Bush, Congress OK Deficit Talks : Budget: They will seek to avert automatic spending cuts. 'Severe action' is needed 'to keep the economy on a sound track,' White House says. Sessions begin Tuesday.

By JAMES GERSTENZANG and WILLIAM J. EATON

May 10, 1990 12 AM PT

TIMES STAFF WRITERS

WASHINGTON — After three days of urgent meetings, President Bush and congressional leaders agreed Wednesday to begin a series of top-level budget negotiations because “severe action needs to be taken to reduce the deficit and keep the economy on a sound track,” the White House announced.

Faced with signals of a weakening economy and a ballooning deficit, Bush, senior economic advisers and key members of Congress responsible for budget legislation will begin debating their options for raising government revenue and trimming spending from the 1991 budget.

Their goal is to find a way to avoid the automatic spending cuts that would be triggered if they do not meet the $64-billion budget deficit target established in the Gramm-Rudman budget-balancing law.

But their task has been made more complicated--and urgent--by rising interest rates, a recent increase in unemployment, slower economic growth and the burgeoning costs of the federal bailout of ailing savings and loan institutions.

Richard G. Darman, director of the White House Office of Management and Budget, has predicted that unless quick action is taken, stark, across-the-board budget cuts of up to $100 billion could be required in the $1.2-trillion spending plan for 1991.

The sudden focus on the budget--and the agreement to try to tackle the deficit with no “preconditions”--has opened debate over tax increases, which Bush pledged during the 1988 presidential campaign to block. It also has raised the politically charged issue of whether to allow Social Security cost-of-living increases to go unchecked.

Republicans who met Tuesday with Bush raised the prospect of higher gasoline and cigarette taxes, and threw into the discussion the possibility of a national sales tax. They discounted, however, the possibility of increasing income taxes.

With the “budget summit” scheduled to begin Tuesday at the White House, Democrats and Republicans in Congress have made it clear that they are unwilling to initiate formal talk of tax hikes--let alone endorse them--unless Bush takes the first step.

White House aides, meanwhile, have refused to signal whether the President is ready to step back from his highly visible campaign pledge of “no new taxes.”

“Some people have said that raising taxes has to be on the table. But no preconditions means just the opposite. It means the table is clean,” said White House Press Secretary Marlin Fitzwater, dampening speculation that Bush might be ready to support a tax increase.

The potential stalemate was reflected by Rep. Jon Kyl (R-Ariz.), who said: “The President feels a lot about taxes the way he feels about broccoli: You can put it on the table in front of him, but he’s not gonna eat it.”

Creation of a bipartisan budget group is intended to provide enough political protection for both parties to enable Republicans and Democrats, President and Congress, to share the responsibility for distasteful budget cuts or tax hikes without paying a political price.

But just the possibility, raised at Bush’s first budget meeting with congressional leaders Sunday evening, that a tax increase could be thrown into the mix brought out a partisan uproar on Capitol Hill that so far has shown no signs of abating.

House Republicans emerged from a meeting Wednesday morning virtually united against higher taxes as part of any budget deal, opting instead for spending cuts or stretching out the balanced-budget targets for several years.

“If Democrats want higher taxes, we expect them to put higher taxes on the table,” said Rep. Bill Archer of Texas, the ranking Republican on the House Ways and Means Committee, and one of the congressional budget negotiators.

“The President’s negotiating position will be no new taxes,” he predicted.

Rep. Leon E. Panetta (D-Carmel Valley), chairman of the House Budget Committee and another member of the negotiating team, has urged Bush to begin seeking public support for the politically sensitive decisions that the meetings could produce to make eventual congressional approval more likely.

“Strong proposals coming out of a summit would face a very tough time in the House and Senate” because of election-year concerns, he said.

With the pressure of the November elections growing and the somber economic signals mounting, White House and congressional officials acknowledged a need to act quickly. Some expressed hope that an agreement could be reached before Congress begins its July 4 recess.

That would throw the complex budget talks into a busy White House calendar that already includes the May 30-June 3 summit between Bush and Soviet President Mikhail S. Gorbachev as well as preparations for a later North Atlantic Treaty Organization summit meeting and an international economic conference scheduled for early July in Houston.

As outlined by Fitzwater, the goals of the budget negotiators are to achieve a substantial reduction of the projected budget deficit in fiscal 1991, which begins Oct. 1, and in several subsequent years and to devise a plan that will allow continued economic growth.

The group also will seek to revise the process by which Congress acts on the budget and find a way to avoid the economic pitfalls that could stem from a budget stalemate between the Republican White House and the Democratic-controlled Congress.

But how those goals will be accomplished remains obscured by the fog of partisan debate and concerns that unpopular decisions could be used against either party in the upcoming congressional elections.

“The only decision that’s been made is to begin discussions in good faith and attempt to reach a solution of the problem,” said Senate Majority Leader George J. Mitchell (D-Me.).

“It’s premature to speculate on what might be in the agreement, and then to speculate on top of that speculation as to what someone might say about that speculated agreement, and then to speculate as to what someone might respond to that speculation about that speculated agreement,” Mitchell said.