Two Deficit Hawks' Dilemma: To Cut or Not to Cut Taxes

THEY are as different as Texas and Oregon, the states they represent, and the House and the Senate, the institutions they serve. Together they log more than 50 years on Capitol Hill. One may be in the twilight of his career, while the other appears to be just reaching full stride.

But they share a vital role in and common vision for what may ultimately be one of the most contentious and compelling dramas of the 104th Congress: the battle over reducing the nation's deficit.

Rep. Bill Archer (R) of Texas and Sen. Bob Packwood (R) of Oregon are chairmen of two of the most important committees on Capitol Hill - House Ways and Means and Senate Finance. Their panels will be a primary forum for the bitter political and economic debate over tax cuts and budget balancing that seems inevitable this political season.

Not only will Chairmen Archer and Packwood preside over a flurry of competing proposals to reduce taxes, it seems certain they will also have to take on the politically risky task of substantially cutting Medicare, the popular program for senior citizens.

Packwood says the battle over tax cuts is premature. ``First, we'll see if we pass this balanced-budget amendment,'' he says, reclining behind his desk. The amendment, having passed in the House, is now in the Senate. ``If we do, then deficit reduction is not just a priority, it is the only priority. There's no point in making commitments about tax cuts until we do that.''

Archer, bound by the House GOP ``Contract With America,'' a 10-point agenda that proposes several tax cuts, is more guarded. ``We are under constraints to limit whatever we do to the Contract in this first 100 days,'' he says. ``But once we begin to leap across the dividing line we open up our deliberations to all types of things.''

Those include the common vision he shares with his senatorial counterpart. Both men would rather replace the current income tax than find ways to reduce it, instituting instead a code based on savings and investment.

That road, however, may be too long to walk for this Congress.

Bill Archer is the product of his home base. A warm, gentle-hearted man, he represents one of the purest conservative bastions in the country - the wealthy commercial district of western Houston, which he inherited from George Bush. Having waited many years to wield the gavel, he hopes to push through a reduction in the capital-gains tax and replace the income tax with a consumption tax.

Bob Packwood, a political maverick, reflects the conservative fiscal ideals of his party, but also the liberal constituencies of his state. He knows what it is like to serve in the majority, having been chairman of both the Senate Commerce and Finance Committees in the 1980s. A key architect of the 1986 tax reform, he is a master of revenue legislation.

But he is also wounded politically by an ongoing ethics investigation into allegations of sexual harassment, and he faces the probability of certain defeat if he runs again in 1998.

In a sense, his status is liberating. While Archer faces the near-constant scrutiny of two-year electoral cycles, Packwood is free to take risky positions. Archer is unwilling to discuss how he'll propose cutting Medicare, and speaks only broadly about the need to restructure Social Security at some future time.

Packwood, on the other hand, is clearcut. He says he'll probably oppose tax cuts if the balanced-budget amendment passes, and he argues for deep cuts in entitlements.

``I think Social Security, Medicare, and Medicaid should all be on the table,'' he says. ``But if the Republicans say they're not on the table, or at least not Social Security, and if the president says they're not on the table.... There's no way you can get to a balanced-budget amendment except with immense cuts to states.''

The next several months will be filled with battles over competing proposals to cut taxes and reduce spending. The House GOP plan would cut taxes by roughly $200 billion over five years; the White House plan cuts $62.7 billion over the same period. If the balanced budget amendment passes, Congress will be obligated to trim roughly $1.6 trillion in spending over seven years to reach a balanced budget by 2002, the year states would be expected to complete ratification of the amendment.

But Packwood and Archer, who both support the amendment, have longer-term ambitions. They want to overhaul the tax code itself, shifting the emphasis from income to consumption to spur savings and investment. A number of proposals for such a tax code are floating around Capitol Hill.

``What direction should we move in to give America the best chance to compete in an interrelated world market place?'' Archer asks. ``It could be the value-added tax, could be the sales tax.... Without savings you can't update your tools and technology to increase productivity,'' which in turn produces higher wages.

Many economists and political observers, however, doubt that Archer and Packwood will be able to sell major tax reform to their party leadership in this Congress. With prospects of retaining Capitol Hill and capturing the White House in 1996, GOP leaders may be unwilling to risk such a complex national debate.

The Clinton administration, after all, found out at the polls last November the consequences of attempting a major overhaul of health care.

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