Gramm Urges GOP to Be Bold in Spending Cuts

Senate firebrand and GOP presidential contender Phil Gramm chastised fellow Republicans on Monday for being too timid in efforts to shrink the government and called on Congress to make huge reductions in social programs to pay for new tax cuts.

In an interview with The Times, the Texas Republican said that the new GOP-dominated Congress will create an unnecessary and potentially damaging controversy if it tries to use creative accounting to finance tax cuts for investors and middle-class families.

Instead, he urged fellow Republicans to adopt a budget that simultaneously cuts taxes and slashes discretionary spending, a category that includes education aid, public health and highway construction.

“There are many Republicans who want the blessings of limited government but who are unwilling to vote for limited government to make those blessings possible,” Gramm said. “And I think we’re coming to the moment of truth.”

Later in the interview, Gramm complained that, when it comes to deficit reduction, “there’s been a constant gap between (Republican) rhetoric and the reality of our actions. Now is the time we’re going to have to stand and be counted.”

Gramm’s proposal could open a Pandora’s box on Capitol Hill because it runs headlong into budget rules that prevent Congress from paring domestic programs to offset tax cuts that otherwise would widen the deficit.

Those “pay as you go” rules, adopted during the George Bush Administration, were initially supported by many GOP lawmakers because they prevented Democrats from financing expanded social programs by raising taxes. Now, with Republicans about to take charge of both houses for the first time in 40 years, the rules are a potential obstacle to GOP tax cuts.

Gramm’s comments are the opening salvo in the looming congressional budget-balancing wars. In a wide-ranging interview in his Senate office, Gramm reflected not only sharp divisions between Senate Republicans and Democrats but potentially deep rifts among congressional Republicans themselves.

Those splits are certain to become more pronounced as GOP lawmakers like Gramm, preoccupied largely with deficit reduction, struggle to dominate the congressional agenda against Republicans intent on increasing defense spending, pressing divisive social policies, such as school prayer and abortion restrictions, and instituting accounting practices known as “dynamic scoring,” which are grounded in supply-side economics.

“You’ve got a lot of people who have been in the minority for many years and who have got these pent-up little agenda items,” Gramm said. “And I think what we’re going to have to do is have the leadership to say to them: ‘We’re going to be in power for many years to come. Let’s stay with our agenda now.’ ”

He proposed that Republicans avoid becoming embroiled in a debate over “dynamic scoring,” which assumes that tax cuts will spur economic growth and increase, rather than decrease, federal revenues. Democrats, including President Clinton, have charged that the technique is a budgetary trick that allows Republicans to claim they are cutting the deficit when they are driving it up.

If Republicans insist on justifying their tax-cut proposals with “dynamic scoring,” said Gramm, “the media is going to clearly accuse us of trying to keep phony books and trying to defy Milton Friedman’s law on free lunches”--which argues that there are none.

The solution is to accept the budget calculations favored by Democrats “but with the proviso that if we are right and they are wrong, that the additional resources go to deficit reduction and to additional tax cuts,” Gramm said. “Now why would you object to that? Only if you don’t have the courage to control spending.”

Under Gramm’s plan, Congress would pay up-front for a family tax cut by cutting funds from the departments of Education, Housing and Urban Development and Health and Human Resources. To offset a capital gains tax cut, Gramm called for cuts in what he called “corporate subsidies,” including subsidized interest rates and direct loans from the Small Business Administration.

Only when the tax cuts start creating wealth and bringing in new revenue--as Gramm and fellow Republicans are confident they will--should Republicans take credit for them, Gramm said.

“I think we can do it,” Gramm said. “I think if we can do it, we’re going to have to do it now, while the public is ready for dramatic change. This is not the time for incremental thinking. This is a time to be bold.”

As Gramm laid out his challenge to Republicans, White House officials scrambled on another issue Monday as they tried to gain the support of Gramm’s likely rival for the GOP presidential nomination, Senate Minority Leader Bob Dole of Kansas, on a crucial trade vote coming before Congress next week.

White House officials indicated that they were able to close some gaps with Dole over the vote on a new world trading regime that will succeed the General Agreement on Tariffs and Trade. And they expressed optimism that they could announce agreement with him today. The trade pact would sharply reduce tariffs, or taxes charged on imports, and limit other barriers to increased world trade.

Dole, who generally favors efforts to remove barriers to international trade, said Sunday that he would be more likely to support the controversial revision of the world trade regulations if the White House endorses a reduction in the capital gains tax. His position in the Senate leadership--he likely will be majority leader in the new Congress--has given him a crucial voice in the trade debate, and it is unlikely that Clinton could win approval of the trade plan if Dole fights it.

In other comments Monday, Gramm told The Times that he would:

* Like Congress to apply any cuts in defense spending specifically to deficit reduction.

* Support giving the President the line-item veto but said that he doubts Clinton’s sincerity in seeking such authority. “Forgive me for being a little cynical, but when we were trying to do it in the last two years, we never heard a peep out of the President.”

* Work to enact health care legislation that includes medical malpractice tort reform and changes in the insurance market to ensure that coverage is renewable.

* Vote to make Dole majority leader, even though the Kansas senator is likely to be one of Gramm’s chief GOP presidential rivals.

* Back Sen. Trent Lott (R-Miss.) for Senate Republican whip over incumbent Alan K. Simpson of Wyoming.

Gramm also expressed skepticism for the depth of Democratic support for a balanced-budget amendment.

“It’s one thing for the Democrats to vote for it when they think it’s not going to pass. I think you’re going to see a lot of people who have voted for it in the past who are going to vote no.”

Times staff writer James Gerstenzang contributed to this story.