Playing Both Santa and Scrooge

By WALTER ISAACSON

Congress wraps up one budget as the President shapes another

The options are presented starkly. One sentence sets forth the department's request; another contains the recommendation from the Office of Management and Budget. After hearing the arguments, the man who sits where the buck stops jots his "RR" in a small box next to one of the alternatives, or scribbles in a compromise. The disputes between Cabinet agencies and David Stockman's OMB have reached the Oval Office, where Ronald Reagan must play either Santa or Scrooge. Even as the final legislation implementing his 1982 budget was being rushed through an adjournment-happy Congress last week, the President was working on the cuts he hopes to make in spending for fiscal 1983 (which starts Oct. 1,1982).

So far, a dozen departments and agencies have objected to the reductions suggested by Stockman, who worked out a draconian plan to slash $38 billion from the already reduced 1983 spending levels for domestic programs. Most of the disputes were settled by a panel consisting of Stockman and top White House aides. Commerce Secretary Malcolm Baldrige, for example, was able to save more than $50 million in export and trade assistance programs. Other disputes, unresolved, went to the President. He decided that Labor Secretary Raymond Donovan's $2.2 billion job-training budget would be trimmed by only $400 million, rather than the $ 1.2 billion Stockman had proposed.

The process is partly a familiar ploy. Stockman plays bad cop with his drastic proposals. Good Cop Reagan then restores some of the cuts, seeming humane even as he effects sizable savings. By leaking word of some of Stockman's planned cuts, and then winning a few appeals, Cabinet chiefs have been able to regain some credibility with their constituencies.

Even so, the proposed White House cut from previously planned 1983 domestic spending is expected to total almost $30 billion. Even some loyal Republicans are likely to balk. Said Majority Leader Howard Baker last week: "You've cut all you can from discretionary programs. We may have overdone it already in some of them."

But even if the domestic-program cuts are accepted, they will make little dent in the $152 billion deficit Reagan's advisers are now projecting for next year. Some of Reagan's top aides, such as Stockman and Chief of Staff James Baker, have been arguing that the deficit must be tamed by raising new revenues, perhaps through a windfall-profits levy on deregulated natural gas, plus excise-tax increases and the closing of loopholes. They hoped that by walking the President through the tough budget-review process, he would become convinced of the need for new taxes. But Reagan's stubbornness on this point was evident at his press conference, where he repeated what he has been saying in private meetings. "I have no plans for increasing taxes in any way," he insisted. Spokesmen subsequently tried to soften that stance by saying that Reagan had not meant to rule out "revenue enhancements," the White House euphemism for $22 billion worth of ill-defined loophole-tightening proposed by the President in September.

Reagan has boxed himself in by opposing tax hikes, declaring the military-spending increases sacrosanct and postponing the much needed reform of the Social Security system. Consequently, he seems resigned simply to living with the resulting large deficits. During his campaign Reagan had pledged that his program "will give us a balanced budget by 1983," and as recently as Sept. 24 he repeated his goal of a balanced 1984 budget. But at his press conference last week he said, "I think it is highly unlikely that the budget could now, in these new circumstances, be balanced by 1984." He added, This is not a case of a broken promise. This is a case of circumstances beyond our control."

The President did move to fulfill one promise last week: he announced that he would ask Congress to dismantle the Department of Energy, formed only four years ago, and transfer most of its functions to the Commerce Department. The new plan, however, may be little more than a shell game, since no branch of the present Energy Department will be immediately eliminated.

One bipartisan target for congressional cuts next year will undoubtedly be the military, despite Reagan's determination to keep the Pentagon budget out of harm's way. As part of the final rush to adjournment last week, Congress, with almost no deliberation, passed a 1982 defense bill totaling $199.7 billion, which is $1.2 billion less than Reagan requested but $28.3 billion more than in last year's budget. Even the bill's congressional sponsors noted that it was bloated with the type of waste the White House has vowed to fight. Baker said that up to $10 billion could have been cut "without affecting the quality of our defense."

The House also quickly and quietly voted itself a nice little Christmas gift, doubling to more than $18,000 the amount of outside income members will be permitted to earn each year. "This is the pickpocket's way," cried dismayed Republican Millicent Fenwick of New Jersey after the unrecorded vote. The Representatives also voted to allow themselves tax deductions for the cost of maintaining a second residence in Washington. The sneaky, swift maneuvers seemed particularly ill suited in this season of fiscal austerity. Other last-minute actions: the narrow approval, by a 205-to-203 vote, of a scaled-back $11 billion version of the bill providing for farm subsidies and price supports, and restoration of the $122-a-month minimum Social Security benefit (revoked earlier this year) to 3 million elderly citizens who do not otherwise qualify for payments.

The Administration's strategy on the 1983 budget should be in place before Christmas, when Reagan flies west for rejuvenation. The big question: How large a deficit will be politically tolerable to the President? Congress has already fled the snowy capital to hear at countless Christmas parties how this year's policies are being received. Next month it will all begin anew, when Reagan outlines in the State of the Union message his next offensive for tackling the country's lingering economic malaise. --By Walter Isaacson.

Reported by David Beckwith and Neil MacNeil/ Washington

With reporting by David Beckwith, Neil MacNeil

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