The threat of a Senate Republican retreat from President Reagan's economic program before the battle is truly joined was finessed at breakfast April 15 when budget director David Stockman lobbied -- with apparent success -- the Republican staff on the Senate Budget Committee not to turn tail and flee.
That staff, headed by Steve Bell, had been sounding retreat for five days by plotting a moderate Republican-Democratic coalition on the budget resolution that would slow down and stretch out Reagan's tax rate reductions. Thus, while preparing for a set-piece budget resolution battle in the Democratic House, the White House was on the brink of losing the war in the Republican Senate.
Although many congressmen of both parties still do not appreciate it, the tax reduction is the cutting edge of the Reagan economic program. There will be eventual compromise, but toward intensifying the impact of tax rate reduction, not softening it. That would mean dropping tax rates on "unearned" income and perhaps settling for heavy rate cuts over two years. If the Senate Budget Committee goes off in the opposite direction under the chairmanship of New Mexico's Sen. Pete Domenici, the result could fatally undermine Reagan's program.
The rationale for early Senate Republican retreat was that only a shrinking of the tax cut would achieve the balanced budget necessary to pass the budget resolution. In truth, however, the Budget Committee staff seemed to be exploiting the projected budget deficit to win a desired political objective: killing the Kemp-Roth tax bill.
That tone was set from the start by the Republican staff installed at the Budget Committee by Domenici -- especially Steve Bell. A 37-year-old ex-newspaper reporter, poet and self-styled Renaissance man, Bell has inveighed against "supply-side ideologues" and belittled tax rate reduction. Add to that anti-tax-cut bias by the committee's Republican economists, and it is no surprise that Domenici has been downgrading the Reagan tax plan all year.
It was sour economic assumptions by Domenici's staff that produced a $40 billion-plus deficit in the projected budget for fiscal year 1984. That prompted three conservative Republicans, led by Colorado's Sen. Bill Armstrong, to join Democrats in defeating the budget resolution in the Senate committee April 9, just before the current Easter recess.
What was afoot became clear immediately after that unexpected vote. Domenici's staff proclaimed, with unconcealed delight, that Kemp-Roth was dead. Bell was explicit. He told fellow staffers that future cooperation between Domenici and Armstrong was futile. Instead, said Bell, a coalition with Democrats could reduce the deficit by stretching out the 30 percent tax cut -- from 10 percent annually for three years to 7.5 percent a year for four years. Moreover, he would cut back liberalized depreciation procedures.
The votes to pass such a package were in the Budget Committee. Armstrong and his two colleagues, Sens. Steve Symms of Idaho and Charles Grassley of Iowa, were the three members of the committee most deeply committed to Reagan's tax and budget reduction. Yet, they would be overridden as the rest of the committee sought revenue in the way Jimmy Carter did: by caution on tax reduction.
Word was quickly passed to Stockman, who quickly responded. Telephone lines between Washington and Albuquerque were filled with pleas to Domenici. Bell and his colleagues were invited to breakfast with Stockman on income tax day. Although nobody was certain, the inclination to retreat seemed to be stemmed.
Domenici is deeply skeptical about tax reduction, but also deeply worried over charges of succumbing to liberal Democratic orthodoxy. When The Wall Street Journal on April 14 accused him of Keynesian deviationism in an editorial titled "John Maynard Domenici," the chairman was livid. His letter to the editor published April 20 disavowed Keynesian taint and claimed support for the president's program "in word and deed."
Stockman has devised a high-wire alternative for achieving a fiscal 1984 budget balance that does not sacrifice tax reduction. His scheme would cut another $20 billion, mainly by accounting devices (such as different economic assumptions regarding interest rates and defense spending rates). Another $20 billion would come on a promise for later cuts in Social Security outlays.
Stockman's plan reeks of gimmickry. But in truth, the whole notion of making precise budget projections for a budget over two years away is in the realm of entrail-reading. Stockman finds himself reduced to gimmicks to save the Reagan tax cut plan that he and other administration policy-makers feel is essential to ever achieve the economic growth needed to balance the budget.
While senior administration officials privately admit there will be a time some day soon to compromise, the compromise will not be to stretch out tax rate reduction but to hasten it. Armstrong is aware of this even if Domenici and his staff are not. "If the tax program is flawed," he told us, "it is not because of cutting too much, too soon, but in being too cautious."