Basic Plan to End Deficit by 1991 Is OKd : Key Negotiators See President, Congress Approving Proposal

Key House and Senate negotiators, after two months of wrangling over balanced-budget legislation, agreed Friday on the basic outlines of a plan that aims to eliminate deficit spending by fiscal 1991.

The far-reaching proposal, which is expected to win approval by a House-Senate conference committee Monday and by both houses of Congress on Wednesday, would set a series of declining deficit targets over the next five years.

If Congress and the President could not agree on federal budgets that would meet those targets, a schedule of wide-ranging--and painful--spending cuts would automatically take effect. The cuts would fall equally on defense and domestic programs, but Social Security and some other benefit programs would be exempt.

‘Step in Right Direction’

Negotiators predicted that President Reagan would approve the plan despite Administration concern that it might cut too deeply into defense spending. But a White House spokesman, Albert Brashear, merely called the agreement “a step in the right direction. There are still technical questions that can’t be determined until the conference resumes on Monday.”

The spending cuts envisioned would be so drastic--requiring the elimination of up to 50 domestic programs next year, Senate Finance Committee Chairman Bob Packwood (R-Ore.) said--that many believe it would force Reagan to abandon his pledge not to raise taxes.

“I think this has a real chance to force the solution to our deficit problem by getting rid of the political gridlock that existed,” Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) said.

California Rep. Leon E. Panetta (D-Monterey), one of the leading House negotiators, described the balanced-budget plan as “a crude tool” and said it was “born in frustration over the deficit, born of failure . . . to get something done about the deficit.”

Without spending cuts or tax increases, deficits are expected to remain at or above $200 billion a year for the foreseeable future. The balanced-budget plan would set deficit ceilings of $171.9 billion this year and $144 billion in fiscal 1987, on the way to balance by fiscal 1991.

Adapted From Legislation

The proposal is a compromise version of legislation introduced in September by Sens. Phil Gramm (R-Tex.), Warren B. Rudman (R-N.H.) and Ernest F. Hollings (D-S.C.).

The plan, so intricate and extensive that few are willing to predict its effects, was attached to a measure increasing the federal debt ceiling, which must be enacted to keep the government operating beyond next week.

Under the proposal, the first round of automatic spending cuts could come as early as next March. But the reductions could not exceed $12 billion from projected spending levels even if that was not enough to reach the $171.9-billion deficit target.

Rudman predicted that Congress would avert the automatic spending cuts by acting on its own either to raise taxes or impose its own set of spending cuts.

“Most of us assume this will force the Congress to make those decisions now . . . because if they don’t, the piper will be paid,” Rudman said.

The political price could be especially high because next year’s cuts would come during the height of the congressional campaign season. The 1986 elections will be particularly crucial in the Senate, where Republicans are trying to protect their fragile majority.

In addition to Social Security, programs exempt from the automatic spending cuts would include those providing income support for poor people and veterans. The plan would limit the cuts in Medicare and other health programs.

Need for New Revenues

Domenici said that the strict deficit-reduction targets would make it “very difficult” to increase defense spending without new revenues. Reagan has insisted that the Pentagon’s budget must grow by 3% beyond inflation in each of the next few years.

The plan contains some important escape hatches. Congress could choose to waive the legal requirement for spending cuts during an economic slowdown or war. And like any other law, it could be repealed if it proved unworkable or politically unpalatable.