Packwood Calls Reagan Obstacle to Cuts in Deficit

There is a strong chance the Republicans will be unable to agree on a deficit-reduction package this year because of President Reagan’s unyielding opposition to defense spending cuts, Senate Finance Committee Chairman Bob Packwood (R-Ore.) said Friday.

In a breakfast interview with reporters and editors of The Times’ Washington Bureau, Packwood said he believes that Reagan would forgo deficit reduction entirely rather than allow Congress to trim even $10 billion from the $286-billion defense budget.

His remarks reflect a growing pessimism among Senate Republicans who have been struggling for two months to trim $50 billion from the fiscal 1986 budget.

But Packwood, whose committee has jurisdiction over tax policy, was more conciliatory toward the Administration’s proposed modified flat tax, which he has criticized in the past. He indicated that he would consider any tax reform idea put forth by the President--except a tax on employee fringe benefits.

Without cuts in the defense budget, Packwood declared, there will be no deficit-reduction package this year. “If the military is not part of this cut, then it’s not fair and we’re not going to vote for an unfair package,” he said. “So I think it’s $50 billion or nothing.”

Members of Congress would be unwilling to freeze Social Security benefits or trim domestic programs by the necessary $40 billion unless the package includes $10 billion to $12 billion in defense cuts, he added.

50-50 Chance of Defiance

However, Packwood indicated there is no better than a 50-50 chance that Senate Republicans will defy Reagan by drafting a deficit-reduction package including defense cuts. About 18 of the 53 Republican senators agree with the President on the defense budget issue, he said.

“Either we’re going to split and come forth with a package that about two-thirds support, or we’re going to have no package,” he predicted. “I think we are not far from that decision, and I don’t know which way it will go.”

Packwood, who said he expects the Senate Republicans to decide what they will do within a few weeks, expressed frustration with efforts by Senate Majority Leader Robert J. Dole (R-Kan.) to develop a GOP consensus on deficit reduction that would be satisfactory to all members.

“If we cut too much from defense, we lost 20 (votes) on one side of the party,” he said. “If we don’t cut enough in defense, we lost 20 on the other side of the party. So the decision we have to make is, do we go ahead with 35 and hope the Democrats join us? Or, do we say, unless we have 51 and the President, we just aren’t going at all?”

Reagan’s Stand ‘Very Firm’

The senator described Reagan’s opposition to defense spending cuts as “very firm.”

“If forced to an either-or choice, he would rather have his defense figure and no $50-billion cuts than to even have to take a $10-billion further cut in the defense figure to get $40 billion more of domestic cuts,” Packwood said.

But he held out some hope that the President would not veto a package that includes defense cuts, if enacted by the Congress. And, he rejected a White House contention that if the Senate trims $10 billion from defense, the Democratic-controlled House will cut even more.

In Packwood’s view, Reagan is almost as firmly opposed to a tax increase as he is to defense cuts. He said he thinks the President would accept a tax hike only if Congress enacts a $50-billion deficit-reduction package that proves to be inadequate because of a shortfall in revenues. But he said he is certain Reagan would not veto a freeze in Social Security benefits.

On the subject of taxes, Packwood indicated that he still holds out hope of persuading the Administration to embrace his proposal for a tax on consumption--such as a retail sales tax or a value added tax. Administration officials still “might consider” a consumption tax if their own plan for a modified flat tax does not produce enough revenue, he said.

Regrets Earlier Tax Comment

Packwood also said that he regrets saying earlier this year that he “kind of liked” the tax code as it is, without any of the changes being proposed by the Administration. Now, he said, he only objects to taxing fringe benefits, such as health insurance.

“I think if the President pushes it, we are going to have a tax reform bill this year,” he said. “I don’t object. Putting fringe benefits aside, I am willing to take all of the rest of it and go through all of the hearings that are necessary and see where we come out. I have nothing else in the bill where I just say automatically . . . it would be unacceptable.”

Packwood said he opposes taxing fringe benefits because “it is a substitute for social services that the government would otherwise be providing at an infinitely greater cost than we now get employers providing them.” For example, without private health insurance, he said, the United States would probably have a national health service.