Budget Planners Have ‘Framework’ : Critics Call Accord ‘Phony,’ Contend It Could Drive Deficit Up, NotDown

The new approach agreed upon by President Reagan and congressional leaders to slash the federal deficit came under fire Wednesday as “a phony agreement” that promises more than it would deliver.

House and Senate negotiators who have been trying to hammer out a compromise fiscal 1986 spending blueprint emerged from the White House on Wednesday, declaring that they finally had a “framework” that could lead to quick agreement on a budget that--at least on paper--would meet their goal of reducing next year’s huge deficit by at least $50 billion.

But the compromise rests on accounting manipulations that, in the view of many participants, are likely to drive the federal deficit up--not down--in the long run.

$230-Billion Deficit

Sen. Slade Gorton (R-Wash.), echoing what many have said privately, labeled it “a phony agreement” that provides “no way” of putting a significant dent in a deficit projected to approach $230 billion next year without spending cuts or revenue increases.

“It’s very easy to come up with an agreement when you simply agree to spend the maximum amount on both sides,” he said angrily.

Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) said that congressional negotiators will still try to cut more than $50 billion from next year’s deficit. But he added that he has “a great deal of skepticism” about the chances of devising a plan that would bring the deficit under control in the long run.

And Rep. Delbert L. Latta of Ohio, the top-ranking Republican on the House Budget Committee, said: “There’s a big question as to whether we are going to come up with the $50 billion for next year.”

Under the new agreement, both Reagan and House Democrats got what they wanted most, but Senate Republicans found themselves marooned in a politically uncomfortable spot:

--The President won his fight to continue his defense buildup, keeping its long-range growth in line with inflation.

--Democrats prevailed in their efforts to defeat a Senate plan to deny next year’s cost-of-living increases to Social Security recipients.

‘Rug Pulled Out’

--Senate Republicans, who had taken the politically dangerous step of voting for the Social Security freeze, saw “the rug pulled out from under them,” said California Rep. George Miller (D-Martinez). The Senate Republicans’ unsuccessful effort to curb Social Security benefits may haunt them in next year’s elections, in which they face the prospect of losing their fragile 53-47 majority.

To strike a deal that could survive politically and still possibly allow Congress to claim at least $50 billion in savings, the negotiators gave up their biggest remaining opportunities to rein in spending in future years.

The defense spending agreement was widely seen as depending on a bookkeeping gimmick--the budgetary equivalent of limiting the amount of money a shopper may carry in his wallet but increasing his line of credit.

House budget negotiators accepted the Senate-passed proposal to let the Defense Department’s new spending commitments--its long-range purchasing power--grow next year with inflation, which is estimated to be about 4%. But, in a concession to the House-passed version of the budget, Reagan and Senate negotiators agreed to limit next year’s actual military outlays--the checks that are written to meet the Pentagon’s spending commitments--to this year’s level with no allowance for inflation.

House Budget Committee Chairman William H. Gray III (D-Pa.) insisted that freezing defense outlays, a step designed to reduce next year’s deficit by $6 billion below the Senate-approved level, amounts to a significant Democratic victory. But he acknowledged that next year’s proposed $10-billion increase in new defense spending commitments “will drive defense spending in 1987 and 1988.”

The other key component of the new budget accord--the agreement to allow Social Security benefits to grow next year with inflation--would erase $6 billion in 1986 savings envisioned by the Senate proposal.

Savings Would Have Grown

And, more important, a one-year denial of cost-of-living raises would have permanently whittled the benefit level upon which future cost-of-living increases would have been based. Thus, savings would have escalated in future years, to more than $8 billion in both 1987 and 1988.

Moreover, Domenici said, the decision to abandon the freeze on Social Security benefits makes it unlikely that budget negotiators will adopt the Senate proposal to impose a freeze on other federal pension recipients, such as veterans and retired railroad workers. All together, those would have added another $11 billion in savings over three years.

Even before Wednesday’s announcement of a preliminary agreement on a budget framework, the separate House-passed and Senate-passed versions of the 1986 budget generally were seen as overly optimistic in their savings estimates. Both budgets were designed to reach $56 billion in savings next year, but by widely differing routes.

But Budget Director David A. Stockman warned that the present slowdown in economic growth is likely to wipe out almost half the $56 billion in deficit reduction envisioned under both the Senate and House plans, which are based on projections of a brisk economy.

Savings Inflated

And both sides conceded that their budget proposals had been inflated with savings that are unlikely to materialize. The House, for example, claimed $4 billion in annual savings by switching various government services from in-house operations to private contractors.

In a letter to Senate Majority Leader Bob Dole (R-Kan.), Stockman estimated that “at least $14 billion, or one-fourth of the claimed savings (in the House-passed budget), come from gimmicks.” And Domenici conceded that at least $3 billion of the saving claimed under the Senate budget are questionable.

In the private meeting Wednesday at the White House, Domenici warned that unless negotiators could compensate for the additional spending envisioned under the latest budget agreement, “sooner or later, a $200-billion to $250-billion deficit is going to take its toll” on the economy.