25% Cuts in Non-Defense Programs Seen

The Gramm-Rudman balanced-budget law might force drastic reductions of 25% in unprotected non-defense programs during the fiscal year that begins Oct. 1, while non-exempt military accounts could face an automatic 18% cutback, two top budget analysts testified Wednesday.

Rudolph G. Penner, director of the Congressional Budget Office, and Comptroller General Charles A. Bowsher made the estimates in a joint appearance before the Senate Budget Committee as the panel began hearings into the implementation of the controversial law, enacted by Congress in December.

Court Challenge

The legislation, if it survives a pending court challenge of key provisions, will trigger an $11.7-billion spending cut in the current fiscal year in a wide variety of defense and non-defense programs that have not been specifically exempted.

It will also require that the federal deficit, estimated at about $220 billion for fiscal 1986, be reduced to $144 billion in fiscal 1987, either through congressional action or mandatory cuts.

In testifying before the same panel, Budget Director James C. Miller III gave a somewhat different projection. He said that, if spending persists at present levels, the size of next year’s mandatory cuts mights have to be as much as $60 billion. And that would mean unprotected non-defense programs would suffer a 20% to 25% automatic cutback, he said.

However, Miller reiterated the Administration’s intention to propose a budget for fiscal 1987 that would meet the $144-billion deficit target.

In addition, Miller confirmed that the Administration probably will ask Congress to authorize more money for the Internal Revenue Service for fiscal 1986--even though the tax-gathering agency’s operating budget would be automatically chopped, along with other non-defense programs, if the first round of Gramm-Rudman cuts goes into effect on March 1, as scheduled.

Collecting More Taxes

He said that the increase would be designed to help the agency enlarge its staff of auditors, agents and tax collectors and avoid a repetition of the processing nightmare that delayed refunds for many taxpayers last year. Miller said that the extra spending would be justified because it would help the agency collect a larger amount of revenue.

Budget Committee Chairman Pete V. Domenici (R-N.M.), ridiculing President Reagan’s opposition to raising taxes to help meet the deficit targets, told Miller that Reagan’s plan for a sweeping overhaul of the federal tax code would impose a hidden, and onerous, tax hike on businesses.

“I really have a lot of difficulty understanding the rationale that says $25 billion to $30 billion in new taxes, judiciously applied, will destroy the economy while tax reform that puts $150 billion in new taxes on business is OK,” Domenici said.

The Gramm-Rudman legislation, named for its principal Senate sponsors, Republicans Phil Gramm of Texas and Warren B. Rudman of New Hampshire, is designed to force the deficit down over five years until federal red ink is eliminated by fiscal 1991.

Although it would mandate annual automatic trims if deficit targets are not met, certain military and non-defense programs, such as Social Security, are exempt from the cutbacks.

Large Layoffs Predicted

In related Capitol Hill developments, the head of the largest union of federal workers predicted that the Gramm-Rudman cuts projected for fiscal 1987 would force the layoff of 300,000 government workers. But Kenneth Blaylock, president of the American Federation of Government Employees, told the House Budget Committee that the first round of small-scale cuts expected March 1 probably would not force a significant number of layoffs.

Meanwhile, Chicago Mayor Harold Washington complained to the same panel that “the President’s recommendations and Gramm-Rudman would tear the guts out of local government.” Budgets “must not be balanced on the backs of our urban centers,” Washington said.