Senate, House Begin Budget Negotiations : Tax Increase Still May Be Needed to Fight Deficit, Leaders Warn

Amid warnings by congressional leaders that a tax increase might be necessary to control mounting federal deficits, House and Senate negotiators began Tuesday what could be weeks of trying to reconcile their conflicting blueprints for slashing government spending.

Hours before the House-Senate conference committee began its work on the fiscal 1986 budget, House Budget Committee Chairman William H. Gray III (D-Pa.) said that spending reductions alone “cannot cut your way out of the debt this Administration has compiled.”

“I’m hoping that, after we come out of conference with a strong deficit-reduction package of spending cuts . . ., the Administration will lend its support to helping to look at the question of (tax) revenues,” Gray told a meeting sponsored by the American Stock Exchange.

House Speaker Thomas P. (Tip) O’Neill Jr. (D-Mass.) vowed that the Democratic-controlled House would not push a tax increase without President Reagan’s backing.

“We have a very formal and stern policy that any tax increases are going to come after the President of the United States recommends them,” he said. “We are not going to be the big taxers that he portrays us to be.”

Senate Majority Leader Bob Dole (R-Kan.) said that Reagan would consider a tax increase only if Congress cut more from government spending than is envisioned by the budgets approved by either the House or Senate.

Reagan Campaign Vow

Dole reminded reporters of Reagan’s 1984 campaign vow that a tax increase to reduce the deficit would be only a “last resort.” If Congress made the additional spending cuts, Dole said, “we’d be in a pretty good position to go to the President and say: ‘Mr. President, are we nearing the last resort?’ And he’d say yes or no.”

The House and Senate negotiators who began working on the 1986 budget turned first to such non-controversial matters as whether to hire more customs inspectors. Only later will they tackle the divisive issues of Social Security and defense spending.

While the House-passed version of the budget would allow next year’s scheduled cost-of-living increase in Social Security benefits, the Senate has approved holding benefits next year at 1985 levels. The Senate, on the other hand, would allow defense spending to rise with inflation, while the House would provide no increase.

Both versions of the budget aim to cut about $56 billion from next year’s deficit, now estimated to reach nearly $230 billion with no such action.

But sagging economic growth, by retarding tax revenue and thus boosting the deficit, is increasing pressure on the House and Senate negotiators to exceed the $56 billion in cuts. Budget Director David A. Stockman has cited projections showing that economic trends could add $20 billion back to the 1986 deficit.