House OKs Deficit Plan; Senate Balks : Fight Stalls Action on Debt Limit Hike, Forces Sale of Social Security Assets

The Democratic-controlled House defiantly passed its own deficit-slashing plan Friday and voted a brief hike in the national debt ceiling hours before the Treasury Department began a midnight raid on Social Security trust funds to keep government checks from bouncing.

The House action, on a 249-180 party-line vote, escalated a game of hard-ball politics played by leaders of both parties as they wrangled over competing plans to force a balanced federal budget and extend government borrowing power.

Social Security and two other pension funds became the latest pawns in the tussle when the Treasury Department warned earlier in the day that it would be forced to sell $17 billion in long-term securities held by those funds to raise cash to keep the government solvent through mid-November if Congress failed to raise the debt ceiling by Friday midnight.

Seeking to Place Blame

By their maneuvering, Democrats had sought to shift the blame to the Republican-controlled Senate for forcing the Treasury maneuver, called disinvestment.

Administration officials, apparently seeking to increase pressure on Democrats to agree to a Republican balanced-budget plan linked legislatively to a debt limit hike, earlier had indicated that disinvestment could cost the politically sensitive Social Security fund tens of millions of dollars in lost earnings.

But, when the Treasury began the disinvestment process early today, Republican leaders sought to minimize the fiscal impact of that action, contending that the effects of disinvestment had been widely misunderstood and that the trust funds would be fully reimbursed once the complex deficit reduction controversy was resolved.

The situation was reminiscent of what happened when the deficit-debt controversy first surfaced in early October. At that time, the Administration issued similar warnings that government checks would bounce because borrowing authority was about to run out. However, officials kept putting off the day of reckoning and finally said they had found a way to raise enough cash to keep the government running through Friday--by selling trust fund securities.

The Senate remained in session into the early morning today as it debated how to respond to the House move. Although the disinvestment effectively averted the government’s cash crisis through Nov. 14, the Senate voted also, 51 to 22, to pass its own superfluous debt limit hike, giving the government new borrowing power through Wednesday. In doing so, it said that the House measure was flawed. Because the House had already adjourned, final action will not be possible before Monday.

Earlier Friday, the House, on a 249-180 party-line vote, had approved a formula aimed at balancing the federal budget by fiscal 1990--one year earlier than a plan passed last month by the Republican-controlled Senate.

The House attached that measure to a bill that would raise the debt ceiling to $2 trillion, from $1.8 trillion, high enough to give the government another year’s worth of borrowing authority. The Senate last month attached its own balanced-budget formula to the $2-trillion debt-ceiling bill.

Separately, the House voted 357 to 61 for a measure that would increase the debt ceiling by $17 billion, enough to provide the government with sufficient new borrowing power to continue opoerating just through Wednesday.

The House then adjourned, leaving it to the Senate to untie the legislative and financial knot.

The combination of House actions appeared to have left the Senate with three uncomfortable choices:

--It could lift the debt ceiling to $2 trillion only by accepting the House’s balanced-budget formula. But Senate Republicans raised a host of objections to the House approach, which would require politically uncomfortable spending cuts before next year’s congressional elections.

Pressure on House

--It could accept the House’s short-term extension of the debt ceiling. But Senate leaders had said Thursday that they would never accept that course because it would remove the pressure on the House to act immediately on the Senate’s balanced-budget formula.

--It could do nothing, a course that would lead to the sale of interest-bearing securities from Social Security and the two other trust funds.

The government’s borrowing authority expired a month ago, and the Treasury Department kept the government operating only by selling $17 billion in securities from the trust funds that finance Social Security, Civil Service retirement benefits and railroad workers’ pensions. They said the sale resulted in the loss of $70 million in potential earnings in October.

High Cost Seen

Democrats contend that a repetition of the maneuver ultimately could cost the government as much as $2 billion. Republicans and Democrats are blaming each other for prolonging the government financing crisis and risking harm to the politically sacrosanct trust funds, normally earmarked only for the benefit of pensioners.

The crisis was sparked by efforts by both parties to escape blame for federal deficits now exceeding $200 billion a year. The balanced-budget measure passed by the Senate, sponsored by Republicans Phil Gramm of Texas and Warren B. Rudman of New Hampshire, would set annual deficit ceilings, declining to zero in 1991. If, by the start of each fiscal year, Congress failed to pass sufficient spending cuts and tax increases to meet the deficit ceiling, the President would be required to impose proportional spending cuts on most government programs, including defense but excepting Social Security.

The measure that the House passed Friday contemplates deeper and faster deficit cuts than the Senate version, bringing the budget into balance by 1990. Unlike the Gramm-Rudman package, the House plan would exempt several programs earmarked for the poor from the automatic spending cuts.

Conference Collapsed

The House acted after a House-Senate conference committee collapsed in disarray Thursday following its failure to negotiate a balanced-budget measure.

House Democrats attacked the Gramm-Rudman measure as a gimmick designed to let Republicans take immediate credit for forcing a balanced budget while delaying any painful spending cuts until after the 1986 congressional elections. Those elections are crucial to GOP hopes of retaining the slim Republican hold on the Senate.

But Republicans, questioning the sincerity of the Democratic alternative, charged that it had been laced with legislative time bombs designed to ensure that it would eventually be declared unconstitional and never go into effect.