Breaking with the Bush administration, Senate Minority Leader Robert J. Dole (R-Kan.) said yesterday that he has suggested that President Bush's capital gains tax cut proposal be considered separately from any deficit-reduction package of spending cuts and tax increases.
The suggestion, which Dole first raised at a closed-door meeting of top budget negotiators Wednesday night, has drawn strong objections from the White House, officials familiar with the proceedings said. Dole's proposal was the first public indication that any Republican budget negotiator was willing to separate Bush's long-sought reduction in the capital gains tax rate, a major stumbling block in the stalemated budget talks, from the rest of a deficit-cutting package.
Last week, Bush told a joint session of Congress that "a budget agreement . . . must include" a reduction in the tax rate for capital gains.
A Dole aide said the GOP leader made the suggestion to try to get the stalled talks moving again. Dole also argued that the chances of winning passage of the capital gains cut could be improved by packaging it with such other money-losing provisions favored by Democrats as new child-care programs and tax breaks for low-income taxpayers, the aide said.
Specifically, Dole proposed that lawmakers consider any agreement on a five-year, $500-billion deficit-reduction package in two pieces of legislation. The first would contain spending cuts and tax increases that would reduce the deficit.
The second measure would include tax cuts and new spending programs that would require offsetting revenue increases or spending cuts to avoid adding to the deficit.
It would include the administration's proposed capital gains tax cut and oil exploration incentives, which would cost $31.1 billion over five years, and the Democrats' plans to expand child-care programs, boost the earned income tax credit and increase the standard federal income tax deduction at a cost of $40.9 billion over five years.
"We'd have one pure deficit-reduction package and one pay-as-you-go package," Dole said.
The suggestion was met by protests from White House Chief of Staff John H. Sununu, Office of Management and Budget Director Richard G. Darman and some GOP congressional budget negotiators, sources said.
Democratic strategists said they want to know more about the parliamentary situation under which the two packages would be considered before taking a position on the Dole proposal.
Republican congressional leaders, including Dole and House Minority Leader Robert H. Michel (Ill.), have never been as enthusiastic about reducing the capital gains tax rate as Bush is. Last year, when Bush's insistence on the cut threatened to derail a deficit-reduction package, GOP lawmakers persuaded the president to drop the effort temporarily.
Democrats contend the reduction would be a boon for the rich and insist it be linked with an offsetting increase in other taxes for those who would benefit.
Bush and congressional Republicans counter that the cut is needed to stimulate the economy and differ with Democrats on the offsetting tax increases.
Yesterday, the highest-ranking congressional leaders in both parties held a third meeting at the Capitol with Sununu, Darman and Treasury Secretary Nicholas F. Brady to try to get the talks back on track. Scant progress was reported in the 3 1/2-hour session. The group is to meet again today.
As the negotiations drag on, the political climate on Capitol Hill is deteriorating sharply, observers note.
White House and Republican Party officials warned yesterday that they will blame the Democrats for any breakdown in the talks and will try to tap into growing voter resentment toward politicians by using the issue in the fall campaigns. Also yesterday, the administration's top negotiators met with a group of House Republicans to discuss how to block any Democratic attempt to avoid implementation of massive across-the-board spending cuts at the beginning of October that will be imposed if there is no budget agreement. Staff writer Dan Balz contributed to this report.