A second key Republican leader broke with President Bush over cutting the tax rate on capital gains yesterday as House Democrats sought to avoid the massive automatic, across-the-board spending cuts that threaten to force furloughs of government employees and other disruptions at the beginning of the new fiscal year, now just days away.
House Minority Leader Robert H. Michel (R-Ill.) said he would be willing to drop Bush's proposal to cut the capital gains tax rate in order to get an agreement to pare the federal budget deficit by $500 billion over the next five years.
"The doggone price is too steep," Michel said of the deadlock over the president's insistence that a deficit-reduction package include a cut in the capital gains tax. Democrats insist that any such cut be linked to an increase in the income tax rate on the wealthiest taxpayers from 28 percent to 33 percent in order to offset its benefit to the rich.
As Michel spoke, the budget deadlock between Bush and the Democratic-controlled Congress appeared to deepen. The House Appropriations Committee approved a stopgap measure to continue funding the government at current levels until Oct. 20, delaying the automatic cuts under the Gramm-Rudman-Hollings law that are due to begin to be imposed at the start of the new fiscal year Monday. But Bush threatened to veto the measure.
"I do not want to see further delay in kicking this problem on down the road," he told reporters.
Michel said he would not offer to give up the capital gain tax cut proposal in talks between top congressional leaders and Bush administration officials that continued into last night but he indicated he would not mind if Bush dropped it on his own.
"Those of us who like to assist the president want to do what we can, but politics is the art of what's possible," Michel said. "There are other ways of stimulating the economy than just being hung up on a capital gains rate reduction."
If Bush rejects the stopgap spending bill and Congress upholds his veto, the federal government would be without money beginning Oct. 1. But administration officials believe they could keep essential operations going based on a Justice Department legal opinion dating from the Carter administration that a president has an "inherent authority to protect human life and property," according to congressional officials.
Using that as authorization to allocate funds, Bush would have greater flexibility to cut the programs he wants to cut and protect those he wants to protect than under an across-the-board cut or spending under a stopgap measure. However, the move could also raise a series of constitutional questions, the officials said.
White House Chief of Staff John H. Sununu and Office of Management and Budget Director Richard G. Darman outlined the procedural argument to GOP senators yesterday in hopes of persuading them to support a possible veto, the officials said.
The capital gains tax cut is a major obstacle to agreement on a budget deal to save $50 billion in the new fiscal year. Last week, Michel's Senate counterpart, Minority Leader Robert J. Dole (R-Kan.), suggested considering Bush's capital gains tax cut in a separate legislative package from the spending cuts and tax increases. Dole also has said he would accept higher tax rates in return for the capital gains tax cut.
Administration bargainers are considering alternatives to cutting the capital gains tax rate, including adjusting the gains subject to taxation to account for inflation, Michel said. Democrats said such a change still would have to be linked with an increase in tax rates on the rich.
Only one Republican joined the Democrats on the House Appropriations Committee in voting 32 to 20 to approve a resolution that would continue funding the government at current levels until Oct. 20.
Committee Democrats said the delay would provide a necessary breather if deficit-reduction talks continue. But House Speaker Thomas S. Foley (D-Wash.) would not say yesterday whether he would support the delay without a budget deal.
A GOP attempt to block the delay is likely when the House considers the stopgap funding measure, perhaps as soon as today.
Appropriations Committee Chairman Jamie L. Whitten (D-Miss.) said letting the automatic budget cuts take effect without a budget agreement would "bring this country to its knees." He added that he was forced to "question whether anybody who'd let the country go to pot . . . is patriotic or his judgment is sour."
While GOP lawmakers privately fear the impact of the cuts on their constituents, the sole committee Republican voting for the Whitten resolution was Rep. Frank R. Wolf (R-Va.), whose Northern Virginia district includes thousands of government workers.
"Much as I don't like it, we've got to show a little strength here," said Rep. Silvio O. Conte (Mass.), the committee's ranking Republican. "It's a game of chicken."
The legislation was wrapped into a popular $1.9 billion special spending bill covering the costs of Operation Desert Shield in the Persian Gulf region through Sunday, the end of the current fiscal year. An attempt by Rep. Joseph M. McDade (Pa.), the ranking GOP member of the House Appropriations subcommittee on defense, to separate the Desert Shield appropriations from the Whitten resolution was defeated on a party-line vote, 31 to 21.
Democrats acknowledge that they stand little chance of overriding a presidential veto unless the Desert Shield money remains in the bill.
In addition to the human impact of massive budget cuts, especially in government centers such as the District, there is concern that they could act as a drag on a troubled economy. The report accompanying the bill warned that "the economy has been weakening in the last several quarters. . . . Reports indicate some regions of the country are already in recession."