Budget Summit Update
Jude Wanniski
September 28, 1990


Richard Darman and John Sununu advised the House Republicans this afternoon that a capgains cut plus indexation is still on the table, as one of two options, the other being indexation alone. Both would have to be paid for by raising the marginal income tax rates. They expect to have some sort of deal outlined tonight, and will give House Minority Whip Newt Gingrich twelve hours to study it, before he decides whether he'll support it or not. He will not be able to support it without a capgains cut, which means he'll have to decide to allow the top rate to go up if he supports a deal. Plans are to have both houses in session Sunday afternoon to pass some legislation or other that would permit the Government to open for business on Monday morning.

My best guess at the moment is that Darman will be unable to cobble together a package that can win support in either Senate or House. Reports this morning that he is actively working to include Social Security tax increases and/or benefit cuts in the deal sent many Republicans over the edge, in the Senate as well as the House. I've heard more expressions of disgust of Darman and Sununu in the last 24 hours from United States Senators as well as Congressmen than I'd heard in the last six months. For the first time, I'm hearing sharp criticisms of President Bush for allowing himself to be led to this pretty pass by his top aides.

Sununu and Darman are still confident there won't be enough Republicans to vote against their deal to stop it, that the President will appeal to them, the way Darman and David Stockman got Ronald Reagan to appeal to Republicans in 1982 to support the TEFRA tax increases. I'm told that there is also a revolt among Democratic backbenchers in the House, which suggests Speaker Tom Foley will have more trouble delivering than he had anticipated. A GOP Senator told me he expects they will argue that if the deal is voted down, the stock market will crash. I recalled to him how the pro-tariff forces argued in 1929 that the market was crashing because Congress was dragging its feet in passing the Smoot-Hawley tariff legislation. But my sense is that Darman is misreading his GOP support, especially taking the Republicans in the Senate for granted, and we will find ourselves next week facing a sequester. Congress can always waive it, recess, and go home to argue about all this before the voters. It would be fine by me.