A distraught White House chief of staff John Sununu did not learn until Monday that his close ally, House Minority Whip Newt Gingrich, was leading a back-bench Republican revolt against the budget deal -- even though Gingrich's decision to do so had been made two days earlier.
Returning to Washington Saturday night from his Georgia district, Gingrich was floored by the word from President Bush's budget negotiators. Having previously abandoned a reduced capital gains tax, they now also dropped a proposal to index that tax for inflation. Even for indexation, Democrats wanted a higher individual income tax rate. The White House said no.
This exchange reflected the ideological confrontation between growth and fairness (though both sides reject the stereotype). The Bush-Republican negotiators at the summit put all emphasis on budget proposals that would stimulate the economy and stave off recession, while the Democrats insisted on a tax distribution that would hit the rich harder.
The collision resulted in compromise formulas that are ugly even against the hideous standard of what normally emerges from behind Washington's closed doors. This makes the deal so unappealing that congressional hard-liners on both sides feel free to oppose it because of what they really care about: Democrats contend the budget agreement spends too little on domestic programs, Republicans say it is too much.
While the spending debate waxed until agreement time Sunday morning, the ideological underpinning was growth vs. fairness. For a real drop in the capital gains rate that would increase the value of all assets to combat recession, Democrats demanded a substantial -- and unacceptable -- increase in upper-bracket income tax rates. As late as Thursday, the White House thought it would at least get indexing of capital gains. No such luck without raising the present 28 percent top individual rate to 31 percent, which the Republicans refused.
This deadlock was resolved by two proposals that give the agreement its peculiarly unappetizing shape.
The substitute for capgains reduction was the special tax deduction for investment in new, small companies -- a device more suitable for the Third World than the leading superpower. It generated no fervor on Wall Street, where Monday's stock market rise seemed to reflect only gratitude that the negotiators had vetoed a ruinous income tax increase.
Why would the Democrats swallow a Rube Goldberg contraption to foster investment while rejecting a tried-and-true capital gains cut? "We've always been pro-growth," a Democratic summiteer insisted to us. "We just want the growth to be fair. I'm not interested in giving General Motors another tax break" -- a glittering non sequitur.
But even the pathetic investment gimmick brought Democratic demands for a few ounces of "fairness" in return. The result was another tax contraption, this one limiting deductions taken by upper-bracket taxpayers. The effect: raise the current 28 percent rate to 28.8 percent for $100,000-plus taxpayers.
Why should such a laughably inadequate scourge on the rich satisfy Democrats and infuriate Gingrich enough to push him into revolt? Because it is the thin edge of the wedge.
It is the brainchild of Rep. Don Pease, an obscure Democrat from Ohio who devised it as a substitute for raising the top marginal rate. Once written into law, the Pease formula can be expanded in the future to make the tax system more progressive. It could even be used to achieve the 30-year-old quest by liberal tax reformers to limit deductions for mortgage payments and charitable contributions.
The Pease formula will surely reappear and grow because the budget summit made no pretense of settling the ideological dispute. Even while agreeing to a grand $134 billion in new taxes, the Bush team tried to keep them from crippling an economy going into recession. "There's a lot that can be said against this deal," a presidential aide told us, "but we did try to write in constraints against recession." Presidential economic adviser Michael Boskin succeeded in limiting gas tax hikes to 5 cents now and 5 cents next year on grounds anything more would hurt the economy.
Democrats at the summit never did soak the rich as much as they wanted. But they got something else, put this way by one of their party leaders with a fine sense of irony: "The country Sunday read the president's lips: no capital gains cut, and I will raise your taxes." Of Republicans at the summit table, only Newt Gingrich decided the trade-off between growth and fairness was not worth such lipreading.