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GOP Upset as Reagan Puts Tax Plan Ahead of Deficit

Times Staff Writer

While President Reagan has led a large media entourage across the nation on his campaign for tax reform, House and Senate negotiators have slogged almost unnoticed through two weeks of haggling over their dramatically different proposals for the fiscal 1986 budget.

Clearly, Reagan has refocused the spotlight on tax reform and away from deficit reduction in the domestic policy debate--a shift in priorities that has heightened tension between the White House and the President’s own party in Congress.

Senate Republicans say they need Reagan’s political weight and popularity to build public pressure for painful spending cuts that they believe can bring the deficit under control.

“I hope we haven’t been pushed off the front burner,” Senate Majority Leader Bob Dole (R-Kan.) said.

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Senate Budget Committee Chairman Pete V. Domenici (R-N. M.), who has led the Senate team through its second fruitless week of negotiations, agreed: “With the tax bill, there’s major distraction on all sides and all levels. . . . Time is getting away from us.”

The early rounds of budget negotiations have provided little encouragement that the House and Senate can produce a compromise from their two budget plans.

The two sides have been unable to agree on even the minor elements of the package, much less the major issues of defense spending and Social Security.

The House plan would hold the Pentagon’s budget at this year’s level but allow cost-of-living increases for Social Security recipients and other federal pensioners. The Senate’s would do the opposite: allow defense spending to grow with inflation, projected at 4%, but deny next year’s inflation allowances on federal pensions.

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House conferees Thursday rejected a Senate proposal that would have provided funding to shield the poorest Social Security recipients from inflation and would have made a largely cosmetic reduction in defense spending. The House is expected to respond today with a counteroffer.

In the Senate, Republican leaders believe they have scant hope of holding their fragile majority if, by failing to cut the deficit, they send the economy into a tailspin before next year’s election season.

Senators Openly Complaining

GOP senators now complain openly that, when it comes to building public support on an issue that could decide their political survival, they are getting competition--not help--from the White House.

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“I think it’s very serious . . . . To me, (the deficit) is far and away the most important of all priorities, with no close second--including tax reform,” said California Sen. Pete Wilson, who has been a staunch White House loyalist.

Indeed, Wilson is so concerned that he brought the issue up with the President himself at a White House meeting last week. “There are a number of us who feel (Reagan) ought to be spending what time and energy and what chits he has--and they are considerable--on getting the deficit down,” he explained.

Said one GOP strategist, who asked not to be identified: “You’re finally beginning to see the first cracks from Republican senators, especially the ones who are up for reelection. They know their political fate right now is hanging on the economy.”

Fear Losing Majority

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Even those who will not be up for reelection fear losing the majority they won on Reagan’s coattails in 1980. Senate Republicans hold 53 seats to the Democrats’ 47, and 22 of the GOP seats will be on the ballot in 1986--with only 12 Democratic seats at risk.

Concern is also growing in the House, where Republicans are afraid of losing further ground against the Democrats, who have a 71-member majority. “I don’t want that scenario (of a deficit-fed recession) to be played out. I’ve been through that,” House Minority Leader Robert H. Michel (R-Ill.) said, referring to the 1982 elections, in which a poor economy cost the Republicans 26 House seats.

For the record, the White House continues to insist that the deficit is its top concern. White House Chief of Staff Donald T. Regan met Tuesday with Senate leaders to reassure them that the Reagan Administration has not lost sight of the problem. Later, he told reporters: “We’re not worried about the tax bill. We’re worried about the economy. . . . We want to make sure the deficit is reduced. The economy is not that robust.”

But, when Reagan took his tax reform campaign to Bloomfield, N. J., last week, he made only slight reference to the budget at the end of a 20-minute speech. In urging his listeners to write their congressmen in support of the tax plan, Reagan suggested they might also “add a P.S. that yes, let’s go forward with that budget we’ve proposed that will reduce the total of government spending.”

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‘We’re Kidding Ourselves’

Such light treatment of deficit reduction, Dole said in an interview, reflects a view by some in the White House that lower tax rates alone can spur enough economic growth to cure the deficit without painful spending cuts. But, he added: “We’re kidding ourselves if we think we are growing our way out of the deficit.”

Only a few weeks ago, things were going fairly smoothly for the budget cutters. Both the House and the Senate passed budget packages that included more than $50 billion in spending cuts--a target that Federal Reserve Chairman Paul A. Volcker had said is the minimum needed to keep the economy healthy.

“The promised land has been reached,” Domenici boasted after the Senate passed its budget package.

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And the Republican strategist recalled: “Everybody had this euphoria, when the Senate passed its deficit reduction package, that we’d done it. Now, people are waking up to the fact that it was just a first step.”

The outlook rapidly has grown worse. The day before the House and Senate negotiators began their efforts to iron out the differences in their budget plans, Budget Director David A. Stockman gave them some bad news from a private survey of 50 leading economists: Sluggish economic growth could wipe out half the savings they were seeking.

Not Enough Steam

Although preliminary estimates released Thursday by the Commerce Department show that the economy has picked up steam, it still is weaker than was anticipated when the Senate Budget Committee began drafting its package.

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Criticism from Senate Republicans, Wilson said, is becoming “quite pointed and emphatic. There’s a great deal of concern that the (budget negotiating) conference is not going well and that the President needs to use his influence to keep the pressure on.”

Democrats, too, are critical of Reagan, pointing out that, despite tough GOP statements on the need for deficit reduction, Republicans are having trouble recruiting their own top player for the effort.

“The President hasn’t helped us,” Sen. Ernest F. Hollings (D-S. C.), one of the budget negotiators, said at Thursday’s session. “He’s off talking flat tax, which I believe is an absolute smoke screen to avoid getting anything done on the deficit. If he wanted to help us out, he’d be here.”


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