Time For Tough Choices

By MICHAEL DUFFY.

Despite his sometimes shirty demeanor, Richard Darman, George Bush's Budget Director, is known around the White House as an accomplished comedian. After all, a knack for cutting up goes naturally with the job; last year when Bush asked for the impossible -- a budget that lowered the deficit without raising taxes -- Darman responded with a 15-page essay rife with references to Wonderland, Pac-Man and Cookie Monster. Given the cooked books that were expected of him, humor was Darman's best defense.

This year silly stratagems have been set aside. Darman's budget for 1992 is a more sober reflection of the nation's fiscal health than most budgets of the past decade. Its economic assumptions, with some exceptions, are unusually flinty eyed. Its priorities, if not always laudable, are clear. And for Bush and Darman, both of whom were wounded in last fall's budget fight, it is a smooth political recovery act that last week met with generally favorable reviews from both right and left.

The main reason for the new candor is last year's much maligned budget agreement, which sets firm caps on discretionary spending for the next five years and prevents meddling with all but the details of federal programs. The new rules render preposterous budgets unnecessary and encourage negotiators to make hard choices. When total spending levels are fixed, there is little point in inflating revenue estimates through rosy economic assumptions. Moreover, the caps will force both parties to make spending decisions carefully. Democrats who want to spend more on, say, housing must carve the money from another program. This programmatic triage alone should help shrink the deficit. As Bush said in his State of the Union speech, "Future spending debates will mean a battle of ideas, not a bidding war."

Happily, the new rules make a repeat of last year's bloody budget summit unlikely. Both parties now largely agree that despite the gulf war, defense spending should continue to decline; that domestic spending should rise only with inflation; and that mandatory entitlement programs are still too sacrosanct for deep reductions. All that's left to debate is how much should go to individual discretionary programs. Explains Robert Grady, a top Darman aide: "The amount of money spent is set, so what it comes down to is a question of priorities."

The most intriguing element in the budget is Darman's romance with means testing. By reducing federal handouts for middle- and upper-income Americans, Darman hopes to begin to wean them from their expensive -- and subsidized -- life-styles. Farmers who make more than $125,000 a year in outside income will be ineligible for federal commodity subsidies. The monthly Medicare premium of $31.80 will be tripled for seniors whose adjusted incomes exceed $125,000. Darman said the five new means tests, which would save $200 million next year and $3.7 billion through 1995, are a first step toward "a better focus on the poor."

In fact, the Administration's flirtation with means testing is as political as it is fiscal. Having badly mishandled the "fairness issue" last year, Bush is asking the rich to make some small sacrifices to defuse the issue as he nears re-election. Besides, the White House knows that many Democrats will reflexively balk at the idea of asking seniors (or parents of kids who get but don't need subsidized school lunches) to pay more. House budget chairman Leon Panetta, a California Democrat, seemed to stumble into this trap last week when he warned Darman that the elderly will "raise hell" if the Medicare proposals stand. In political terms, it doesn't really matter whether the means tests find their way into law; for Bush and Darman, the readiness to propose them is all that counts.

The budget is an attempt to mollify the restive right, whose members are still steamed about the way Bush orphaned his "no new taxes" pledge last year. Darman met nearly a dozen times in recent weeks with House Republicans and included in the budget a number of items -- enterprise zones, incentives for tenant ownership of public housing -- that are dear to conservative hearts. But Administration officials admit privately that some of these, such as Bush's inevitable pitch for lower capital-gains taxes, are included simply to keep the right quiet. Said a senior Administration official: "We're trying to fool them as long as we can."

Both Republican and Democratic experts agree that the new budget rules should lead to a lower deficit in a few years. But they add that unexpected costs, like those from the gulf war and the thrift bailout, could again postpone that day indefinitely. Last week Bush told several thousand businessmen and -women in New York City that the deficit would be "virtually eliminated by 1995." The audience reaction was a mix of scattered applause and derisive laughter. As one of Bush's predecessors put it, you can't fool all of the people all the time.

CHART: NOT AVAILABLE

CREDIT: TIME Chart

CAPTION: DISCRETIONARY SPENDING

MANDATORY SPENDING

With reporting by Nancy Traver/Washington