Most Domestic Spending Cuts Target Middle Class

President Reagan, while again asking Congress to cut deeply into federal spending for the poor, has drawn up a 1986 budget marked by new emphasis on reducing programs that primarily benefit middle-class Americans.

The Administration’s new budget, which calls for slashing $32 billion from current spending on domestic programs, would spend less for school lunch programs and low-income housing, force some home buyers to pay more for their mortgages, abolish federal loans to small businesses and curb student aid.

“The single most difficult word for a politician to utter is a simple, flat, ‘No,’ ” Reagan declares in the budget message to be sent to Congress today, conceding in advance that “there will be substantial political resistance” to his ambitious, wide-ranging proposal.

As the budget document itself asserts in a simple axiom of political reality: “Every dollar of current federal spending benefits someone, and that person has a vested self-interest in seeing these benefits perpetuated and expanded.”

Indeed, although the House and Senate approved huge cutbacks in programs for the poor when Reagan first came to office, they have consistently balked at further trims in those programs in recent years. And members of Congress, who have the final word on federal spending, are likely to be even more reluctant to accept Reagan’s cutback proposals this year because of his new emphasis on curtailing programs that chiefly benefit the middle class.

But Administration budget designers seeking to restrain the deficit were forced to tackle the middle-class programs after Reagan rejected sharp reductions in defense or changes in Social Security, the government’s biggest benefit program.

Under the President’s budget plan, domestic non-defense spending would total $518 billion--$32 billion less than in the current fiscal year and $39 billion less than would have been spent if all federal programs had been allowed to keep pace with inflation.

Although domestic spending would decline overall, some programs would expand, others would be restrained at a low growth rate and some would be eliminated entirely.

No Revenue Sharing

The major proposed restrictions are:

--Elimination of general revenue sharing, which provides $4.6 billion a year in cash to local governments. Cities would be forced to cut services or make up the lost money through higher local taxes or other sources.

--Reductions of $2.3 billion in federal spending for college students. Eligibility for grants and direct loans would be limited to students from families with adjusted gross incomes of $25,000 or less. Government loan guarantees and subsidies would be available only for families with incomes of $32,500 or less.

No individual student could receive more than a total of $4,000 a year from federal grants, loans or subsidized jobs.

--A $7.5-billion cutback in spending for agriculture, with major reductions in government support for farm prices through a complex system of purchases, direct payments and loans. Most of the cutbacks would come at the Commodity Credit Corp., which helps support the prices for wheat, corn, cotton and dairy products. The Administration says it will let prices fall to “market” levels and will “limit the amount of payments and loans given to each farmer.”

The proposed cutbacks come at a time of grave crisis in agriculture, with many farmers in danger of bankruptcy because of substantial borrowing in the late 1970s, when crop prices and land values were rising.

--Increases in the fees paid by home buyers for Veterans Administration and Federal Housing Administration loans. The VA fee, now 1%, and the FHA fee, now 3.8%, both would rise to 5%, raising the cost of mortgages for veterans and others who depend on these loan-guarantee programs--often because they cannot qualify for conventional financing.

--Abolition of the Small Business Administration loan program, which furnishes funds to new companies or relatively new firms unable to get credit through ordinary banking sources.

--Increased payments by Medicare recipients for physicians’ services; recipients would pay a somewhat higher share of doctor bills themselves. Monthly premiums would also gradually rise, while fees paid by the government to hospitals for treating Medicare patients would be frozen at current levels for a year.

--Cutbacks in federal spending for the school lunch program, food stamps and a special program that provides food and vitamins to poor pregnant women, infants and children.

--Elimination of the federal subsidy for Amtrak, to be offset to the extent possible through increased passenger fares.

--Reduction of $1.1 billion in federal outlays for Medicaid, which helps pay the medical bills of the poor. With less federal money, states could make up the difference, restrict eligibility for the aid or eliminate such services as dental care, prescription drugs or eyeglasses for children.

--Shutdown of several agencies aiding the poor, including the Job Corps, Legal Services Corp., the work incentive program and a general community services program.

--A two-year freeze in federal spending for highway construction and for subsidized housing for the poor.

--A 5% pay cut for federal workers and a one-year freeze in the annual cost-of-living adjustment for retired military personnel and retired federal workers. The increase due next January would be eliminated.