Taxes, Civil Rights Key Themes for US in '91

MOST of the key players shaping American domestic policy are expecting 1991 to be more contentious and politically scrappy after the relatively friendly and productive past two years. Two themes expected to emerge early on:

Taxes - from tax hikes on million-dollar incomes to tax cuts for capital-gains earnings.

Civil rights - with a louder, rougher debate over affirmative action and racial quotas.

The Bush years have mostly been marked by a softening and fine-tuning of the Reagan revolution. A president with historically high public approval built relationships with Congress, passed a long-languishing Clean Air Act, enacted child-care subsidies and credits, and managed - if not to actually shrink the deficit - then to cinch the belt tighter than it might have been over the next five years.

But now a faltering economy and the threat of war are threatening to disrupt peace and prosperity.

White House aides working on domestic policy plans expect domestic politics to be a mere sideshow to the more riveting war-and-peace questions centered in the Persian Gulf.

They are less certain what to make of the economy. As of mid-December, many Bush administration officials, along with Federal Reserve chairman Alan Greenspan, suspected that the recession's bark might be worse than its bite. Since the White House was also leery of taking any action that might contribute to the recession psychology of fear and retrenchment, it was not yet embracing any policies in response to recession.

In fact, the White House response to economic recession came last year with the deficit-cutting budget deal. Budget director Richard Darman believed that if the deficit could be cut, then the Federal Reserve Board would lower interest rates enough to keep the economy humming. The Fed didn't move fast enough. White House chief of staff John Sununu blames Democrats for forcing the process to take so long.

The budget and its staggering, still growing deficit will dominate the legislative landscape and is likely to stifle any government plans for costly programs.

As the administration has been working through the 1992 budget in recent weeks, staff members say they have been struck by how much leverage the new agreement gives them to hold down spending.

``It's almost the equivalent of a line-item veto,'' says a White House aide. ``I think that will be fully realized very, very shortly.''

THE Democrats who control Capitol Hill have the apparent initiative on the most politically charged issues coming up. Republicans acknowledge they were outmaneuvered politically on the question of taxing the very rich this fall. Democrats immediately began plans to revive the issue in the 102nd Congress in January.

The Republican response is shaping up along these lines: The president and his party will not support raising income taxes any more on anybody at any level - including those who earn more than $1 million a year.

The administration is probably going to bring back its proposal to cut capital gains tax rates as a spur to economic growth. Many Democrats have argued that the capital-gains tax cut is a tax cut for the wealthy. In this growth versus fairness debate last year, the Democrats won the most political points, according to opinion polls last fall.

This debate will return. It may open up some new aspects, too, such as Democratic proposals to cut payroll tax rates for Social Security, perhaps making up the lost dollars by raising the level of eligible income.

Some Democrats are eager to send another civil rights bill up to the White House for a veto that was obviously painful for a president who has tried to expand his party in the black community.

The White House assessment was that the 1990 bill put so much of the burden of proof on employers in discrimination cases that it would force business to adopt de facto racial quota systems. Supporters of the bill - many of whom are opposed to quota systems - scoffed at the White House view.

But from a political viewpoint, Republican operatives are more than happy for Democrats to keep raising the issue. Resentment against affirmative action is thought to run strong among working-class whites - a traditional Democratic constituency ripe for Republican conversion.

In his two short weeks as incoming chairman of the Republican National Committee in December, William Bennett made numerous public statements defending racial quotas as a legitimate source of debate.

``What we have now is the worst of both possible worlds,'' says Will Marshall, president of the Progressive Policy Institute, a think tank run by moderate and conservative Democrats. ``Democratic policies seem to drive a wedge between minorities and the most insecure whites in the economy.''

The Republicans must also be careful. If the debate appears to play too deliberately on white racism, it could bring a backlash.

Some of the less sensational agenda items of running government may be as significant. The next big economic step the Bush administration plans to take is unveiling its energy policy - which will include major policy statements on oil independence, clean air, global warming, and alternative fuels. The national drug strategy faces a review, and possible shift in emphasis, by the end of January. The time for some hard decisions is approaching on how to apply the Bush policy of no-net-loss of wetlands. A detailed array of regulations must be drawn up to implement last year's Clean Air Act. Banking regulations are being redrawn to avoid the escalation of failures that swamped the savings and loan industry.

On the balance-of-power front, Congress may choose to push a confrontation over the War Powers Act in defense of its constitutional right to declare war. And President Bush has already chosen to push for maximum-term limits for Congress as a way of forcing turnover.

IN the White House, these decisions are geared around two events in January, the release of the president's proposed 1992 budget and the State of the Union address at the end of the month. These two events - the budget in particular - set the framework of most national policy debates in the coming year.

The White House is arguing lately that it can better afford to stand its ground and confront Congress this year because it has already won the most important battles on its domestic agenda.

``The issue is that in the last session we had legislation the nation absolutely needed,'' says Mr. Sununu. ``In this coming session, we have a lot of legislation the president wants.''

As another staff aide puts it: ``There is not a whole lot this administration is burning to have or would give a whole lot for.''

Some White House aides and Cabinet figures, led by Housing and Urban Development Secretary Jack Kemp, have been arguing for an aggressively conservative antipoverty agenda that seeks to empower the poor themselves - rather than social-service agencies - with vouchers, ownership, and market-style choices.

The stress Bush gives to the Kemp program of enterprise zones, phasing out capital-gains taxes entirely, and higher tax credits for children will indicate how aggressively he is willing to seek domestic initiative this year.