Budget Clears Congress but Falls Short in Cuts : Despite 1986 Savings of $55 Billion, ‘Big Issues’ of Taxes, Social Security Benefits Are Untouched

Ending months of bitter struggle over the fiscal 1986 budget, Congress on Thursday night approved a package that promises $55 billion in savings but, congressional leaders admitted, fails to come to grips with the soaring federal deficit.

The House vote was 309 to 119, with members of both parties approving it by margins of greater than 2 to 1. The vote in the Senate was 67 to 32, with majorities of both parties voting for the package. President Reagan’s signature is not required on the budget, which is designed to guide congressional decisions on subsequent spending bills.

No Steep Defense Hike

The budget plan includes no new taxes and leaves Social Security benefits untouched. Although it allows defense spending to grow with inflation, it denies Reagan the steeper increase he had sought and includes reductions in a wide range of domestic spending programs. Without tax increases or spending cuts, the deficit is estimated to reach $230 billion next year.

Leading negotiators for the two houses said it was the best compromise they could produce from the intensely partisan and emotional battle that frequently had pitted the Republican-led Senate against both the Democratic-controlled House and the Republican White House.

“Given the realities we had to work under, this is not a perfect document, but it is a major effort at this time,” House Budget Committee Chairman William H. Gray III (D-Pa.) said.

Sen. Ernest F. Hollings (D-S.C.), even less enthusiastic, told fellow negotiators: “In all candor, we have missed a glorious opportunity” to attack deficits.

What the plan failed to do, Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) said, was confront the necessity of raising taxes and making long-term reforms in Social Security and other benefit programs.

“Sooner, rather than later, we are going to have to address the big issues that went unaddressed, unless the United States is prepared to live with deficits of $130 billion to $140 billion forever,” he said.

The House and Senate voted only hours after negotiators from both chambers pasted together their compromise and hours before Congress adjourned for its monthlong August recess.

The budget package, House and Senate negotiators say, cuts $55 billion from the deficit that would be reached if present tax and spending policies were kept in place for fiscal 1986, which begins Oct. 1.

$112-Billion Deficit

During the next three years, the negotiators say, the budget mandates $277 billion in spending cuts. It leaves a $112-billion deficit in 1988.

However, many other experts expect the plan to yield less impressive savings, in part because it rests upon economic forecasts that are widely viewed as too optimistic. The nonpartisan Congressional Budget Office estimates the fiscal 1986 savings from the resolution at only $39 billion, about two-thirds the amount claimed by the House and Senate budget committees.

Senate Republicans, seeking deeper deficit reductions, had proposed earlier this week to increase taxes and curb annual cost-of-living increases for Social Security and other federal benefit programs. But Reagan ruled out both courses.

The largest single spending cut in the package is in defense spending. The CBO estimates that the budget, by permitting defense spending to grow only with inflation estimated at about 4% a year, saves $86 billion during the next three years from the substantially greater growth path that has been in place in the first four years of the Reagan Administration.

Figure Only Ceiling

Moreover, the budget’s defense figure serves only as a ceiling. Some House Democrats hope to force actual spending levels even lower--perhaps no growth even for inflation--when they vote next month on the legislation that actually will determine the Defense Department’s budget.

The sweeping deficit reduction plans outlined by Reagan and the Senate early this year would have slashed a wide range of popular domestic programs, including federal student loans, agricultural price supports and various economic development programs. Those plans would have eliminated more than a dozen programs, among them Amtrak and Export-Import Bank direct loans.

However, House Democrats resisted the most drastic of these reductions, saying that social programs already had suffered enough during the Administration’s first term.

What finally emerged Thursday from almost two months of House-Senate negotiations was a patchwork of relatively modest cuts in domestic programs, generally ranging from about 10% to 30% from the level required to maintain them at their present levels.

Revenue Sharing Cut

The only major program that would be eliminated under the proposal is general revenue sharing, the federal grants that are given to local governments to be used at their discretion. Revenue sharing would remain at its full level next year and be allowed to expire as scheduled in 1987.

Poverty programs were shielded from cuts and allowed full inflationary increases.

The budget envisions additional federal revenue by the requirements that all state and local workers pay taxes toward the federal Medicare program and that newly hired ones be included in Social Security as well. California Rep. Bobbi Fiedler (R-Northridge), estimating that it would cost Los Angeles County $50 million to include newly hired workers in the federal pension program, said she would “strongly oppose” such action if legislation implementing it is introduced in the House.

California’s senators split on the budget resolution, with Democrat Alan Cranston opposing the budget and Republican Pete Wilson reluctantly supporting it. Before Wilson had made up his mind, he said a vote in favor of the plan would require “holding my nose . . . . The concern that many of us have is that if this is adopted, it will be seen as the end of the struggle” against deficits.

Most of California’s 45 House members voted for the package. Democrats voting against it were Glenn M. Anderson, Harbor City; Jim Bates, San Diego; Douglas H. Bosco, Occidental; George E. Brown Jr., Colton; Ronald V. Dellums, Berkeley; Mervyn M. Dymally, Compton; Don Edwards, San Jose; Edward R. Roybal, Los Angeles; Fortney H. (Pete) Stark Jr., Oakland, and Esteban E. Torres, La Puente.

Republicans voting against it were Gene Chappie, Roseville; William E. Dannemeyer, Fullerton; Robert K. Dornan, Buena Park; David Dreier, La Verne; Al McCandless, Bermuda Dunes; Norman D. Shumway, Stockton; William M. Thomas, Bakersfield, and Ed Zschau, Los Altos.

Here are the highlights of the fiscal 1986 budget approved Thursday by the House and Senate:

DEFICIT REDUCTION: The House and Senate budget committees said the budget would slash next year’s deficit, projected to approach $230 billion with no spending cuts or tax increases, by $55 billion. But the nonpartisan Congressional Budget Office predicted that it would cut the deficit by only $39 billion. The reason for the difference: The budget committees adopted a highly optimistic estimate of the budget’s favorable impact on the economy. Over the next three years, the budget committees estimate $276-billion worth of deficit reduction; the CBO projects $199-billion worth. The budget committees foresee a $111-billion deficit in 1988; the CBO pegs that year’s deficit at $160 billion.

MILITARY SPENDING: The budget would allow new Defense Department spending commitments next year to grow only enough to keep up with inflation of about 4%. This provision is from the initial Senate-passed budget; the House-passed budget would have allowed no defense spending growth at all, and President Reagan initially asked for growth of 6% after inflation. In 1987 and 1988, the congressional budget would allow defense spending commitments to grow 3% after adjustment for inflation.

SOCIAL SECURITY: The budget does not tamper with the annual cost-of-living increases in Social Security benefits. The Senate had proposed a variety of ways to curtail those increases, but the House, which wanted no cuts, prevailed.

MEDICARE AND MEDICAID: Services would be retained at their present levels, and the elderly and poor beneficiaries of these programs would not be burdened with additional costs. But the government would freeze the levels at which it reimburses health care providers for their Medicare costs.

FEDERAL CIVILIAN PAY: Government salaries would not increase in fiscal 1986. Reagan had asked for a 5% pay cut.

MASS TRANSIT: The budget would cut overall spending next year by 15%. The Senate had called for a 20% reduction, and the House-passed budget would have frozen funding at present levels. The reduction, however, will not affect the fund from which Los Angeles hopes to obtain the $2.1-billion federal share of its proposed $3.3-billion Metro Rail subway system.

OTHER DOMESTIC PROGRAMS: In most areas, programs would be cut by 10% to 30% from the level required to provide services at existing levels. Where the Senate had proposed eliminating more than a dozen programs, the final budget calls for an end to only one major program--general revenue sharing, the no-strings-attached grants to local governments, which will expire as scheduled at the end of next year.