Tax Bill Hearings Open in Acrimony : Congress: Bush aides press for capital gains cut. Democrats seek relief for middle-income Americans. All agree economy may not improve until spring.

Top Bush Administration officials predicted Thursday that the economy would remain sluggish until an upswing in the spring and pressed hard again for a reduction in capital gains taxes to spur growth and create jobs.

Their proposed solution was immediately challenged by several Democrats, who contended that it would further enrich the wealthy and do little for the middle-income Americans whom they want to help through tax reductions next year.

The Administration made it plain that President Bush would not accept tax increases on upper-income Americans, even if those increases were used to offset tax cuts for lower-income individuals, as would happen under two major Democratic proposals.

The debate--rife with partisan differences despite a presidential plea to put politics aside--came during the first day of hearings before the House Ways and Means Committee to consider tax legislation to stimulate the economy.

There was bipartisan agreement on only one point: The economy is in deep trouble and may not improve for five or six months.

In an unusually candid appraisal, Michael J. Boskin, chairman of the President’s Council of Economic Advisers, said: “The economy likely will be relatively sluggish over the fourth quarter of 1991 and the first quarter of 1992. It should pick up thereafter, probably sometime in the spring of 1992.”

Committee Chairman Dan Rostenkowski (D-Ill.) agreed: “The economy has been anemic and is expected to remain that way for the next six months.”

Even so, deep differences remain over how to find a solution that would satisfy both the President and congressional Democrats.

Treasury Secretary Nicholas F. Brady said that some of the nation’s economic problems could have been avoided if the Democratic-controlled Congress had approved the President’s proposal for a reduction in capital gains taxes on profits from the sale of stocks and other property.

“I believe it (a capital gains tax cut) would put life into the economy, create jobs and add to the GNP (gross national product),” Brady testified.

Boskin also argued that middle-income tax cuts proposed by Democrats would have only a “puny” stimulating effect on the recovery and endorsed the capital gains tax cut as the best way to get short-term growth.

Rep. Charles B. Rangel (D-N.Y.) countered that the reduction in capital gains tax rates and other GOP proposals intended to encourage savings would provide 70% of the benefits to those with incomes of more than $100,000 a year.

Budget Director Richard G. Darman retorted that reducing capital gains levies would have an immediate impact, adding: “If you can get the economy going, that is fair, and if you can’t get the economy going, that is fundamentally unfair.”

Said Rep. Thomas J. Downey (D-N.Y.): “Your emphasis on the capital gains proposal and my proposal for a (middle-income) family tax cut represent a major difference on how we view the world.”

“We share that concern,” Brady replied.

“I had it first,” Downey shot back.

The clash illustrated the underlying political differences between the Bush Administration’s emphasis on growth and the Democrats’ demand for tax fairness that must be resolved before a tax cut can be passed by Congress next year.

Despite skeptical remarks about a general tax cut, the Administration officials said that the President had ordered them to consider middle-income tax reduction as part of a new package of recommendations that he will make on Jan. 29 when he delivers his State of the Union message.

Rostenkowski and other Democrats on the panel demanded to know whether Bush still favors a dozen tax-cutting proposals advanced by House Republicans that he endorsed on the eve of the congressional adjournment.

Brady replied that the package included several of Bush’s own proposals and others that he wants his advisers to review before he makes his formal recommendations next month.

Rep. Robert T. Matsui (D-Sacramento) argued: “The President wants to have it both ways. If he wants to exert leadership, he can’t do that.”

Despite the sharp rhetoric, the hearings also indicated a desire to reach a compromise that would be acceptable to both the White House and the Democrats who control the Senate and House.

“We’re going to have to sit down and discuss what is reasonable rather than (have the Administration) serve up a menu of unacceptable proposals,” Rostenkowski said at one point. “We must seek areas of compromise and common good.”