Let the Budget Wars Begin

Bush will face dug-in Democrats--and some rebellious Republicans

In the opening weeks of his Presidency, George W. Bush labored to find a rationale for his centerpiece $1.6 trillion tax cut. It was alternately depicted as first-aid for a sick economy, a bulldozer demolishing "tollbooths to the middle class," and a new Contract with American Taxpayers that decrees Uncle Sam should never take more than a third of anyone's income. But on Feb. 27, Bush used his first major policy address to frame his idea in simple--and effective--terms. Casting himself as a consumer crusader battling a tax-gouging government, he told a joint session of Congress: "The people of America have been overcharged. And on behalf of them, I am here to ask you for a refund."

Even tax-cut skeptics found themselves moved by Bush's appeal--and his fervent insistence that there will be enough money to pay for his plans. Goodloe E. Byron Jr., president of Potomac Investment Services Inc. and an Al Gore voter, concedes he was "impressed" by the Salesman-in-Chief. He now thinks Bush will "get a [tax] bill pretty close to what he's after." Indeed, in a post-speech poll by CNN/USA Today/Gallup, support for the Bush tax plan jumped to 79%.

Bush's problem is that the public's positive response to his plain-spoken pitch for tax cuts and other policy initiatives does not reflect the prevailing view on Capitol Hill. Despite the new President's month-long charm offensive, movie screenings with the likes of liberal warhorse Teddy Kennedy, and trips to Democratic policy retreats, Bush still faces a challenge pushing his agenda to passage in the land of powerful congressional barons.

The fiscal 2002 budget he sent to Congress on Feb. 28 contains more than its share of accounting legerdemain--and something to offend nearly every powerful interest, Republican and Democrat alike. "It will get tougher when we get into substance," concedes Senate Majority Leader Trent Lott.

Indeed, there's nothing like budgetary fine print to chill a budding courtship. Bush is sending the Hill a $1.95 trillion spending blueprint that is built around three big ideas: his tax cut, part of which will be moved up to take effect in January, 2001; restraining the growth of domestic spending to 4% this year and to a very stringent 3% or less over the decade; and using most of the Social Security surplus to slice $2 trillion off the $3.4 trillion national debt.

Those numbers stand to be very controversial. For starters, the President proposes holding back $600 billion in excess payroll tax revenues to help pay for private Social Security investment accounts. Conservative privatizers think that's too small, since it would pay for only a 1% account--half of what they expected. Privatization critics, for their part, view the ploy as a raid on the existing retirement system.

"MARCH MADNESS." In addition, the Administration wants to set aside $842 billion for a new "contingency fund" the President could tap for items such as weapons, farm relief, or Medicare reforms. Democrats are furious, insisting that more than half of the cash is siphoned from surpluses in the Medicare program--which the House has just voted to put in a lockbox. Fumes Max Baucus (D-Mont.), senior Democrat on the Senate Finance Committee: "This is nothing short of March Madness."

Already, Republicans and Democrats are taking issue with Bush's plan to make room for tax cuts by slashing domestic programs. His new budget cuts spending for farm programs, the Environmental Protection Agency, and the Energy Dept., and it freezes spending for the Justice Dept. Lawmakers vow to restore many of these holddowns, which will add to the pressure to slim the tax cut. Top Senate Budget Committee Democrat Kent Conrad (D-N.D.) says flatly: "He'll get zero support on our side of the aisle" for his budget. Senate Appropriations Committee chief Ted Stevens (R-Alaska) has already warned Bush that his spending plan will be changed.

The President's problems go beyond maintaining budgetary discipline, however. Case in point: health-care legislation. His intraparty rival, Arizona Senator John McCain, has joined Kennedy to push a patients'-rights bill. Bush calls the McCain-Kennedy measure unacceptable because it would ease the way for patients to sue their managed-care companies. But the rump legislation continues to gain momentum, putting Bush in the potential bind of having to hold his nose and sign it.

Likewise, Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) is warning the White House that Bush's plan for a limited Medicare prescription-drug benefit lacks Hill support. Grassley's panel will try to write its own, more expansive version. Critics say Bush's idea, among other things, limits benefits only to the poorest seniors.

TOUGH TALK. And despite generally good reviews for his showy tours of public schools, the Prez can bid sa-yonara to plans for a quick victory on education reform. There is little congressional support for key Bush initiatives such as school vouchers and yearly performance testing. Senate Education Committee Chairman James M. Jeffords (R-Vt.) will send a stripped-down version--minus vouchers and testing--to the Senate floor in mid-March.

There are even signs that conservatives are growing restive over Bush's emerging foreign policy. True, the new President is talking tough. But hard-liners are edgy after an ineffectual U.S. bombing run provided scant cover for a U.S. retreat from sanctions on Iraqi strongman Saddam Hussein. Another beef: Bush gave British leader Tony Blair an endorsement for the idea of a European Defense Force outside NATO without getting a nod for missile defense.

At the moment, though, Bush's attention is riveted on shoring up support for his tax plan. He followed up his policy address with a campaign-style tour of the heartland. "All Bush's eggs are in the tax-cut basket," says Marshall Wittmann, a senior fellow at the Hudson Institute. "He'll rise or fall on whether it succeeds." At least for now, House Republican leaders are trying to help. On Mar. 1, the Ways & Means Committee was set to approve a speed-up of Bush's rate cuts. The big fear: Moderate GOP defections. Already, two Republican Senators--Jeffords of Vermont and Lincoln D. Chafee of Rhode Island--have bailed on Bush, and other centrists harbor similar misgivings.

Meanwhile, the White House must still fend off Republicans who are pushing still-bigger tax cuts. House Majority Leader Richard K. Armey (R-Tex.), for instance, insists he won't support a tax bill unless it includes a capital-gains cut, and he has the backing of supply-siders who think Bush's proposal is wimpy. So how about all those moderate Dems whom Bush has been counting on to back some of his pet initiatives? Apparently, charm has its limits. Many complain that Bush isn't budging on key issues. Says Representative Ellen O. Tauscher (D-Calif.) "There's a growing sense that the President...hasn't figured out how to compromise."

None of this means that Bush is in serious trouble. If his bravado gives way to flexibility, he is likely to win approval of at least $1 trillion in tax relief. And he'll be able to take credit for some version of education reform and progress on granting the White House broader authority to negotiate trade pacts. The details will change, but at the end of the day there could be a fair number of initiatives passed that are close enough to the Bush proposals to carry the GWB brand.

By Lorraine Woellert and Howard Gleckman in Washington, with Ann Therese Palmer in Chicago

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