No Bidding War

PRESIDENT Bush has said he'll do what he must to win next November. That apparently includes offering tax breaks to show middle-class Americans he's aware of their problems.

Those who can't afford health insurance could be in line for a tax credit, along with first-time home buyers. Investment tax credits and capital gains cuts will be pushed forward in the name of economic growth. Proposals to remove the wall between the defense and domestic budgets, erected by the budget compromise of 1990, are taking shape.

Little of this - except for the perennially controversial capital- gains tax cut - will be opposed by the president's Democratic critics in Congress. True, they would pay for middle-class tax breaks by hiking taxes on the wealthy, while the administration says it prefers to find the funds in defense cuts. But the impulse to show financially squeezed "middle Americans" that their complaints are being heard is common to both parties in this election year.

A gap may exist, however, between a political good and an economic good. People without health coverage and would-be homeowners warrant some help, and tax credits may be a reasonable step. But short-term, politically driven tax cuts aren't likely to do much for the economy.

The danger is a Republican-Democratic bidding war that could lead to deficit-ballooning tax cuts and climbing interest rates. That would work against the current interest-rate reductions by the Federal Reserve System, which are starting to pump needed money into a weak economy.

The president is sensitive to this danger, as are some Democratic leaders in Congress. They rightly want to maintain the "pay as you go" standard of the 1990 agreement, under which proposed revenue chops or spending jumps have to be accompanied by plans for financing them. Budget calculations are a Washington art form, of course, and some payment plans are speculative at best. Nonetheless, the budget-agreement discipline ought to be maintained.

Removing the wall between military and domestic expenditures, however, clearly makes sense. With the dissolution of the Soviet Union, even many Republicans recognize there's no need for a fence around the Pentagon budget. Funds taken from such cold-war relics as the Seawolf submarine or B-2 bomber should be shifted to domestic priorities.

The debate ahead should zero in on just what those priorities are.