Bush Inaction on Economy Deepens Rift With Kemp : Republicans: Relations between the Administration and conservatives have worsened as downturn lingers.

President Bush’s inaction on economic policy is deepening the rift between the White House and the conservative wing of the Republican Party, underscoring an increasingly visible division within Bush’s own Cabinet.

As Bush has moved farther and farther away from the supply-side tax-cutting policies of former President Ronald Reagan, relations between Housing Secretary Jack Kemp--the President’s most prominent in-house conservative--and the rest of the Administration have progressively worsened.

Politically isolated and frustrated by his inability to influence White House economic policy, Kemp has articulated alternative proposals in public comments that delight fellow supply-siders and Reagan loyalists but antagonize other Administration officials.

Despite blunt attempts by senior Administration officials to mute him, Kemp has become more outspoken in recent weeks as the economy has worsened and congressional Republicans and Bush’s own supporters in the business community have called for quick action to address it. Even Senate Minority Leader Bob Dole (R-Kan.) urged President Bush last week to move more swiftly to develop an economic growth plan.

Kemp, who ran unsuccessfully for President in 1988, is galvanizing a broad spectrum of Republicans who are disenchanted with Bush’s handling of economic affairs and who fear that the party may suffer severe losses in congressional races next year even if Bush wins reelection.

In one of the most visible signs of growing discontent, more than 80 House Republicans sent a letter to President Bush late last month urging him to make Kemp his new domestic policy czar. The missive was a clear slap at other Administration officials, particularly White House Chief of Staff John H. Sununu.

Kemp, who declined to comment directly, has been “flattered but embarrassed” by the groundswell of support from Capitol Hill, his aides said, but remains loyal to Bush.

While Administration sources said that they believe Kemp will remain in the Cabinet through the 1992 election--and stress that Bush has no plans to fire him--few expect him to stay beyond that. His departure would leave the conservative wing of the party without a strong voice inside the Administration.

Even if Kemp stays, his open disputes with the rest of the Administration have called attention to the increasing disenchantment with Bush among conservatives, as well as the fact that Reaganomics is no longer the dominant economic theology of the Republican Party.

“Conservatives are almost uniformly discouraged,” observed William Niskanen, a former Reagan Administration policy-maker and now a conservative economist at the Cato Institute, a think tank in Washington.

That sense of anger among conservatives is reflected in reports that right-wing columnist Patrick J. Buchanan may run for President against Bush in the Republican primaries next year.

Supply-siders warn that the Republican Party’s more traditional policies of austerity, including an emphasis on budget restraint rather than on Reagan-style policies to promote economic growth, are re-emerging under Bush.

Conservatives charge that those are the same policies that once made the GOP seem like the tax collector for the welfare state: The Democrats created new programs, while the Republicans worried about paying for them. What’s worse, conservatives added, those are the policies that kept the Republicans out of power for a generation.

By contrast, under Reagan the Republican Party learned to largely ignore budget deficits and to steam ahead with popular pro-growth economic policies. Reagan’s supply-side theorists, with Kemp in the vanguard, argued that tax cuts would increase, rather than decrease, federal tax revenues, by giving people incentives to create jobs and wealth. Those tax cuts also would make the Republicans more popular with voters, while forcing the Democrats to assume the defensive role and warn of higher deficits.

Even today, with the federal deficit at an all-time high, Kemp and other supply-siders still argue that the only way to reduce the federal debt load is to scrap the budget agreement that limits Washington’s ability to maneuver and quickly cut taxes to spur growth.

“At one level, Jack’s dispute really shows the fissure over economic policy that has opened in the party,” noted Lawrence Kudlow, a former Reagan Administration official and now a Wall Street economist. “This is a fight that the Republican Party has not had since the 1970s. It is a replay of the battle between the Nixon-Ford wing of the party and the Reagan camp. It is a debate over whether you put the emphasis on budget austerity, or on economic growth. Ronald Reagan swept that debate away, and you didn’t hear it in the 1980s. But now, with George Bush, it is back.”

Kemp’s growing isolation was clearly evident during an emergency White House policy session in late September, just as Bush began to turn his attention to the weakening economy.

Stung by critics who charged that he was preoccupied with foreign affairs, Bush called a meeting of his Economic Policy Council to talk over White House strategy. Although Kemp is not a member of the Economic Policy Council, he was invited to the session because of his status as the Administration’s leading representative of the Republican Party’s right wing.

During the meeting, Kemp argued passionately that Bush had to act soon to cut capital gains taxes and campaign for a “pro-growth” package of economic initiatives to end the recession.

But quickly it became clear that almost all of Bush’s closest aides--Sununu, Budget Director Richard G. Darman and Treasury Secretary Nicholas F. Brady--were opposed to busting the existing budget agreement to seek a tax cut. The result, they warned, would be to give the Democratic majority in Congress an open invitation to savage Bush’s tax and budget priorities.

The idea of pushing an economic package was quickly dismissed and the talk soon turned to the best way to present the President’s policy of inaction to the public.

Kemp’s activist proposals had been brushed aside. As a result, Kemp--a man who is said by other senior policy-makers to “wear his emotions on his sleeve”--felt frustrated and demoralized. According to participants in the September meeting, Kemp then lashed out at Sununu for bulldozing his conservative agenda. “Mr. President,” Kemp said heatedly, according to several participants, “your chief of staff is mad at me for supporting your own capital gains tax cut.”

It was left to Darman, a dry wit, to break the tension in the room. “Darman said, ‘Don’t worry Jack, he (Sununu) is that way with all of us,’ ” said one source who was in the meeting.

As the session broke up, Kemp seemed more isolated than ever. “Well, I guess that’s the last meeting I’m invited to,” he quipped, according to one source.

The internal Administration debate over cutting taxes and the way Kemp has been shunted aside in the process seem to have crystallized for leaders of the Republican Party’s right wing everything they dislike about Bush and his policies of accommodation and compromise.