NEWS ANALYSIS : Bush Focus on Iraq Worsening Budget Crisis

President Bush’s near-total absorption with the Persian Gulf crisis has led to such dramatic missteps and equivocation on how to cut the federal deficit that a second crisis over the budget is mushrooming--sowing confusion within Bush’s own party and eroding his authority in Washington.

By shaking public confidence in his leadership, it could even cut down his political freedom to deal militarily with the Iraqi invasion of Kuwait.

Dismayed political leaders and analysts in both parties say that Bush, preoccupied with the gulf crisis, has not only failed to provide effective leadership in resolving the budget impasse but has stumbled badly in failing to spell out for Congress or the American public how he ultimately hopes to resolve either issue.

“Clearly, this is the most challenging moment of his presidency, with a major foreign policy crisis and a major domestic crisis happening simultaneously,” concedes a senior Administration official who is involved in Persian Gulf strategy.

The twin crises could not come at a worse time. Congressional elections are less than a month away, financial markets are already shaky and the country is teetering on the brink of a recession. Unless the budget crisis is resolved soon, some analysts say, Bush could suffer lasting political damage and his long-term ability to sustain the deployment of 200,000 troops in the Persian Gulf could be seriously eroded.

The potential impact on Bush’s freedom to maneuver in the gulf is indirect but potentially significant.

Before the budget crisis burst upon him, Bush enjoyed extraordinarily high public opinion ratings and projected the image of a commanding, sure-footed leader. From a position of such political strength, he could exercise his military and foreign policy authority with confidence that voters would support him. Now, with his approval ratings tumbling and his footwork in question, he might command far less public confidence if he abruptly led the nation into war.

Bush “has got this budget thing so screwed up he can’t go to war now,” said House Armed Services Committee Chairman Les Aspin. “With so much uncertainty about the budget,” he said, the President cannot now plunge into the even greater uncertainties of a war because the public might “back off and not support it.”

Confidence in Bush’s leadership has been shaken even among GOP loyalists. Said a former top Republican official who declined to be identified:

“What’s happening is unbelievable. I’ve just come from a meeting of Republicans and we can’t understand what’s happened to the President. Our boys are over there in the sand, the economy is going to hell and we’ve got a budget crisis that he’s just turned over to the Congress. Nobody seems to know what’s going on.”

Bush’s sudden difficulties over the budget spring primarily from two factors, GOP sources say:

--The President’s decision to turn over management of the politically explosive deficit negotiations to White House Chief of Staff John H. Sununu, Budget Director Richard G. Darman and Treasury Secretary Nicholas F. Brady so that he himself could concentrate on foreign policy.

--The deep divisions within his own Administration and the Republican Party over how to deal with the deficit and what strategy to pursue against the Democrats on the question of higher taxes vs. lower spending.

Said a senior Administration official Thursday: “There is confusion about strategy on the budget--are we truly committed to the bipartisan approach . . . or is there a reasonable alternative of trying to unify the Republicans, come up with our own package, paint the Democrats as the party of tax-and-spend and go to the voters with that?”

“There is a genuine tug-of-war among the President’s advisers” on that, the official said, with Vice President Dan Quayle, Housing Secretary Jack Kemp and others advocating fighting the Democrats while Sununu and Darman advocate sticking with the bipartisan route.

The way the President is handling the budget problem, says Senate Armed Services Committee Chairman Sam Nunn (D-Ga.) “goes beyond Bush and to the heart of the Republican Party and their entire political strategy and I believe that’s what is haunting the President right now.

“He has a very divided party and he’s obviously trying to hold the party together. He’s got to choose between being a responsible President and an effective leader of his political party and it’s a hard choice for him,” Nunn said. As for leaving the budget negotiations to senior aides, some Administration officials now say that Sununu, Darman and Brady got so committed to the negotiations between White House and congressional leaders that they failed to prepare fallback positions to be used if the process failed--as it did last weekend.

“Sununu just got too immersed in the budget negotiations and lost sight of his overall responsibilities to balance policies and options. He became a real advocate for a particular solution, a particular course,” one official said.

Some Washington insiders go so far as to question whether Sununu, Darman and Brady can survive as leaders of the Administration.

“It’s baffling, stunning,” said John Deardourff, a Republican political consultant. “It’s worse than a Chinese fire drill at the White House. Nobody knows who’s calling the shots and they keep backing and filling. The average American must wonder what the hell is going on in Washington.”

Whether deliberately or not, the President is still keeping members of Congress of both parties off balance on both the budget and the gulf.

He has more or less taken a hands-off attitude on the budget since the House rejected the compromise package that he supported and when he has spoken out he has repeatedly sent conflicting signals. And he has not briefed members of Congress on the gulf crisis in several weeks.

For his part, Bush insists that he has not been damaged by the budget impasse.

“Nobody thinks you can be popular by standing up and having to take, in a compromise, ingredients that you wouldn’t necessarily want,” he said earlier this week. “And so I’ll do what I think is best and take the slings and the arrows that go with it. And I haven’t felt too much pressure or anything.”

House Majority Leader Richard A. Gephardt (D-Mo.), on the other hand, charges that Bush “has failed to use the bully pulpit to communicate clearly with the American people what his policies are on the budget or on the Persian Gulf crisis. Only a President can mold public opinion in such crucial situations.”

Senate Budget Chairman Jim Sasser (D-Tenn.) said that he has “come to the glum conclusion” that there will be a war and “with all our domestic problems and no domestic priorities, it’s frightening to me that one way to distract people from these problems is to get into some kind of military adventure abroad. That has been done in times past.”

Beyond the partisan question of what it has done to his political strength, the budget crisis is fueling concern about the economy.

Last weekend’s breakdown in the negotiations--combined with continued White House pressure on the Federal Reserve Board to push interest rates down--already has created a threat in the financial markets. The dollar has been declining for months because of investors’ lack of confidence in U. S. economic policies.

And the Administration’s repeated pressure on the Fed only fuels those concerns by making foreign investors afraid that the Fed may be forced to abandon its fight against inflation.

With the budget compromise gone off track and the U.S. financial system severely weakened by the S&L; crisis and banking and insurance industry problems, analysts say that the United States is ripe for a severe recession and accompanying financial strains.

Damaging as Bush’s missteps seem, on Thursday he continued to add to the confusion. And even such a staunch supporter as House Minority Leader Robert H. Michel (R-Ill.) demonstrated a degree of exasperation with the confusion emanating from the White House.

Each group that has visited with Bush in recent days has emerged with a slightly different account of what the President will accept in the way of a tax and budget package--often to be contradicted moments later by White House officials.

When a group of senior House Republicans left the White House Thursday, after spending 90 minutes with Bush, they reported that he was willing to see the marginal tax rate capped at 31%, meaning that some of the wealthiest Americans whose income left them paying taxes at a 28% rate would end up with an increase of three percentage points while others paying taxes at the highest rate of 33% would see their rate drop two points. In exchange, the capital gains tax rate would be cut from 28% to 15%.

“The President is inflexible on this rate,” Michel told reporters, adding in exasperation, “as I understand it and as of this morning.”

Sure enough, White House officials later said that was not exactly what Bush meant.

On the House floor, Democrats are making Bush a figure of ridicule. They joked about the incident in which he pointed to his posterior while jogging and told reporters that they should “read my hips” when they asked about budget negotiations.

Rep. Doug Applegate (D-Ohio) called the President “Veto Bush, the jogfather.”

Late-night television comedians also have made Bush the butt of jokes. Said NBC’s David Letterman: “George Bush yesterday said that he is considering imposing a tax on wealthy Americans. And then today he said he had decided he would not consider imposing a tax on wealthy Americans. And people said: ‘Why did you change your mind?’ And he replied by saying: ‘Well, I just remembered, I’m a wealthy American.’ ”

Staff writers James Gerstenzang, David Lauter and Art Pine contributed to this story.