(MONEY Magazine) – When President-elect Bush moves into the White House in January, he can look forward to these welcoming words from Leon Panetta, a Democratic congressman from California and the next chairman of the House Budget Committee: ''It's going to be a short honeymoon.'' The killjoy is the $155 billion budget deficit that is imposing a new ethic in Washington: pay as you go. That won't make the job easy for Bush, who promised new tax breaks while challenging audiences to read his lips about not raising taxes. ''He has painted himself into a box,'' says Panetta. How Bush manages that predicament will affect your pocketbook in several ways. At best you will enjoy a new, if modest, tax break or two, and almost certainly no tax increase for at least a year. Bush plans to battle the deficit with his ''flexible freeze.'' The idea: limit increases in total federal spending to the rate of inflation, make up for new tax breaks by cutting other outlays, and count on economic prosperity to provide extra tax revenues that will eliminate the deficit by 1993. There are two huge hitches, however. First, many economists expect a recession next year or the year after. But, as Robert Smiley, professor of economics and policy at Cornell University, notes, ''Bush's plan works only while there is no recession.'' Furthermore, the newly increased Democratic majority in Congress is unlikely to agree to major spending cuts. Aside from politically difficult reductions in Social Security or Medicare, there is little room for cuts in nondefense spending, budget experts say. Barring another stock market crisis, President Bush could muddle through budget negotiations until next fall, when a slowing economy and the Gramm- Rudman deficit ceiling could force a compromise. ''The solution will be a combination of increasing tax revenues and cutting spending,'' says Gerald Padwe, national director of tax practice at Touche Ross in Washington. But ( Bush's campaign pledge makes a tax hike unlikely in his first year. ''Going back on his word would undermine all his credibility,'' says Martin Anderson, senior fellow at the Hoover Institution and a Bush political confidant. Whenever the Administration turns its attention to taxes, likely choices include a tax on gasoline or imported oil -- either of which could bring in $20 billion or more -- and ''sin taxes'' on alcohol and cigarettes. A consumption tax, which could raise $70 billion, would probably be next on the list. Michael Boskin, a Stanford University economist and architect of the flexible freeze, has said he would support a consumption tax over any measure that would hamper savings and investment. But if even that tax proves inadequate, Congress might consider an income tax increase, such as raising the top marginal tax rate from 33% to 35%. At the same time, Bush will also try to deliver on his campaign promises of a college savings bond, a new child-care tax credit and lower capital-gains taxes. In fact, the college bond is already assured by the recent Technical Corrections Act, which makes interest on U.S. Savings Bonds tax-exempt when they are used to pay for higher education (for more, see page 203). Bush may also get the tax credit for child care, which remains a popular congressional issue. ''Clearly both parties want to do something about it,'' says Padwe. Bush proposes a credit of up to $1,000 per child under age four for families earning $11,000 or less; such families rarely qualify for the existing child-care credit. Bush hopes to increase the income limit for the new credit to $20,000 within four years. Bush probably faces defeat, though, on his proposal to reduce the capital- gains tax from a top rate of 33% to 15% -- which would be its lowest level in 47 years. He insists that the cut would encourage investment and boost tax revenues. But the Congressional Budget Office estimates that it would cost the Treasury $4 billion to $8 billion a year. The return of the fully deductible Individual Retirement Account seems dead. ''Bush definitely supports the status quo,'' says Robert Zoellik, issues director for the Bush campaign. Finally, Bush is likely to continue deregulation -- albeit cautiously. He favors a repeal of the Glass-Steagall Act, which would give banks the power to underwrite securities transactions. And he supports some of the recommendations for market reform made by the federally appointed Brady Commission (headed by Nicholas Brady, a longtime Bush friend who has been asked to continue as Treasury Secretary), such as halting trading when it becomes too volatile and tightening requirements for trading on margin. The changes, however, will fall far short of sweeping reform. -- J.L.R.