Congressional leaders said yesterday that the threat of a recession, which has been aggravated by the turmoil in the Middle East, should not deter White House and congressional negotiators from seeking a substantial cut in the federal budget deficit.
House Speaker Thomas S. Foley (D-Wash.) told reporters that lawmakers should resist the "beguiling" arguments that "the economy will be too weak for" the $50 billion in spending cuts and tax increases the bargainers hope to achieve.
"It is tremendously attractive to members of Congress to think that this whole problem of the budget summit might just conveniently disappear a month before elections," Foley said. "We ought not let the easy decisions predominate."
Even before the Persian Gulf crisis, the economy had been lackluster: The civilian unemployment rate rose sharply in July to 5.5 percent and the economy grew only 1.2 percent in the past 12 months, the smallest increase since the last recession ended more than seven years ago.
And if the U.N. Security Council succeeds in implementing the total embargo on Iraq and Kuwait it approved yesterday, oil prices will likely skyrocket -- along with the chances of recession in the United States. That would make it a bad time to put a further drag on the economy with new taxes and reduced federal spending, some economists argue.
"The best time to have cut the deficit would have been when the economy was doing well and oil prices were falling, like they were in 1986," said Harvard University economics professor N. Gregory Mankiw.
But Senate Budget Committee Chairman Jim Sasser (D-Tenn.) said that the price of not cutting the deficit would be greater than the price of making the cuts. "We still need to go ahead with a significant deficit-reduction package," he said. "That's the only way the Federal Reserve Board is going to be able to lower interest rates."
Depending on what happens to oil prices in the next three weeks, an administration official suggested it might be wiser to seek a small deficit cut in fiscal 1991 and larger cuts later on.
The Gramm-Rudman-Hollings deficit-reduction law allows Congress to suspend the statute's mechanism for automatic, across-the-board cuts if the administration either projects two consecutive quarters without economic growth or reports two back-to-back quarters in which the economy grew less than 1 percent in each period.
The turbulence in the Mideast could limit the budget negotiators' options. With gasoline prices already rising by as much as 15 cents a gallon, bargainers are less likely to look to an increase in energy taxes as part of the deficit solution.
"Things like energy taxes become more difficult in the middle of an embargo," Foley said. "It makes acceptance of energy taxes more difficult -- not necessarily less desirable, but politically more difficult."
"If you get a substantial increase in the price of oil, you don't want to further escalate the price of energy and put more inflationary pressure on the economy," Sasser said.
Meanwhile, 18 senators urged President Bush to appoint a task force to investigate what they described as "unwarranted" increases in oil and gasoline prices, and Senate Minority Leader Robert J. Dole (R-Kan.) called for a Justice Department probe into possible violations of price-fixing laws.
Sen. Joseph I. Lieberman (D-Conn.) said Bush should call on the oil industry to roll back its price increases, which he said amount to overcharges of $12 million to $42 million a day.
Staff writers Helen Dewar and Tom Kenworthy contributed to this report.