Could Be the Party's Over

By Ed Magnuson

Deficits loom, defense decisions wait, diplomacy beckons; welcome back, sir

It was not quite whistling in the dark. But the high spirits at 30,000 ft. as Air Force One carried Ronald Reagan and his top aides away from a balmy vacation in the West and back toward the duties of running the Government from Washington seemed out of sync with the stiff challenges ahead. Chief of Staff James Baker turned his Texas tenor loose on country music that only he could hear through his earphones. Communications Adviser David Gergen, fresh from an outing in the Tetons, could not resist the beat of the Supremes. He grabbed the hands of Margaret Tutwiler, Baker's top assistant, and danced through the cabin.

The presidential party seemed to be reflecting the exuberant mood of its boss. Still flying high from his pre-vacation triumphs in enacting his budget and tax cuts, a competitive Reagan seemed eager to take on all those who doubt that he can slash taxes, rebuild U.S. military might, check inflation, bring down interest rates and balance the federal budget by 1984. Stopping off in Chicago for a Republican Party fund-raising dinner, the President almost shouted as he promised to whack another $70 billion from federal spending in fiscal 1983 and 1984. "We are going to do it," he declared, "because we have no choice. It has to be done." To those who prematurely complain that the economic recovery program is not working, Reagan defiantly replied: "Well, it isn't. It doesn't start until Oct. 1."

Wall Street was not willing to wait. Tumbling stock and bond prices reflected the skepticism of investors that the Administration can dramatically curtail budget deficits and thus ease the pressure producing cripplingly high interest rates. On the very day that Reagan returned to the White House the Dow Jones industrial average fell 17.22 points to 867.01, its lowest level in almost 15 months.

While the President and his advisers complain with some justice that the market's lack of confidence in his economic policies is unfair, since the goal is a gradual, long-term reversal of past trends, they also fear that the doubts could prove self-fulfilling. To help remove those doubts, Reagan made a key and, for him, painful decision while on vacation: his pledge to balance the budget by 1984 will take precedence even over his plans to spend $1.5 trillion on defense over the next five years. Thus Reagan ordered an extremely reluctant Defense Secretary Caspar Weinberger to prepare "a reverse wish list," a series of optional ways to pare somewhat the planned level of annual increases in military spending. Still, Aide Baker jolted the Pentagon by publicly announcing how big the rollbacks in increased spending might be: up to $30 billion in 1983 and 1984.

Attacking the once sacrosanct military budget is a move persistently pushed by Budget Director David Stockman and stoutly opposed by both Weinberger and Secretary of State Alexander Haig. It seems unavoidable. Between $70 billion and $90 billion in new savings must be found by 1984 to salvage any hopes of a balanced budget, so either some popular domestic programs will have to be abolished altogether, rather than just trimmed, or the Pentagon will have to share in the reductions. Failure to touch the military budget, concedes one presidential aide, will let critics claim that "the President wants to dismantle the New Deal and replace it with a military-industrial complex." The Reagan congressional strategists hope that by including the military, they can persuade legislators to go along with more slicing of nondefense programs--even if it means reneging on deals made by the White House to win the votes to pass the 1982 budget reductions earlier this year. Admits one White House adviser in an understatement: "We know that is going to upset some Congressmen."

Weinberger is expected to present his list of possible military cuts to the President at a meeting tentatively set for this week. Since Pentagon spending is linked to decisions on what kind of MX missile system to develop and which new strategic bomber to build, Reagan may reveal his long-awaited decisions on those programs at the same time.

While White House sources refuse to speculate on what Reagan will decide, Pentagon officials expect him to:

> Approve the production of 100 MX missiles and their deployment in 1,000 shelters on land in Nevada owned by the military. This would be a scaled-down version of former President Carter's plan to deploy 200 missiles in 4,600 shelters scattered through Utah and Nevada.

> Order production of about 50 new bombers based on the B-1 design that Carter had scrapped. This aircraft, capable of penetrating Soviet air defenses, would bridge the gap between the aging B-52s and a new radar-evading "Stealth" craft to be perfected later. Fifty B-1s would be about half the number the Pentagon wants.

Pentagon insiders fear that some other weapons projects will be on Weinberger's hit list. One is the Navy's new F18, conceived as a light, low-cost, all-purpose fighter. The price for the planned production of 1,377 F-18s has soared from $16 billion to $38 billion. The Army's new armored "infantry fighting vehicle," designed to carry troops into battle, is also in jeopardy because of its exploding cost: from $900,000 each just three years ago to $1.4 million now. Other savings for 1982 apparently would have to come from reducing the Pentagon's civilian manpower.

By some statistical juggling, the Administration contends it still will achieve an average 7% a year increase in defense spending through 1984. But this rise will now be based on the fiscal 1981 budget of $171 billion rather than on the higher projected 1982 level.

As members of Congress return this week to face a budget crisis they thought had been basically resolved before they left, they seem likely to be in a testy mood about any last-minute revisions. They had hoped to complete action on 13 regular 1982 appropriations bills and then tackle the 1982 defense budget before that fiscal year starts on Oct. 1. But now, if Reagan approves a proposal by Stockman, they will be asked to find $10 billion in new spending cuts to help the President meet his elusive goal of keeping the 1982 deficit at the Administration's projected $42.5 billion. Stockman is also expected to urge that 25,000 federal jobs be eliminated by attrition, saving $1.8 billion, and that the Agriculture, Energy, Education and Commerce departments agree to spend less than the amounts actually to be appropriated.

Though no assault on Social Security benefits is anticipated to tighten the 1982 budget further, the President's economic advisers have little doubt that this politically sensitive program will have to be curbed in 1983 and 1984 if the budget is to be balanced. Since one-third of the Senators and all members of the House face elections next year, they are not likely to be receptive to any Reagan plans to tamper with Social Security benefits.

While Reagan's insistence on pushing now for the sale of AW ACS and other air weaponry to Saudi Arabia promises to complicate life on Capitol Hill, other foreign policy issues are crying for his attention. Israel's Prime Minister Menachem Begin will arrive this week for a get-acquainted visit with Reagan at the White House. Begin will not only argue against the AWACS deal but will also urge Reagan to throw the prestige of the U.S. into fulfillment of the Camp David accords by sending a high-level envoy to the talks on autonomy for the inhabitants of the West Bank and Gaza Strip, which are scheduled to resume later this month. Secretary Haig, who wants to find a way to get the Palestinians involved in the talks, will decide on how the U.S. will be represented after the Begin visit.

Reagan also faces continuing tension with U.S. allies in Europe over his decision to produce the neutron bomb. The U.S. veto of a U.N. Security Council resolution criticizing South Africa's military operations in Angola has further isolated the U.S. from its allies and angered most African nations. Meetings will begin this month between Secretary Haig and Soviet Foreign Minister Andrei Gromyko at which negotiations on limiting theater nuclear forces in Europe should be scheduled.

World events, which have fortuitously permitted Ronald Reagan to concentrate on his economic revolution, seem unwilling to wait much longer, even as he struggles to give his economic program wider credibility. Engendering a natural psychology that his sweeping economic changes would succeed was always an essential part of the program. The Administration can be faulted for not heeding the warning signals that this year's budget deficit might balloon beyond expectations, and that its defense spending plans might prove too lavish. But the rush to judgment before the first tax or budget cut even takes place is a curious reaction, particularly from those in the business and investment community who have such large stakes in a Reagan revolution that works. --By Ed Magnuson. Reported by Douglas Brew with Reagan

With reporting by Douglas Brew

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