President Bush vowed "read my lips: no new taxes" all through his presidential campaign but never indicated for how long the message would be displayed there.
Administration officials now reluctantly concede Bush may only stick to the pledge for a year and that higher taxes may be part of a fiscal 1991 budget agreement.One possibility actively being considered is a swap trading White House support for some new taxes, most likely on gasoline, for concessions from Congress in other areas, like a cut in the capital gains tax rate, said the sources, speaking on the condition of anonymity.
Bush has long made chopping the capital gains tax rate a key item, claiming it will eventually raise revenue for the Treasury. But it has found scant support in the Democratic controlled Congress, which questions the logic of trying to raise revenue by cutting taxes.
Despite Bush's rhetoric against new taxes, many economists say higher taxes seem all but inevitable to get the federal deficit - estimated at $163 billion this year - under control.
In fact, to many analysts, it was only a matter of time before the administration conceded that some forms of tax hikes were needed.
Administration officials still haven't done this publicly. But privately they admit contingency planning is under way on new taxes - and on what tradeoffs the administration might be able to wrest from Congress in exchange for White House support for them.
Even the no-new-taxes budget compromise Bush reached with Congress for fiscal year 1990 calls for $5.3 billion in unspecified new revenues.
Bush has claimed that slashing the capital gains tax from the present 28 percent to 15 percent will produce the bulk of this, $4.8 billion. But since Congress seems unlikely to go along with this tax cut, some way must still be found this year to come up with the $5.3 billion.
And, a weakening economy could make the projected 1990 deficit even larger than the $98.6 billion Bush projected in his budget submission to Congress.