Deficit Plan Meets With Interest

Rostenkowski offers a proposal that includes new taxes and a Social Security freeze. RADICAL BUDGETING

REP. Dan Rostenkowski's dramatic proposal to balance America's projected $161 billion deficit in five years has electrified a Washington more accustomed to cautious deficit-reduction ideas. By common agreement Representative Rostenkowski's combination of spending cuts, freezes, and tax increases faces a precipitous uphill climb - like an ant trying to scale a fireman's pole - if it is to become law. But with a boost from President Bush it has already begun to creep upward.

The proposal by Rostenkowski, the Illinois Democrat who chairs the powerful House Ways and Means Committee, began what could be complicated negotiations on radical budget reduction. ``It's an invitation to dance,'' says Norman Ornstein, resident scholar at the American Enterprise Institute, speaking of the Rostenkowski plan. ``It's a question of whether the invitee - George Bush - says yes, no, or maybe,'' Mr. Ornstein adds.

The president swiftly signaled a strong maybe. Within 48 hours both presidential spokesman Marlin Fitzwater and budget director Richard Darman praised the comprehensive nature of the program, while expressing reservations about certain elements. Mr. Fitzwater said the plan provided ``some room to talk.''

``I would have anticipated a more hostile reaction from the White House,'' said a surprised Rudolph Penner, a former director of the Congressional Budget Office who is now a senior fellow of the Urban Institute.

Despite his overall praise for what he called Rostenkowski's ``serious'' plan, Mr. Darman indicated that the administration had reservations about the proposed taxes on industrial pollution and increased levies on the wealthy and on consumption of alcohol, tobacco, and petroleum. He said these taxes would reduce economic growth.

Most members of Congress were cautious in their comments about the deficit-reduction plan. ``I'm glad it's out there for discussion,'' said Sen. David Pryor (D) of Arkansas. ``I think it's time we looked at some of the basic problems of our tax system. And the Rostenkowski plan and the Moynihan plan allow us to do that.''

(Late last year Sen. Daniel Patrick Moynihan (D) of New York proposed removing the Social Security surplus from deficit-reduction calculations, saying it masks the size of the deficit.)

Economists differ in their assessments of the Rostenkowski plan. ``I think it's a terrific package,'' says Alice Rivlin, a senior fellow at the Brookings Institution and a former director of the Congressional Budget Office. ``I hope it gets a lot of attention.''

``I'm not too terribly impressed,'' says Dan Mitchell, Olin Senior Fellow in political economy at the Heritage Foundation. He worries that it would abolish the Gramm-Rudman law, which now requires some fiscal discipline of Congress. ``Taxes are permanent, and spending restraints aren't,'' he says.

For now the political dynamics dictate a restrained, almost choreographed, sequence if the Rostenkowski proposal is to become law, Ornstein says: ``Our politics today are the politics of risk aversion. And nobody wants to go out on a limb for fear the other party will saw it off.'' No dramatic deficit-reduction proposal will pass unless Bush, congressional Democrats, and congressional Republicans all are on board, political observers say. All sides are jockeying to be certain they are not stranded in a politically risky position.

The Rostenkowski plan contains two big political risks. One is raising taxes for wealthy individuals, and on consumption of alcohol and other items: Each party fears the other would try to label it a tax-raiser.

A second risk is withholding for one year the cost of living boost for Social Security recipients. Each party remembers when angry elderly Americans last year pressured Congress into rescinding the ``catastrophic'' health insurance law. And Senate Republicans recall that in the 1986 election Democrats flayed them for voting to hold back a cost of living raise to Social Security retirees.

Now that Rostenkowski has taken the first big risk and proposed a plan, other political leaders would have to move tentatively toward it for it to become law, Ornstein says. Bush already has done so, through Fitzwater and Darman.

The next move is up to congressional Democratic leaders. Senate Finance Committee chairman Lloyd Bentsen (D) of Texas and House Speaker Thomas S. Foley (D) of Washington have given cautious support. But others initially were silent, evidently awaiting the Bush reaction.

Finally comes the turn of congressional Republicans, who have been waiting for Democratic leaders to sign aboard the Rostenkowski plan before they commit themselves.

``Politically it's going to be very difficult to sell because everybody hurts a little,'' either from spending freezes or tax increases, says James Thurber, director of the Center for Congressional and Presidential Studies at American University. ``But if we are going to do something about the deficit, everybody has to hurt a little.''

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