Bubbles in the Red Ink

Gurgle, gurgle, the budget is sinking

When they first saw the budget, Congressmen of both parties let out a bipartisan howl. Then they quieted down to plot strategy and develop proposals of their own. By last week trial balloons containing alternative budget plans were floating above Capitol Hill. For President Reagan, the question had become when, not whether, he would join the budget bargaining. "If you want to present a comprehensive proposal," he told G.O.P. leaders, "then we'll be happy to talk."

Any remaining chance that Reagan's 1983 budget would be passed intact was lost at midweek when Republican Senator Pete Domenici of New Mexico, one of the Administration's key budget operatives in Congress, declared his opposition. Said Domenici: "Political leaders do all a disservice by pretending that we can swallow $100 billion-plus deficits as though they were aspirin tablets." Offering his own remedy for the deficit headache, he proposed trimming defense spending by limiting its growth to 5% after inflation, thereby saving $20 to $25 billion over the next three years. His plan also called for freezing the costs of all domestic programs at 1982 levels through 1985, thus saving another $34 billion. He suggested eliminating pay raises for federal employees in 1983 and keeping raises over the next two years to 5%, for a reduction of $25 billion. Cost of living increases in 1983 in all entitlement programs, including Social Security, would be scrapped, knocking off another $60 billion by 1985. To raise revenues, Domenici recommended closing a string of tax loopholes, a move that would net a total of $122 billion by 1985.

Using deficit predictions higher than the ones offered by the President, the Senator estimated that his plan would slash $320 billion from the budget over the next three years. Though Domenici's proposal would still yield a $90 billion deficit in 1983, just a shade less than Reagan's plan, the shortfall in 1984 would be $65 billion and in 1985, $55 billion. The Administration's proposal, by contrast, allows for an $82.9 billion deficit in 1984 and $71.9 billion in 1985. Even those figures seem exceedingly optimistic. The Congressional Budget Office expects the 1983 deficit to be $120.6 billion, climbing to $128.9 billion in 1984 and $139.6 billion in 1985.

The Democrats, at least, were delighted. "We are fishing in the same waters," said Senator Ernest Hollings of South Carolina, the ranking Democrat on the Senate Budget Committee, who three weeks ago proposed a somewhat more drastic freeze on federal spending. Added Congressman James Jones of Oklahoma, who heads the House Budget Committee: "Many of the elements are very close to what I've been saying have to be part of a compromise." Though White House aides found fault with the plan for its meager defense hikes and its politically explosive cuts in Social Security benefits, they were careful not to reject it outright. Domenici has made "a good-faith effort to come up with an alternative," said one presidential adviser. "We'll take a look at it."

The White House has little choice but to sound conciliatory, even if it does not budge an inch just yet. After last week's meeting with G.O.P. congressional leaders, one White House aide described the visitors' views on the chances of the President's budget being passed as "twofold: slim and none." In his continuing campaign to stir up proposals to pare the President's whopping deficits, Republican Senate Majority Leader Howard Baker himself suggested a temporary surtax of 5% to 10% on individual income taxes in 1982. The plan would net an estimated $37 billion and pay for the Administration's defense buildup, but would effectively cancel Reagan's tax cut this July.

In the Democratic House, Jones' strategy is to propose his own budget, but not before April. Minority Leader Robert Michel of Illinois is trying to get "a better feel on the nuts and bolts" before approaching Speaker Tip O'Neill on a bipartisan package. As the budget hearings unfold, Michel may attempt to stage "test votes" to find out just where the members stand, both for his own benefit and that of Administration strategists. In the Senate, the Democrats have no game plan yet, but their leaders intend eventually to hammer out an alternative. "We want to save the country," said Democratic Senator Alan Cranston of California, "but we don't want to save Reagan."

The White House plans to defend the "fundamentals" of the Reagan program (a defense spending increase of $34 billion next year, along with tax cuts of $91.6 billion), while listening patiently to budget alternatives in other areas. But the definition of the "fundamentals" is hazy. When asked what Reagan meant when he said he wanted to avoid a "fundamental retreat," White House Spokesman David Gergen replied: "It's like obscenity. You'll know it when you see it."

With its own budget hopelessly bogged down, the Administration is pursuing what one aide calls a "strategy of patience." Indeed, Administration officials feel that the President's hand will be strengthened if Congress is unable to agree on a comprehensive alternative or if the economy picks up this spring. No matter what happens, pressure to pare down the 1983 deficit will increase by late April, when Congress will be forced to vote to raise the national debt ceiling. To win the support of his own party, the President will probably have to scale back substantially his deficit projections.

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