Bush Won’t Hike Taxes to Fund War : Economy: Sources say the Administration plans to increase the already bloated federal deficit to pay for military operations.

The Bush Administration has decided not to seek a tax increase to help finance the war in the Persian Gulf, even though the military action is already costing between $600 million and $1 billion per day, Administration and congressional sources said Monday.

The decision means that the United States will instead be forced to boost government borrowing--and expand the already massive budget deficit--in order to pay for the high-tech war in the gulf.

Meanwhile, the White House said it will renew its push to convince America’s allies--most notably Japan and Germany--to contribute more money to defray the costs of the war with Iraq.

Treasury Secretary Nicholas F. Brady met with the Japanese and German foreign ministers on Sunday and Monday in New York, during a meeting of the economic ministers of the G-7 group of industrial nations, to prod them into providing more financial assistance.

Brady said at a press conference Monday afternoon that both the Japanese and Germans, America’s richest allies, understand that they must pay for a greater share of the costs of the Persian Gulf crisis than they have so far.

There were reports that the Japanese have been asked for between $6 billion and $10 billion, but Brady refused to provide details on the amounts that the U.S. has actually sought.

On the decision not to raise taxes, Administration officials say the move is consistent with a long-term White House strategy agreed upon before the war began. They said the fiscal 1992 budget that the President is slated to send Congress on Feb. 4 will not include a war tax-increase.

The strategy marks the first time in recent memory that the government has not raised federal taxes to help finance a war. During the Vietnam War, Congress enacted a surtax to help pay for the U.S. war machine.

But the Persian Gulf War has come hard on the heels of a bitter political fight between Bush and Congress over tax and budget policies, and Administration officials say they don’t want a repeat of last fall’s chaotic budget negotiations, which led to some new taxes.

They also fear that higher taxes would slow the economy at a time when it is already mired in a recession.

But economists and congressional budget analysts believe that, without greater tax revenues to pay for the war, the federal budget deficit will once again balloon out of control, especially if the war lasts more than a few weeks.

They predict that a really prolonged conflict will make last fall’s deficit-reduction accord seem increasingly irrelevant--particularly since the costs of the Persian Gulf war are exempted from the spending limits specified in the agreement.

“The war is going to make the budget agreement look like a joke,” said Barry Bosworth, a Brookings Institution economist.

The disclosures came as, separately, finance officials from Japan and Germany agreed Monday to provide additional assistance to the multinational coalition fighting to oust Iraq from Kuwait, but did not supply specifics on how much, if anything, each might contribute.

The officials, known informally as the Group of Seven, issued a communique pledging to step up their cooperation to help stabilize exchange rates in the face of the conflict. But the document was silent on the question of how to pay the multibillion-dollar cost of the war.

To avoid straining the federal budget any more than necessary because of the war, Democratic leaders in Congress may seek to cut defense spending in areas that are not vital to Operation Desert Storm, congressional sources said Monday.

But that may prove difficult as the war expands and the Pentagon’s costs continue to rise.

Meanwhile, if the Bush Administration is successful, the war effort will get a boost from the Japanese and Germans. Until now, the Japanese have agreed to provide a total of $4 billion in aid, including $2 billion for the military effort and $2 billion in assistance for nations such as Egypt, Turkey and Jordan that have suffered economically as a result of the crisis.

The Germans have pledged about $1 billion in military aid, and have also porvided aid to the front-line states affected by the war through an aid fund established by the Brussels-based European Community.

Still, only a portion of the German and Japanese aid has been received by the United States, and the reluctance of both nations to take larger roles in assisting the anti-Iraqi alliance has become increasingly controversial.

“The discussions with the Japanese and Germans were very constructive, and they will do their share,” Brady told reporters in New York Monday. “They understand the problem completely, and they are committed to doing their share.”

Still, Administration officials could not say just when German and Japanese aid will be forthcoming.

Yet, the United States has no plans to pursue another round of quiet diplomacy in its dealings with the Germans and Japanese than it did last fall, when Washington first called for greater financial help from the allies.

Instead, the White House hopes that quiet negotiations will convince both countries to provide more aid.

The Administration took heat for Brady and Baker’s highly visible and rather humilitating “tin-cup” missions around the world last fall, which seemed to signal that the U.S. lacked the financial clout it needs to match its military might.

As a result, the White House seems loathe to follow up with another foray in the midst of a war.

MIDEAST UPDATE The glut on the world’s oil markets is so great that Saudi Arabia has begun to cut production, particularly of heavier grades.

Reflecting such production slowdowns, tanker traffic through the Suez Canal has dropped to as little as one ship a day. Normally, five to 10 tankers make the daily passage.

The surge in oil prices caused by the Persian Gulf crisis helped propel the value of OPEC’s petroleum exports to as much as $165.8 billion--42% higher than their 1989 gains, oil analysts said.

British Airways said it was resuming flights from London to Muscat in Oman and to Dubai and Abu Dhabi in the United Arab Emirates. The flights had been canceled after the war began, but the airline concluded that these gulf destinations were far from any fighting.

DHL Worldwide Express also resumed service to all Mideast countries in its network except Kuwait. Because of security concerns and volatility in the region, DHL said it could take two to three days longer than normal to make deliveries.