Democrats’ Capital-Gains Cut Offer Rejected by GOP

Budget talks remained stalled Monday by tax and spending disputes as President Bush repeated his demand that a cut in capital gains taxes must be included in any deficit-reduction deal.

The negotiators quit Monday night after a two-hour session and agreed to let Republican and Democratic leaders meet with White House officials today to decide how to break the apparent deadlock in the talks.

Democrats proposed to cut the tax on investment profits to 23% from 28% if Republicans would agree to effectively raise tax rates above 33% for families with incomes of more than $200,000 a year.

But the offer, aides said, was rejected by GOP bargainers, who are adamantly opposed to higher income tax rates; they proposed such alternatives as a limit on itemized deductions for wealthy taxpayers. Moreover, Republicans want to lower capital gains taxes to 15%.

Democrats, in turn, continued to criticize such a tax cut as little more than a boon to the rich at a time when other Americans will be asked to sacrifice to help reduce the federal government’s gaping $250-billion deficit.

“I would not support a reduction in the capital gains tax if it has the sole effect of eliminating for higher-income Americans the burden of deficit reduction,” House Speaker Thomas S. Foley (D-Wash.) told business executives at a speech in Boston Monday.

Bargainers planned to resume their talks at Andrews Air Force Base near here Monday night, but there was no indication that they were nearing a breakthrough in their struggle to develop a compromise package narrowing the deficit by $50 billion next year and saving $500 billion through 1995.

Ever since making capital gains an issue during his 1988 election campaign, Bush has continued to promote it, saying he believes a tax cut on profits from investments in stocks, bonds, real estate and other assets would encourage economic growth.

“I’ve indicated all along that this is something which I really believe is necessary to stimulate the economy,” Bush said at a news conference Monday, “and I’ve not changed my view on that.”

Meanwhile, Bush said that he does not think the economy is shrinking but suggested that he is counting on Federal Reserve Board Chairman Alan Greenspan to bring interest rates down once lawmakers agree on a deficit reduction plan.

“I think the economy’s growth is slow. I do not think that, nationally, we’re in a recession,” he told reporters.

Despite arguments by many analysts that sharp budget cuts would weaken economic growth in the short run, Bush contended that the best way for the federal government to fight against a possible recession is to convince Wall Street that Washington is narrowing the budget gap.

“A budget agreement is the best antidote to further economic slowdown, because I think it’ll result in lower interest rates and a renewed sense of confidence in investment in America,” Bush said.

The President cited Greenspan as saying that, “if you get an agreement, the Fed would then feel inclined to move quickly to significant interest rate” cuts.

But the long-sought budget agreement seems to resemble a desert mirage, always shimmering just out of reach. Over the weekend, negotiators expressed guarded optimism that they might be able to reach an accord by the latest in a long line of self-imposed deadlines. But, as the Monday midnight deadline neared, bargainers were no closer to agreement.

“Andrews should give us an eviction notice,” said Rep. Silvio O. Conte (R-Mass.), who indicated that the negotiations are deadlocked and predicted that Congress will be forced to return after the November elections to complete work on the budget.