When Reagan and Congress Collide

By Evan Thomas.

While President Reagan was having a high old time these past few months, boldly collaring international hijackers and jousting at the summit with Soviet Leader Mikhail Gorbachev, Congress was letting its work pile up. Now the unfinished business of Capitol Hill awaits Reagan like a sinkful of dishes at the end of a party. After months of querulous debate over tax reform and deficit reduction, Congress must finally sort things out before heading home for Christmas.

At stake in the House this week will be the fate of tax reform, described several times by Reagan as his "No. 1" domestic priority. Last week, after months of bartering, the House Ways and Means Committee approved a 1,363-page Democratic version by a vote of 28 to 8. Reagan promptly damned the bill with faint praise. He urged House members to vote for it this week simply because the legislative process "must go forward."

The President's aim, aides say, is to get a bill to the Republican- controlle d Senate, where it can be reshaped more to his liking next year. But his gingerly show of support may have doomed its chances. "He kicked the ball down the field and ran like a beaver," groused Ways and Means Chairman Dan Rostenkowski of Illinois. House Republicans were openly at odds with the package. In a party meeting last week, they voted overwhelmingly to oppose the bill, calling it "anti-family, anti-growth and anti-investment."

Rostenkowski's bill would cut taxes for most individuals and preserve the deductions for second-home mortgages and state taxes that Reagan proposed to curtail, but it would raise tax liability sharply for corporations. The Republicans this week will offer a bill of their own that scales back the added business tax burden from some $140 billion to about $100 billion. In the Democrat-controlled House, the G.O.P. alternative has virtually no chance of passage, so the President's only hope of keeping the issue alive is to support the Democratic version.

Yet Republican leaders have another, less public reason to scorn Rostenkowski's creation. The Chicago Democrat went about winning committee members by offering them special tax breaks for business and industry back home in exchange for support of the overall bill. Many Republican areas, however, were left off Rostenkowski's gift list.

Fewer than 30 of the 182 House Republicans would vote for the bill, predicted Republican Leader Robert Michel. Once known somewhat patronizingly by White House staffers as "our guy," Michel described his refusal to follow Reagan's recommendation as "a personal trauma." His defection, along with that of other prominent Republicans, is a sign that the President's personal popularity in his second term has failed to translate into congressional support.

It also set the stage for an unusual battle: the White House will be lobbying against the House G.O.P. leadership to persuade Republican members to vote for a Democratic tax bill. Nor could Reagan count on much sympathy from Democrats. Said House Speaker Tip O'Neill: "If he doesn't want to fail, he better get some votes out there."

The President's advisers are divided over how strongly he should lobby for the bill. Pragmatists, led by Treasury Secretary James Baker and his deputy Richard Darman, want to push for House passage to keep tax reform alive; ! ideologues like White House Communications Director Patrick Buchanan believe that no bill is better than a bad bill. In his Saturday radio address, the President took a cautious approach. Said he: "While the proposals before the House are far from perfect, they do represent an essential step toward a tax code that is fairer, simpler and encourages greater growth. I hope the House will vote yes next week and allow the Senate to consider and to improve this important measure."

Reagan also warily gave his endorsement to the other major issue facing Congress: deficit-reduction legislation that would force a balanced budget by fiscal 1991 by requiring across-the-board cuts if spending targets are exceeded. As with tax reform, Reagan strongly supports the principle. But the bill, originally introduced by Republican Senators Phil Gramm and Warren Rudman, was modified by the Democratic House to exempt most major antipoverty programs and to divide any necessary cuts evenly between domestic and defense spending.

Conferees from the House and Senate agreed late last week on a compromise version that closely resembles the House plan. Its implications are far- reaching. Deficits are still running at about $200 billion each year; to meet the fiscal 1987 target, more than $50 billion will have to be slashed, requiring severe cuts not only in domestic programs but also Reagan's cherished defense budget. Even so, Reagan supports the bill. "Without Gramm- Rudman," a spokesman said, "defense spending would be under just as much pressure." Yet if he is to have his deficit reduction and military spending too, Reagan might have to accept something he definitely does not want: a tax increase. The Republican chairmen of the Senate budget and finance committees indicated late last week that without some form of tax hike, it would be next to impossible to meet all the targets.

With reporting by Laurence I. Barrett and David Beckwith/ Washington