal spending, some economists argue.

But Senate Budget Committee Chairman Jim Sasser (D-Tenn.) said the price of not cutting the deficit would be greater than the price of making the cuts. “We still need to go ahead with a significant deficit-reduction package,” he said. “That’s the only way the Federal Reserve Board is going to be able to lower interest rates.”

Depending on what happens to oil prices in the next three weeks, an Administration official suggested that it might be wiser to seek a small deficit cut in fiscal 1991 and larger cuts later on.

The Gramm-Rudman deficit-reduction law allows Congress to suspend the statute’s mechanism for automatic, across-the-board cuts if the Administration either projects two consecutive quarters without economic growth or reports two back-to-back quarters in which the economy grew less than 1% in each period.