A Budget That Will Barely Budge

By WALTER ISAACSON

Reagan says that he may compromise, but not very much

"Suggest something and we'll take a look at it." So said Ronald Reagan at his press conference last week, in what seemed a conciliatory, almost inviting gesture. For members of Congress traumatized by the prospect of enacting the President's fiscal 1983 budget, which projects a $91.5 billion deficit despite more politically painful spending cuts, Reagan's coy hint of compromise was in welcome contrast to his previous "put up or shut up" attitude toward critics. Nonetheless, the President insisted, there should be no tampering with his plan to add $34 billion to defense spending and to cut $91.6 billion in taxes next year.

Reagan was steadfast on these two points. Said he: "We cannot back away on national defense without sending a message to the world that would be very unwise." As for the supply-side tax cut: "To abandon our tax policy now would be to give up the very fundamental thing that is required to expand our economy." He thus seemed to retract some of the flexibility suggested by Budget Director David Stockman in testimony to the House Budget Committee two days earlier. Stockman rejected proposals that the Pentagon budget could be cut by more than $20 billion, but he gave no direct answer when asked about the feasibility of a $10 billion reduction. The Budget Director also recommended that Congress "take a second look" at other elements of the tax cuts passed last August.*

The President remains amiably unfazed by the deficit shock felt on Wall Street and Capitol Hill. He said that unfounded fears about fiscal policy were partly to blame for the high interest rates that are the main cause of the current economic crisis. He tried to allay Wall Street worries that the Administration wants to subvert the Federal Reserve Board's policy of keeping a tight rein on the money supply, and thus refuel inflation. After a meeting with Fed Chairman Paul Volcker, Reagan used his press conference to call a halt to recent White House carping about the Reserve Board's independent stewardship of monetary policy. Said he: "I have confidence in the announced policies of the Federal Reserve Board. The Administration and the Federal Reserve can help bring inflation and interest rates down faster by working together than by working at cross purposes."

The White House hopes that dismay over the size of the deficit will keep pressure on Congress to cut domestic programs further. In order to hold the deficit to less than $100 billion in fiscal 1983, which begins Oct. 1, the Administration has requested $25 billion more in budget cuts. Reagan insisted last week that this well is far from dry. Said he: "The amount of money in the budget for '83 for all human and social affairs is a 4.5% increase over the 1982 budget." This is not the case. According to Reagan's budget, outlays for programs other than defense and interest on the national debt would fall from $438.7 billion this year to $424 billion in 1983.

Reagan seems confident that he can again rally a coalition to support his budget, despite the cries of anguish coming from the Hill. Said he: "I'm hoping that some of them might soften their attitudes after they've been home for the Lincoln Day dinners and have heard from the folks." But Congressmen who returned to their districts during last week's recess found that things were far from rosy. "How are you getting along?" Democratic Senator James Sasser asked a farmer whittling a piece of wood in the town square of Paris, Tenn. "Not so good," he replied. "We have another Hoover in the White House." Republican Senator William Armstrong ran into a hornet's nest of angry students at the University of Colorado who questioned cuts in loan programs. "I'm going to support the President's budget," he said amid hoots and hisses, "but defense isn't a sacred cow."

There were also some signs of support for Reagan. Congressman Phil Gramm, a leader of the conservative Democratic "Boll Weevils," who backed the President's package last year, was handed a $100 check from a retired rancher in Corsicana, Texas, as his "share" of payment to reduce the national debt. Gramm polled his constituents and found, without noting the apparent contradiction, "77% of them said we ought to stay with the program we started last year, and 80% of them said they wanted the budget balanced now." At a Chamber of Commerce reception in Whittier, Calif., Republican Congressman Wayne Grisham was lectured by Businessman Frank Brittell: "As long as we hold fast with Ronald Reagan, we'll be O.K. Who the hell has balanced the budget in the last 50 years anyway?"

It remains to be seen how these doubts and divisions will be translated back on Capitol Hill. One thing is certain: last year's optimistic faith in Reaganomics is being replaced by skepticism in many quarters. That wary mood was reflected by Congressmen at Stockman's hearing. "I'm shocked at the size of the budget deficits," said Republican Delbert Latta of Ohio, who co-sponsored Reagan's budget bill last year. The attacks on Stockman from the Democratic side were blistering. "You got everything you asked for [last year]," said House Majority Leader Jim Wright of Texas, who then listed the results: "Unemployment at its highest level since the Great Depression, housing industry in a disastrous condition, interest rates near historic highs. What you're proposing now is more of the same."

The Administration's best solution to these problems would be the long-awaited end to the current recession. The White House has been predicting that renewed prosperity would arrive this spring. But the usually optimistic Reagan seemed to backtrack a bit at his press conference. His subdued forecast: "In these months ahead and the coming year I think we're going to see the recession bottomed out." --By Walter Isaacson.

Reported by David Beckwith and Douglas Brew/Washington

*That is already happening. Senate Finance Chairman Robert Dole of Kansas announced last week that his Democratic counterpart in the House, Dan Rostenkowski of Illinois, had agreed to support legislation to end the tax leasing proviso that allows money-losing companies to sell their depreciation credits to profitable firms. Leasing would cost the Treasury about $27 billion over five years, and is virtually certain to be repealed.

With reporting by David Beckwith, Douglas Brew

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