President Bush yesterday during a White House news conference detailed his decision to allow discussions of tax increases in negotiations with Congress over reductions in the federal deficit. Following are excerpts from the news conference:. . . We are doing what is necessary to assure continuation of the economic expansion, now in its 90th month, and we want to keep it going. We now estimate a deficit of over $150 billion in fiscal 1991, not counting the costs of the savings and loan cleanup. And this means that unless Congress acts, there will be a cutoff in October of nearly $100 billion in government services under the sequester provisions of the Gramm-Rudman-Hollings {deficit control law}.

The potential results are Draconian cuts in defense, student grants and a wide array of other necessary domestic services. And to avoid this, tough decisions must be made and leadership is needed, and that is exactly what administration officials are seeking to provide -- and indeed, in these talks, I believe are providing.

The budget negotiations now under way are a make-or-break effort at responsible government. The congressional budgeting process must succeed and the negotiators are facing tough questions about where to make cuts and where to raise the revenues, and these are not decisions that anyone relishes. They are decisions that Democrats and Republicans alike have got to face with candor and courage.

And frankly, I believe that ultimately good politics is rooted in good government, and I'm optimistic that we can get a budget agreement legislated which not only tells the world that America puts its fiscal house in order, but also will garner the full support of the American people. . . .

Q. I'd like to ask you about your reversal on "no new taxes." Do you consider that a betrayal of your promise, and what do you say to Republicans who complain that you've robbed them of the same campaign issue that helped get you elected?

A. . . . It is a necessary step to get stalled budget negotiations moving. And I am very encouraged with the approach taken now by Republicans and Democrats in this -- in these important discussions that are going on. I'm not going to discuss details, what I'll accept and what I won't accept, but things are moving, and I think that much more important today is getting this deficit down, continuing economic expansion and employment in this country. So that's the way I'd respond to it.

Q. Well, can people trust politicians if they make statements and are willing to break them?

A. Well, you know, I recall a previous flurry when I was vice president, and there was some economic plans proposed back in 1982 that caused a furor something like we're hearing now. And the president, in my view, did what was right, and so I think that we're on the right track. And I think that the arrows have been flying -- front, back, sideways -- but that's what I get paid for. And I think -- I think we're on the right track now. And I think we'll have strong support from both sides of the aisle.

Q. Do you believe it will hurt your credibility?

A. No, not in the long run. . . . Because what people are interested in are jobs, economic growth. People know this deficit is bad. People know that we are going to have to take some action, and that's why I think not.

Q. But what will you say to American people who said you may have promised not to -- no new taxes --

A. I'll say I take a look at a new situation. I see an enormous deficit. I see a savings and loan problem out there that has to be resolved. And like Abraham Lincoln said, "I'll think anew." I'm not -- but I'm not violating or getting away from my fundamental conviction on taxes, anything of that nature. Not in the least. But what I have said is on the table, and let's see where we go. But we've got a different -- we've got a very important national problem, and I think the president owes the people his -- his judgment at the moment he has to address that problem. And that's exactly what I'm trying to do.

And look, I knew I'd catch some flak on this decision. . . . But I've got to do what I think is right, and then I'll ask the people for support. But more important than posturing now, or even negotiating, is the result. Do we continue to provide jobs for the American people and do we continue to provide economic growth, and do we try to stop saddling the generations on the way up and the young people with absolutely unacceptable deficits?

Q. What will you do with the savings and loan situation? Is there any way to do a budget with that still coming out of general revenue or do you have to push the whole issue off to the side?

A. Well, we're -- we can't push it off to the side. We've got to solve the problem. My interest on that one, incidentally, is to protect the depositor, put the people that broke the law in jail. And that is exactly what the policy that we proposed did. We came in here 18 days after taking office, initiated a very important savings and loan policy. And the size of the savings and loan problem is terrible, and we are trying very hard to go after the criminals and to have in place rules and regulations so that this will never happen again and to protect the depositors. Those are the three key elements of what I'm trying to do.

Q. But where do you pay for it? Is it out of the taxes the government takes in every year from the American taxpayer?

A. Well, we have to. People are going to have to pay for it. And that's -- it goes as a part of all our expenditures I'm talking about. There has got to be a remedy. . . .

Q. Could you clarify what seems to be a "fuzzing-up" of the issues by some Republicans who are trying to say that your new statement isn't new? Are you telling the American people that this budget outcome is going to be higher taxes?

A. I'm telling the people that there's negotiations going on right now, and there are no preconditions, and everything's on the table. And we will see where we come out. And when we get an agreement that is supported by Democrats and Republicans alike, I will then -- and if I think it's a good agreement -- I will then tell the American people clearly why they need to support it, what's at stake for them in terms of jobs, continued growth in this economy.

Q. But you're saying right here, you're not saying it. You're not saying, "We have to raise taxes." Why aren't you saying it?

A. I'll tell you -- oh, I'm sorry, I missed your point. We agreed with the Democratic leaders that we would not discuss the details of what's going on in these discussions, and we're not going to do that. So, if and when we come up with a program that raises revenues -- and our original budget talked about that -- and if there are taxes in it, why, then I will go out there and advocate strong bipartisan support for this. But if I get into -- going into each kind of tax that's discussed or each kind of budget reform, or each kind of spending cut, I will be doing something that I have asked our negotiators and the Congress not to do.

Q. Yeah, but when you say in your statement, "tax revenues are required," is that the same as taxes?

A. And I say budget reforms are required, and I say spending cuts are required, and so let's see where we come out on that.

Q. But is it taxes?

A. Is what taxes?

Q. What you're saying. Are you saying taxes are -- higher taxes are --

A. I've told you what I've said, and I can't help you any more. Nice try.

Q. You said we needed --

A. You got it. You got it, and you've got a -- you've seen the arrows coming my way. And that's fine, but -- let people interpret it any way --

Q. Well, I have --

A. Well, I want to leave it the way I said I would, so the negotiators are free to discuss a wide array of options, including tax increases. Does that help?

Q. No. . . . You've mentioned a couple of times that you're getting arrows from all directions. One newspaper headline has declared "Read my lips: I lied." Is this kind of criticism justified? Is it fair? Do you deserve it?

A. Well, I expected it. But I don't -- I think the "deserving" of it will -- the proof of pudding is going to be in the eating, and how it comes out, because I think the American people recognize that the budget is greater than we had predicted and the Democrats had predicted, the economy has been slower, and so we'll just wait and see how we come out.

But no, I can't say I didn't expect to hear some campaign words played back to me, and it's been fairly intense. But I'll tell you, I've been more relaxed about it than I thought I'd be. I went back into history and took a look at what others have had to go through in this job. So it hasn't been as -- it hasn't been as tense -- you know, we had some congressional candidates over there yesterday, people running, and they don't want to see tax increases. And some of them -- I could see them -- "How are we going to handle this? We don't want to be rude to the president, but we feel strongly." And so one or two of them, a couple of them, spoke up, and I could totally sympathize -- empathize with what they were going through.

And, but I -- we didn't have time, because it was about a 45-second handshake, but if we had, I'd have said: "Now, look, you've got to look at the big picture here. Stay with your position. Advocate what you believe, and what you -- tell your constituents what you'll try to do, and then just stay a little bit open-minded so when we get an agreement, and I hope we will, that is good for the country, that you can say, well, we can accept this, because we're going to need support from Republicans and Democrats alike, to say nothing of the American people." But I think the people will support it. I think they want to see jobs and economic growth, and that is what is at stake here.

Q. But within hours after you released the statement, some of your staff members, Chief of Staff John Sununu, for one, was up on the Hill trying to assure conservative Republicans that nothing has changed. At this point --

A. I think what he was talking about is that everything is on the table. Nothing has changed. I saw a lot of interpretations of what he said, but I've not seen a statement or anything of that nature. And you've got various interpretations from various political factions. We've seen the Democratic Study Group has put out a mandate of what has to happen to have it just exactly their way. We have people with strong -- feel very strongly on our side. And so this we expected. We expected members of Congress who have strong convictions on how to approach this problem to weigh in, and we expected editorial comment. We expected, as I say, some of the slings and the arrows. But I just have a comforting feeling after two or three days now that if I do my job right, and that is to facilitate -- help facilitate the negotiations, and then we can get a bipartisan agreement, and then I can go to the American people and say, "Look, we've all had to give or take a little on this, but this agreement is going to be good for future generations, it's going to be good for the economy, it's going to be good for jobs." Then people will say, "Look, we support the president."

Q. Can you help us through your thinking just a little bit, and was there one particular moment when you realized you were going to have these campaign promises played back at you all day, and --

A. The minute I, the minute I decided that we would go forward on a, on a joint statement, which I felt was necessary to get the budget process moving. But I'd had a preview of coming attractions, because when we said "No preconditions," it wasn't -- maybe that wasn't the exact word -- but no preconditions, arrows started flying. And I understand this. I've been in the political wars. But I am also president, and I've got to try now to look at the big picture and the welfare of this country, and put it ahead of my own strongly held preferences and everything else. And that's exactly what's happening. And the process has started to move forward as a result of that statement, with a seriousness that I applaud . . . .

Q. Could you tell us a little bit about what led you to believe that that statement was necessary? Was there some moment of epiphany? Was there any particular bit of data that --

A. You mean, did I suddenly get hit with the lightning? No, I got suddenly -- I suddenly was presented with the fact from Democrats and Republicans and our three able negotiators, in whom I have tremendous confidence, we've got to do something to get the process going forward. But I don't recall any -- because I'm not changing my view on taxes, I'm just saying . . . everything's on the table. We may have to do something here. And -- but if I were going to go back and say, "Do it my way," we'd figure out a way that would be somewhat less controversial than this approach has been.

Q. If it was so comforting and good for the country, why didn't you do it a year ago?

A. Because we've got a problem that is of far greater magnitude today because we've had a much slower economy than anybody predicted, and that has meant revenue shortfalls. And that means bigger budget deficits. And that means more burden for future generations of Americans and unacceptably high interest rates. And so that is why I --

Q. Are you saying the economy, then, is in some kind of trouble now that these problems are --

A. I'm saying the economy is sluggish, and I think a deficit package that takes care, that is seen to be a real one, will have an ameliorating effect on that and, hopefully, will result in lower interest rates and thus have a more vibrant, a more robust economy. . . .

Q. You're a great student of the American electorate. Have you concluded that the American public is more willing to consider and accept new taxes to deal with the deficit?

A. Not particularly. If you say to a guy, "Do you want to pay more taxes?" I haven't found anybody that would say that. But I think if we do our job properly and they understand the magnitude of the problem at hand in terms of this deficit, and then we make a proposal that is fair on the revenue side, on the spending side, and then on the reform side so that we don't get in this mess again -- and I'm going to restrain myself from putting the blame on Congress because it's hard to constrain spending so we need some reform -- then I think if they see all three of these things and they see it's fair, that people will support this.

Q. Would you under any circumstances consider increasing income tax rates?

A. I've said and told the leaders that I'm not going to go into the details. They are not going into the details of what they will or won't accept. And the only way to accomplish a negotiation is to keep faith with that approach, and they are doing that, Republicans as well as Democrats. So I'm not going to go into the details.

Q. Income taxes are on the table, too?

A. I'm not saying what's on or off. I've made my statements on that, and I'm just going to go forward. I've got preferences, strongly held preferences that people are familiar with, but I'm not going to reiterate them, because more important than my posturing or protecting from arrows coming from one direction is getting a deal that's fair and good for the American people.

Q. I wonder if you can try to explain today why you made the "no new taxes" promise in the first place. At the time, the deficit was absolutely horrendous, the savings and loan situation was absolutely horrendous, and most people greeted your promise with a fair amount of cynicism, saying taxes were eventually going to be needed to bring down the deficit. Can you sort of blame people for now --

A. No, I don't want to blame anybody --

Q. I'm just saying can you blame people for looking back and saying, "Well, maybe he didn't really mean it the whole time"?

A. I can understand people saying that. I think it's wrong, but I can understand it. I'm presented with new facts. I'm doing like Lincoln did, "think anew." And I'm thinking anew.

I've still got the principles that underlie my political philosophy and haven't changed my view about whether -- you know -- taxes. But we've got a major problem facing this country. And I have the responsibility, leading the executive branch, to get things moving to get a solution.

And the budget deficit is bigger, far bigger. I thought I could do a better job on getting spending down and perhaps getting the reforms of the budget process that I also talked about. So we're not talking about -- just in the campaign talking about one aspect, I was talking about reform, I was talking about spending constraints. And not having everything go exactly my way, now we've got to address ourselves to a worse problem . . . than any of us visualized back then.

Q. Throughout the '88 campaign you kept saying, and this was a quote: "The surest way to kill economic growth in this country is to raise taxes." Now you're telling us that the reason you're thinking anew about raising taxes is to make sure that you sustain economic growth, and yet you also told us that you're not changing your views about taxes. Exactly what are your views about taxes and what are --

A. Wait till you see the agreement that comes out. That will be my views as to what has to happen, hopefully within a month, of 1990. That will be my views faced with a problem very different than the problem facing the presidency in the end of 1988.

Q. Well, do you believe that taxes kill economic growth or do you believe that higher taxes --

A. I think taxes wrongly applied can kill economic growth. And yes, I do think that. So I think we've got to be very careful as to how we get this formula to see that we don't kill off economic growth. You've got to look at the overall gross national product when you talk about that too.

Q. Why didn't you say that during the campaign, then?

A. Well, I don't think anybody did such a good penetrating job of questioning -- and because the problem is different, the problem is quite different . . . today than it was then.

Q. Some members of Congress and some members of your own staff are saying that your three able negotiators, as you just described them, have signaled one important possible deal, and that is if you -- if the Democrats will give you your capital gains tax cut, you're prepared to go along with eliminating the bubble on the high end of the tax rate scale. Is that a fair --

A. We're going to leave all -- no, it's not a fair, and I'm not sure your dope is correct, either. But the -- I just don't want to violate this concept of confidentiality while we're in the negotiating stage, and so I can't respond to it. But I wouldn't put too much trust in that one.

Q. If your statement here this morning represents your latest thinking, why is it that a whole bloc of conservative Republicans have already disavowed your position, considering it a tacit request that, you know, taxes will be increased?

A. Well, for the same reason that -- that that same response occurred in 1982. . . . And we have people who feel very strongly on this question, and I'm one of them, but I've got to make the case for the broader -- addressing ourselves at this problem here. But I can understand that.

Q. It doesn't give you any pause that this fall you're going to be out campaigning for Republican candidates who disagree with you on taxes --

A. No.

Q. -- abortion, and perhaps other issues?

A. No, we've already had -- we've always had differences with me on all those issues. One way or another, one side or another, but we also have a matrix of a party that is opposed to tax-and-spend, who wants to constrain spending, and who wants reform. And I still feel a fundamental part of that, even though we're talking now about an agreement that will hopefully cover all three aspects of that. If it -- if it doesn't, there won't be an agreement, I guess.

Q. A senior economic adviser in the last administration was fond of telling us that "economic expansions don't die, bad policies kill them." Now that you're admitting that the economy is growing sluggish enough that tax revenue increases are needed, what policies went wrong? Why do we need this budget agreement so badly now?

A. In theory, I'm not sure I disagree with that. In practice, provided everything is kept in proper perspective in terms of the total GNP {gross national product}, a revenue increase would not kill off economic growth. We've got to see what the size of it is, what form it takes, what -- whether it's accompanied by incentives for growth, something I'm very much interested in. So, you can't look at one piece of the package at this point as we're talking about solving a major deficit problem. And you also have to consider the total size of the deficit as it relates to our, to our economy.

Q. What I was asking is what went wrong? Why is it necessary now? Is this proof --

A. Yeah. I think we've got slower economic growth than had been anticipated, and thus fewer revenues, thus a bigger deficit. We have a law requiring us to get the deficit down to certain levels. And so you've got a combination: the discipline that Gramm-Rudman-Hollings causes, and economic growth not being as robust as we predicted. And that is why we've got to do something right now.

Q. In your research of what's happened to others, have you concluded that we're naive to suggest that the public takes campaign promises seriously?

A. No. I think people are, people are smarter than a lot of us think they are, including me, and I think they're fair. And I go back to the experiences of previous people that have been in this office who say one thing in a campaign, come in and keep their, keep that pledge -- if you're talking about taxes, for quite a while -- and then see that there's an enormous problem facing the nation that requires a bipartisan answer. And if I could, if I had control of this Congress, both houses, we might not even be talking about this today. But there's a different feeling here, and I've got to see the country go forward. And I've got to take the heat that comes from certain quarters, political and other, and I'm prepared to do that because I think I'm on the right track and I think, in the final analysis, the American people will understand that.

Q. And you think the public understands this and takes this into account when they hear campaign pledges?

A. Well, I've seen, I've seen polling figures that indicate that. But I don't want to, I don't want to suggest that all politicians are cynical. Certainly when I was making, making comments of that nature, I was convinced that I could stay the course. And we did for a long time and we may now. But let's see where we go on this negotiation, because more important than how people look at what I've said is what happens to the economy, what happens to jobs, what happens to economic growth. So, when you, when you make a change that people see as a dramatic shift, you've got to batten down the hatches and take the heat.

But I really, I'm not trying to misrepresent my position. I feel comfortable about that because I've gone back and done a little research and seen these firestorms come and go, people who feel just as strongly on one side or another of an issue as I do and haven't gotten their way exactly. That's the American system, and I've got to work with it. Congress can, they can go out -- everybody up there can go out -- and take a position, but it's only the president that has the responsibility for, you know, for the whole executive branch approach to it.

Q. How do you explain to the country why you're treating this as essentially a Washington insider's game right now? Why not explain to the public what your list of priorities are within the spending and tax issues? Are there no longer any lines to be drawn in the sand based on your convictions on these areas?

A. Yeah, and they will be drawn in the negotiations. But then I'd -- I'm going to do exactly what you're talking about. I'm going to tell the American people why this bipartisan agreement, which I'm still hopeful we'll get, is essential to the national interest.

Q. The Republicans have gotten a lot of mileage in the last several elections out of what the Democrats think has been shameless demagoguery on the tax issue. By assuming that you get this bipartisan agreement, haven't you basically undercut that argument for your party? Hasn't your party now lost that issue?

A. Some will say so but not if I go out and do my part and if I remind them of history. Take a good look at the reaction in 1982, and it didn't have that kind of an adverse effect.