White House and congressional budget negotiators yesterday debated the contentious question of whose taxes to raise and whose to cut as they worked to devise a plan to reduce the federal budget deficit by $500 billion over five years, according to sources familiar with the proceedings.
In their third day of self-imposed isolation at Andrews Air Force Base, the bargainers held spirited discussions of President Bush's plan to cut the rate at which capital gains are taxed and the Democratic proposal to raise income taxes on the wealthiest Americans, the sources said. No conclusions were reached, the sources said.
Bargainers would like to complete an agreement by Tuesday night, when Bush is scheduled to address a joint session of Congress, but large differences remain. Flying back from Helsinki, where Bush met with Soviet President Mikhail Gorbachev, White House Chief of Staff John H. Sununu said Bush is not counting on announcing a budget deal then.
Late last night, budget negotiators canceled plans to brief the president this morning at the White House on the progress of the talks and instead will return to the base for more bargaining.
Taxes remain a large stumbling block. Democrats charge that the capital gains tax cut would lose tax revenue over time and would disproportionately benefit the wealthy more than lower-income taxpayers. Administration officials counter that it would generate economic growth and revenue by encouraging stock and real estate transactions.
Fairness is also the argument Democrats use for raising the top marginal income tax rate. Under current law, the wealthiest taxpayers are taxed at a lower marginal rate than upper-income earners. Bush and GOP lawmakers have been adamant, however, that income tax rates not be raised.
In order to achieve at least $50 billion in deficit reduction for fiscal 1991, each side was seeking about $25 billion in new taxes and fees.
In addition to raising income taxes on the wealthy, Democrats wanted to impose new levies on energy, gasoline, alcoholic beverages and such luxury items as boats and jewelry.
Besides lowering the capital gains tax rate, the administration proposed new taxes on beer and wine, limiting the federal deductibility of state and local income taxes and eliminating some other income-tax deductions for the rich.
The bargainers also discussed yesterday proposed changes to the congressional budget-writing process and spending levels for entitlement programs, such as Medicare, without reaching any conclusions, sources said.
Discussions on military spending levels have been complicated by conflicting approaches to paying for the U.S. military mission in the Persian Gulf, currently projected to cost $11.3 billion in fiscal 1991.
The administration wants the cost incorporated in the overall Defense Department figure. Democrats, fearful that the additional cost would be used to justify higher military spending levels in future years, want it considered separately.
The Republican and Democratic bargaining teams caucused for nearly four hours before returning to negotiations early yesterday afternoon after caucusing separately for nearly four hours.
Saturday's session of the talks ended prematurely when a fire alarm sounded at the Officers' Club shortly after 10 p.m. The building was evacuated. The alarm was triggered when a jacket was hung on an alarm box at a wedding reception in another part of the club, officials said.