Stumbling to a Showdown

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The darkest moment came early in the week, when Baker, seeking a few days of well-earned rest on his 13-acre estate in Huntsville, Tenn., took a telephone call from James Baker, the President's Chief of Staff. Behind the scenes, the two Bakers had gently been trying to nudge Reagan into seeing the necessity of compromise. Sounding disappointed and unhappy, Jim Baker reported that the President remained sharply opposed to an alternative budget package that would undermine his massive 1981 tax bill.

Next day the outlook brightened.

House Speaker Tip O'Neill, whose ego had been badly bruised when the President snubbed all Democratic compromises last year and rammed his dramatic budget and tax slashes through Congress, hinted vaguely at a change of heart. If Reagan were willing to accept some new taxes on the wealthy, O'Neill hinted that he might agree to some modest cuts in future cost of living increases for Social Security recipients.

In an informal Rose Garden press conference, the President seemed to signal that such a deal was not out of bounds by refusing to rule out a surtax on high income earners. He even appeared to support the efforts being made by a team of congressional budget leaders from both parties who have been meeting with Jim Baker. Later in the week Reagan sounded still more conciliatory, telling a group of editors, "We must join together to bring down deficits, bring down interest rates and revive the economy." The talks exploring a compromise were reaching "a climactic stage," he said, adding: "I want to express my strong hope that they succeed."

Reagan, however, is not personally involved in the bargaining. Neither is O'Neill, although the Speaker is represented at the talks by Missouri Democrat

Richard Boiling, Chairman of the House Rules Committee. Other key backstage dealers include Republican Senators Robert Dole of Kansas, Mark Hatfield of Oregon, Paul Laxalt of Nevada and Pete Domenici of New Mexico. For the Democrats, Congressmen Jim Jones of Oklahoma and Dan Rostenkowski of Illinois are essential players.

With his customary low-key style, Howard Baker subtly increased the pressure on the President. He telephoned the White House to report that he would be unable to restrain the Senate Budget Committee for much longer, even though it is dominated by Republicans. If there is no firm agreement on the outlines for a new budget package by this week, Baker warned, the committee would begin fashioning a package of smaller defense-funding increases, new revenue-raising taxes and entitlement-program reductions on its own. Baker said he would be powerless to stop such a move.

If that happens, however, and Congress goes its own unfathomable way, no one can predict what the outcome will be. Quite possibly, the resulting budget would be unacceptable to Reagan, thereby producing a presidential veto. That could lead to a new period of confusion and stalemate, which, at the very least, would halt all progress toward economic recovery.