Bush’s 1990 Budget Agreement ‘Mistake’ Is Cast in More Positive Light Overseas : Economy: Back home, President denounces breaking pledge of no new taxes. But at economic summit, he and his aides touted plan as a success.

MUNICH, Germany â€”  When he is at home in the United States, President Bush calls the 1990 budget agreement a big mistake, a bad deal he made with Congress that forced him to break his “read my lipsâ€� 1988 campaign pledge about raising taxes.

But when Bush and his aides are overseas meeting with foreign leaders, they cast the 1990 budget agreement in a very different--and far more positive--light.

At the Munich economic summit last week, senior Bush Administration economic policy-makers told their counterparts from the other major industrial powers that the 1990 budget agreement was a success because it set the stage in the United States for serious deficit reduction and lower interest rates.

U.S. officials never said such things during on-the-record briefings with reporters during the summit.

But in private sessions among the finance ministers from the Group of Seven industrial powers--the United States, Germany, Japan, France, Britain, Italy and Canada--Bush Administration officials touted the 1990 budget agreement’s caps on new federal spending, stressing their positive effects as an example of how serious the Bush Administration is about fiscal reform.

At ministerial level meetings “we talked about the fundamental reform that we have in place under the 1990 budget agreement,� said one senior Administration official, who agreed to speak only if not identified.

U.S. sources, in background briefings here, even said they believe President Bush’s decision to disavow the budget agreement was itself a mistake, narrowing the Administration’s options in dealing with a Democratic Congress.

The clear message: The White House wants to see similar policies in other major countries, especially Germany, which is now grappling with huge deficits resulting from massive government spending on reunification.

The Bush Administration believes that if the Germans follow the American example, the German Central Bank will be able to cut its sky-high interest rates and thus give a boost to sagging European economies. That, in turn, could generate more U.S. exports and jobs.

Senior Administration officials are very sensitive about leaving the impression that their international agenda contradicts the President’s domestic political position. One official insisted that, in international meetings, U.S. officials don’t defend the tax increases that were integral to the budget accord, but instead dwell on the new spending limits built into the agreement.

But that official acknowledged that those spending caps would not have been approved by Congress if the President had not agreed to raise taxes.

“Nothing I’ve said about this,� said another senior Administration official, testily and without elaboration, “contradicts anything the President has ever said.�

The controversial budget pact, hammered out in marathon and acrimonious bargaining sessions in the fall of 1990, was designed to cut the deficit by $500 billion over five years, through a combination of tax increases, new user fees and new restrictions on federal spending.

The agreement was a compromise. Bush agreed to higher taxes, and the Democrats eventually gave up efforts to force Bush to accept a politically popular surtax on the very rich.

Bush initially defended his decision to renege on his no-new-taxes pledge by saying he did it to get the best budget deal possible with a hostile Congress.

But once the economy slid into recession and the deficit continued to grow in spite of the tax hikes, Bush found that his decision was becoming a major political liability.

The deficit surged from $220 billion in fiscal 1990 to a projected record of nearly $400 billion in fiscal 1993, making it harder for Bush to argue that he had accomplished much by breaking his tax pledge.

His first public disavowal of the 1990 budget accord came during the New Hampshire primary campaign, in response to criticism from Republican challenger Patrick J. Buchanan, whose campaign had surprising early success.

Buchanan pilloried Bush for agreeing to raise taxes in the 1990 budget agreement, thus breaking his 1988 no-new-taxes pledge. Bush quickly conceded he had made a mistake.

The President’s new stance forced him in the spring to rule out any compromise with the Democratic-controlled Congress on stimulative tax and budget proposals that might have helped pull the economy out of its doldrums. After his own economic growth package was defeated in Congress, Bush vetoed a Democratic alternative, and the White House has not tried again to mount a major anti-recessionary initiative.

In fact, the only stimulus for the domestic economy has come from the Federal Reserve Board’s repeated interest rate reductions.

Now, the Bush Administration would like other Group of Seven nations to agree to coordinated interest rate cuts to spur economic growth in the United States and around the world before the November election. In Munich, the main concerns were about German interest rates; the German discount rate is now 8%, compared to just 3% in the United States.

But German interest rates are controlled by the fiercely independent Bundesbank, now the most powerful central bank in Europe, and the Bundesbank will not cut its rates until the German government of Chancellor Helmut Kohl reduces the German federal budget deficit. Bush Administration officials urged Kohl’s government to restrain spending, as the United States has done under the 1990 budget accord, in an indirect attempt to lobby the Bundesbank.

Even though the 1990 pact failed to reduce the deficit, its supporters in the Administration argue that it has held down the growth in federal spending more than otherwise would have been the case, making it easier for the Fed to slash interest rates to their lowest levels in nearly three decades.