Budget Talks ‘Getting Closer’ in 11th Hour

Federal budget negotiators signaled their intent Saturday not to tamper with annual Social Security inflation increases as they drove toward a deficit-reduction accord that would avert crippling cuts in government services and furloughs of up to 1 million federal workers.

At the same time, lawmakers said they were exploring alternatives to President Bush’s proposed capital gains tax cut, which has long divided the two sides and appeared to be a major stumbling block in the budget negotiations.

White House and congressional leaders hoped to wrap up a budget deal in time to allow an extraordinary session of Congress today to block $85 billion in automatic spending cuts due on Monday and to keep the government running without interruption.

“We’re getting closer and closer,” said Bush, who was meeting at the United Nations in New York with foreign leaders. “It’s like pulling teeth.”

Federal employees were told to report for work as usual Monday, but they were warned that all but essential workers might be sent home if there were no resolution of a budget crisis that has defied a solution during more than four months of high-level negotiations.

Details were sketchy about the eleventh-hour bargaining, but a key Republican senator and a top Democratic lawmaker said the accord would not include a three-month delay in Social Security cost-of-living adjustments suggested by White House officials earlier in the talks.

Even so, it remained possible that the budget negotiators might agree to increase taxes on more affluent Social Security beneficiaries.

“We’re not going to change the cost-of-living index,” Sen. Pete V. Domenici (R-N.M.) said in a television interview. “We’re not going to freeze it.”

Rep. William H. Gray III of Pennsylvania, the third-highest ranking Democrat in the House, agreed that Social Security inflation adjustments would continue untouched. But he cautioned that other aspects of the budget package remained up in the air.

“Things hit the table, bounce off and come back again,” said Gray, who was also interviewed on CNN’s “Newsmaker Saturday” program. “So you really don’t know what’s going to be in the package until there’s a final shaking of hands and a signing-off.”

Bush’s persistent call for a capital gains tax cut--and Democratic demands for offsetting increases in taxes paid by upper-income Americans--remained a key stumbling block as weary negotiators tried to resolve remaining differences before the fast-approaching deadline.

Participants in the discussions on Capitol Hill said they were looking at alternatives to a broad cut in capital gains taxes on investment profits in an effort to find other means of providing incentives for new business investment.

Both Democrats and Republicans said that a decision to set aside the bitter debate over capital gains could clear the way for a settlement of other unresolved issues in negotiations expected to continue late into the night.

Senate Minority Leader Bob Dole of Kansas, asked if capital gains might be removed from the bargaining sessions, responded: “We’re looking at other options. . . . We’re looking at a lot of options, growth options.”

And House Speaker Thomas S. Foley (D-Wash.) indicated that Democrats were still insisting that a capital gains tax break, which primarily would benefit wealthy investors, must be offset by higher income tax rates for richer taxpayers.

As a result, he hinted, it appeared possible that Bush might abandon his yearlong quest to include a capital gains cut in the budget package.

“We’re looking at alternatives to a capital gains tax rate change and a general rate change,” Foley told reporters before joining the negotiations Saturday afternoon. “We haven’t actually concluded anything yet.”

Despite the difficulty of forging an agreement acceptable to both Republicans and Democrats, budget leaders remained optimistic that they would reach their goal of reducing the deficit by $50 billion in the fiscal year that begins Monday and by $500 billion over the next five years.

In view of the brighter prospects, Domenici said, Bush should pull back from his threat to trigger automatic spending cuts on Monday as called for under the Gramm-Rudman budget law.

“I think we are close enough to getting an agreement that I personally do not believe it ought to be implemented,” Domenici said, “because we will work it out.”

If an accord is reached by tonight, Gray said, Congress could pass a bill to continue government spending at current levels while lawmakers work out the details within the next two weeks.

But there was widespread concern among the budget negotiators that a package of deep spending cuts and tax increases--even if backed strongly by the White House and the bipartisan leadership of Congress--will face strong opposition from lawmakers worried about their reelection prospects on Nov. 6.

“When you are talking about the range of $120 billion in net domestic cuts over five years, that’s tough business,” Gray acknowledged. “Everybody wants to have deficit reduction, but nobody wants to pay the price.”

One apparently unresolved item is a Democratic proposal to tax a greater share of Social Security benefits paid to upper-income retirees. For elderly individuals with incomes above $25,000 and couples above $32,000, half of Social Security income is currently subject to taxation. Democrats have suggested raising the limit to 85%.

But many lawmakers are wary of tampering with Social Security at all. Congress’ last attempt to raise taxes on more affluent retirees, designed in 1988 to help finance health benefits for “catastrophic” illnesses, produced such a strong backlash that the law was repealed barely a year later.

Lawmakers, however, will not have to vote today on the contents of any budget agreement. The House and Senate were called into session primarily to approve stopgap legislation to postpone the Gramm-Rudman spending cuts and to authorize the government to keep running at current levels.

This year’s long battle over the budget has delayed congressional action on the 13 regular appropriations bills for 1991. No spending measures have passed both houses and been sent to the President for his signature.

If there is a budget accord, Congress will be forced to devote the final days of the current session to a hurry-up effort to limit spending and raise taxes to the levels called for under the agreement.

Despite their differences over policy, two of the participants in the negotiations were united in at least one cause.

White House budget chief Richard G. Darman and Senate Majority Leader George J. Mitchell (D-Me.), both from New England, are big fans of the Boston Red Sox, now two games ahead of the Toronto Blue Jays in their battle for the American League East championship.

A television set outside the negotiating room was tuned to the Red Sox-Blue Jays game. A cheer erupted when the Red Sox won in the bottom of the ninth inning Friday night, one of the few moments when reporters actually learned what the participants were doing during their bargaining sessions.