Reagan Urged to Shield Defense in Budget Cuts : Shultz, Weinberger Fear Damaging Reductions Under Republicans’ Balanced-Spending Plan

Secretary of State George P. Shultz and Defense Secretary Caspar W. Weinberger Thursday urged President Reagan to seek changes in a controversial Republican budget-cutting plan pending in Congress that might force spending cuts in most government programs, including defense and foreign aid, an Administration source said.

In a memo to Reagan, the two Cabinet officers warned that the budget-cutting proposal “would force damaging reductions in defense, foreign assistance and counterterrorism” activities, the source said.

Reagan previously had endorsed the plan, calling on Congress Monday to stop its “inexcusable dithering and delay” and enact it into law.

May Be Too Late

The budget-cutting proposal is tied to a measure that would give the cash-strapped government new borrowing power. But, as the source acknowledged, the legislation may be too close to passage for Reagan to press for significant revisions.

Final action on the measure could come as soon as today as the lawmakers rush to unravel the legislative tangle it has created. The Treasury Department has told Congress that it will cash in long-term investments in the Social Security Trust Fund tonight to raise money to cover government checks next week.

The Shultz-Weinberger memorandum, according to the Administration source, was drafted earlier in the week and was sent to the President with the endorsement of National Security Adviser Robert C. McFarlane. It emphasized that the Cabinet officials support the overall goal of the legislation.

The Senate-passed plan, authored by Republican Sens. Phil Gramm of Texas and Warren B. Rudman of New Hampshire, would order mandatory across-the-board cuts in a wide range of programs if government deficits exceeded a descending series of annual budget targets. Only Social Security and a few other programs would be excluded from the cuts, but much of the defense budget would be subject to them. The cuts would achieve a balanced budget by 1991.

Speaking on the condition that he not be identified, the Administration source said that Shultz and Weinberger expressed concern that the proposal “would cut everything uniformly except Social Security.”

“They merely, in this memo, made the point to the President of the potential implications and suggested that we try to work to” insulate defense and foreign assistance programs from the threat of cuts, the source said.

“The President agrees with them on this,” the source continued. “The question is how to do it. The bill is moving like greased lightning. It’s gotten such support it’s going to be very hard to protect defense.”

Borrowing Crisis

Passage of the balanced budget measure would alleviate the borrowing crisis because it would also raise the debt ceiling from $1.8 trillion to $2 trillion, allowing the government to borrow new funds to pay its bills.

In October, when a partisan logjam blocked an increase in the national debt ceiling, the government sold interest-bearing securities from Social Security and other pension funds, thus causing those funds to lose $70 million in potential interest earnings.

House Democrats contend that losses in potential earnings to the funds could reach $2 billion over the next five years if Treasury repeats the “disinvestment” this month.

Negotiations Halted

House and Senate conferees broke off negotiations late Thursday over a compromise budget-cutting and debt-limit plan, but the action did not foreclose the possibility of reaching an accord today.

Before that committee impasse, House Democrats, despite opposition to key provisions in the Gramm-Rudman plan, agreed to a procedure that will allow consideration of the GOP proposal on the floor today as well as a competing Democratic version.

An ultimate showdown today over the measures became more likely after Senate Majority Leader Bob Dole (R-Kan.) rejected a compromise scenario that would have allowed a temporary increase in the debt ceiling while giving lawmakers more time to resolve lingering differences over the budget proposals.

“Dole says no short-term extension,” Senate Finance Committee Chairman Bob Packwood (R-Ore.) reported after floating the idea past the majority leader.

In a related matter Thursday night, a federal judge in Washington refused to bar the Treasury Department from redeeming some Social Security trust-fund securities.

U.S. District Judge Thomas F. Hogan denied a request for a temporary restraining order, but did not dismiss the lawsuit, saying that it can be pursued if Congress does not resolve the debt ceiling problem today.

“It seems clear to the court that events may overtake any action I may take tonight,” Hogan said.