Congress can't get off fiscal merry-go-round

With recent polls indicating a softening of President Reagan's public support , Congress -- especially the Democrats -- appears to want to pause for a moment in the budget and tax-cutting process.

In their rush to cooperate with the President Reagan on budget cutting, and to oppose him with an alternative Democratic tax-cutting package, many congressmen are concerned that logic, consistency, and the norms of legislative hearings and bargaining have been sacrificed.

But the White House is pushing for final action by August, citing the "Reagan mandate" of November 1980.

The apparent drop in Mr. Reagan's popularity and comparable upswing in his "disapproval rating" add to an air of misgiving on Capitol Hill as Congress weighs the latest White House demand that it cut another $20 billion in federal spending over the next three years on top of the $37.8 billion in cuts considered so far.

"On the budget reconciliation issue, Democrats are coming back to the fold," says Norman Ornstein, a congressional affairs expert. "The conservative Democrats who defected still want to be Democrats. There is a substantial fear the prerogatives of Congress are being overrun. They think the President is going too far with his latest demands."

The budget reconciliation issue -- forcing congressional committees to stay within spending guidelines -- is being seen as a test of congressional prerogatives, not just delivering on a presidential mandate.

"It's fine for the President to set broad spending outlines and for Congress to respond," Mr. ornstein says. But for the White House and the Office of Management and Budget to dictate spending line by line "destroys the integrity" of the budget process.

"The Founding Fathers set up a federal system for changing national policy -- one that does it slowly," Ornstein says. "Now what is going on is to make broad , sweeping changes suddenly.

"Democrats thought Reagan was supposed to be a conservative. What Reagan is doing is acting radically."

On the tax legislation, the Democrats have maneuvered themselves into supporting traditionally Republican tax positions in their haste to outfox the President, charges Jay Angoff, an attorney for the Tax Reform Research Group.

"It's extraordinary," Mr. Angoff says. "In tax theory so far, we have two Republican parties."

The Democratic-controlled House Ways and Means Committee has proposed "expensing" corporate outlays for equipment (deducting the full cost the first year) and a cut in the corporate tax rate as alternatives to Reagan's speedup in depreciation schedules to help business.

"The Democrats have fought against cutting the corporate tax rate since [ President] Kennedy," Angoff recalls. "It was 52 percent 20 years ago. They resisted a drop from 48 percent to 46 percent. Now they casually offer to lower it from 46 percent to 34 percent."

As a practical matter, under both the Reagan and Democratic cuts, the corporate tax would be largely eliminated, Angoff says.

Other Democratic reversals of party positions include the reduction of capital gains taxes and allowing corporations to carry back unearned tax credits to 1962. Automakers could recover $750 million and the steel industry $800 million because of the Democrats' tax credit proposal, which has left Republicans to call it a "bailout."

Both the Democratic and Reagan tax plans would yield a half-trillion dollar tax cut by 1990, Angoff says. A key difference is that the Reagan plan tends to subsidize new businesses, hence favors growth regions like the Southwest. The Democratic plan would help the steel, auto, airlines, paper, mining, and railroad industries, oriented more toward the frost belt states.

"Traditionally, tax reform for Democrats was a question of closing loopholes, " Angoff says. "Carter tried in '78 for real tax reform -- closing loopholes like special credits. The Democrats now have gone much farther than business itself would have though possible two years ago."

In his zeal to avoid another Democractic defeat at the President's hands, Ways and Means chairman Dan Rostenkowski (D) of Illinois is writing a distinctly different bill.

"Rostenkowski doesn't really know too much about taxes," says Ornstein. "He's trying to out-Reagan Reagan. What disturbs a lot of members is that the results of both the Rostenkowski and Reagan approaches could be horrendous." The administration's depreciation approach encourages a flow of industry from the frost belt to the Sunbelt. The Democrats' two approaches, expensing costs out the first year and offering a corporate tax break, tend to offset each other.

"The traditional slow, piecemeal approach is looking better to Congress all the time," O rnstein concludes.