NEWS ANALYSIS : Tax Sparring May Be Preview of ’92 Battle

WASHINGTON —  The confused sparring between President Bush and Congress over tax cuts this week provided a glimpse of something more: the possible outlines of the economic debate that could overshadow Washington throughout 1992.

And if the outcome of this week’s battle is any indication, the two sides may be unable to come up with an answer to the nation’s economic woes.

Bush is seeking to push a pro-growth economic package centered around a cut in the tax on capital gains, with the idea that an anticipated increase in investments will stimulate a sagging economy that has left voters increasingly discontented and undermined the President’s popularity.

But Democrats are drawing up a much different prescription. Claiming that the President’s plan would mostly benefit the rich, they are crafting a tax cut aimed more directly at the middle class.

One key Democratic proposal would provide an income tax credit of up to $200 for individuals and $400 for couples. The revenue reduction would be offset by creating a new 35% top-bracket tax rate on high-income taxpayers and imposing a 10% surtax on millionaires.

But in two days of frenzied wrangling this week, neither side was able to seize the advantage--a stalemate that may be a microcosm of a lasting paralysis on the issue.

Bush had sought to have the spotlight focused solely on his plan while Congress was out of town for a two-month holiday. But the surprise decision Wednesday by two Democratic-controlled committees to take up the tax-cut question beginning next week will force the President to share a stage he had hoped to occupy alone.

Despite strong sentiment by some Democrats to jump in front of Bush by voting on a new economic package soon, the leadership decided Wednesday to take a cautious approach and put off any votes until next year. It scheduled extensive hearings in both the House and Senate next month that will highlight their ideas on middle-class tax cuts that are strongly opposed by Bush. (Story on A28).

This move serves to blunt a sudden White House move Tuesday to seize the momentum on the potent economy issue. Bush’s last-minute decision to embrace a Republican tax-cut package being pushed by House Minority Whip Newt Gingrich (R-Ga.) allowed the President to appease conservatives and answer critics who charged he has failed to take action to pull the nation out of a recession.

White House officials concede that Bush had no intention of prompting Congress to vote on a tax bill, and was simply gambling that with the congressional recess scheduled to begin Wednesday there would be no time for Democrats to take up the issue.

On the political stage he expected to command for the rest of the winter, he would then have been able to criticize Congress for its failure to endorse or even to consider a GOP anti-recession package--while simultaneously taking more time to develop a plan of his own to push in place of the Gingrich package.

Tuesday night, Democratic leaders struck back with what the White House had feared the most all along--a concerted effort to advance their middle-class tax-cut proposals.

Leading Democrats were open Wednesday in saying they were accelerating their timetables largely out of anger over Bush’s gambit.

But in a hint that all the maneuvering may lead only to stalemate, there were signs Wednesday that Democratic leaders were worried that a bidding war over tax cuts might get out of control. In lengthy caucus meetings Tuesday night, House Democrats were deeply split over whether to immediately push for a tax bill, leading House Speaker Thomas S. Foley (D-Wash.) and Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) to back away from quick action.

“We realized it was stupid to try to do this now,” said Rep. Charles Wilson, (D-Tex.). “Crazy things can happen if you try to do a complicated tax bill when everyone is trying to get out for Christmas.” Added a senior House staffer: “You can’t do a major tax bill in 12 hours.”

As a result, both Rostenkowski and Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.) said they do not plan to push tax legislation through their committees before the end of the year.

“The real debate is probably not going to get started until after the President puts out his plan at the time of the State of the Union address in January,” said one senior Senate staffer on Wednesday. “This was just a rehearsal.”

Leading Democrats added Wednesday that they might not mind so much if Bush maintains the initiative on the economy for awhile longer. In fact, Rostenkowski, among others, was concerned this week that, by voting on a tax bill in December, the Democrats would have to assume some of the political blame for the nation’s economic troubles.

“Right now, the good news for George Bush is that we will let him take the initiative in January on the economy,” said one senior Democratic staffer in Congress. “The bad news for George Bush is that it is still his economy. And we are well positioned when the time comes, with tax plans that knock theirs out of the park.”

So as both sides seemed to step back Wednesday, what appeared to emerge was the kind of gridlock over tax policy that has been in place throughout 1991--and which seems likely to continue throughout 1992.

Ironically, the White House decision to change course and suddenly endorse Gingrich’s tax bill this week was pushed by two senior Administration officials who had for months advised the President to do exactly the opposite. Sources said White House Chief of Staff John H. Sununu and Budget Director Richard G. Darman, who had consistently resisted earlier efforts by congressional Republicans to get Bush to sign on to a quick tax package, were pushing Bush to take advantage of the opening and move for a quick tax bill this week.

But Bush’s decision to endorse the Gingrich plan was still widely seen both within the Administration and on Capitol Hill as an embarrassing political miscalculation.

“The White House felt they had to smooth the waters with the House Republicans, and then everything got carried away,” noted one Republican source.

Added one gleeful Democratic strategist in Congress: “Bush totally screwed up. He attempted to appease his right wing and overplayed his hand.”

The quick response by the Democratic leadership to hold hearings beginning next week means that Treasury Secretary Nicholas F. Brady, presidential economic adviser Michael J. Boskin and Darman will have to testify and face intensive partisan questioning on the economy and even more embarrassing cross-examination on the Administration’s embattled economic policies.

TAX CUT PLANS: The House deferred action on a tax cut for middle-income Americans and deflected capital gains cut. A28

RELATED STORIES: A3,30,31, D1