President Seeks More for Defense : Budget Plan Would Cut Domestic Programs, Meet Deficit Target

President Reagan, clinging to his own deep-felt priorities despite mounting congressional demands for change, Wednesday unveiled a $994-billion spending blueprint that would raise next year’s defense budget by $34 billion above current levels and cut $24 billion from health care, education, housing, transportation and other domestic programs.

The White House budget for fiscal 1987, which begins Oct. 1, is designed to meet the $144-billion deficit target required by the Gramm-Rudman balanced-budget law without raising taxes or limiting Social Security benefits.

And, tacitly recognizing that Congress previously has rejected many of the proposed cuts in domestic spending, the Administration held out hope that no further spending cuts of this magnitude would be required to achieve a balanced budget by 1991.

“If Congress signs off on the President’s budget,” said White House Budget Director James C. Miller III, “we don’t have to take the so-called bad medicine but once.”

Robust Growth Needed

That prognosis rests, however, on an assumption that there will be robust economic growth uninterrupted for the next five years--a record of sustained prosperity that would be without precedent for the United States since World War II.

In any case, there is scant evidence that Congress is going to accept the President’s budget as presented. Many of the programs marked for the budget knife--such as Amtrak rail subsidies, small business loans and support for mass transit construction--continue to have strong support in Congress. Other White House proposals aimed at selling off major chunks of federal property and auctioning part of the government’s loan portfolio to the highest bidder are likely to be greeted with skepticism.

Even before Wednesday, when Reagan officially disclosed his new budget, lawmakers began arguing that the White House proposal would be “dead on arrival.”

Both Republicans and Democrats on Capitol Hill are preparing for a knock-down, drag-out fight with the Administration over spending and taxes that is expected to overwhelm all other legislative issues right up to the congressional elections in November.

Many leading lawmakers argue that taxes need to be increased to ease the budget crunch and insist that the Pentagon should absorb an equal share of the austerity imposed on the federal government by the new budget-balancing law, named after its Republican sponsors, Sens. Phil Gramm of Texas and Warren B. Rudman of New Hampshire.

House Speaker Thomas P. (Tip) O’Neill Jr. (D-Mass.), declaring that military spending “will suffer along with domestic programs,” argued Wednesday that the Pentagon cannot expect to “escape the ax” as long as Reagan continues to rule out any tax increase.

Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) also appeared to reject Reagan’s budget, calling for a “summit” on the deficit at which congressional leaders and the White House could work out an overall plan to meet the $144-billion deficit target without triggering indiscriminate spending cuts next fall under the Gramm-Rudman measure.

Domenici called for “substantial domestic cuts” and higher taxes as the “glue that binds the package together.”

Treasury Secretary James A. Baker III, however, did not encourage such talk of early agreement on an overall budget plan. “We ought not to be talking about a grand compromise” with Congress, he said, arguing that the Reagan Administration remains committed to sustaining its defense buildup and preventing a tax hike.

Baker said lawmakers should abandon the “illusion that tax increases will provide an easy way out.”

Reagan already has indicated that he is willing to consider an oil import fee in a tax overhaul bill that would neither raise nor lower total federal revenues, Baker acknowledged. He added that the President also has not ruled out accepting a higher gasoline tax to help lower personal and corporate income tax rates.

Not Quite So Harsh

The budget Reagan disclosed Wednesday did not present lawmakers with quite such a harsh set of choices as many earlier had feared. It called for shaving $38.2 billion out of a deficit that was projected at $181.8 billion if current spending and taxing policies remain unchanged. Only a couple of weeks ago, Administration officials had been warning that the budget might have to propose cutbacks totaling $50 billion to $60 billion to meet the Gramm-Rudman target of $144 billion.

Part of the reason for this thin slice of good news is that a first round of Gramm-Rudman across-the-board spending cuts, a total of $11.7 billion out of domestic and defense spending beginning on March 1, helped narrow the budget gap for fiscal 1987.

“The cuts are moderate, not Draconian,” contended Beryl Sprinkel, Reagan’s chief economic adviser. Meeting the Gramm-Rudman targets by cutting spending, Sprinkel said, would have “highly favorable effects on the U.S. economy.”

Suggesting that the Reagan budget should not be buried prematurely, Senate Majority Leader Bob Dole (R-Kan.) quipped: “I think before we start driving nails in everything, we ought to take a look at it.” And House GOP leader Robert H. Michel of Illinois said: “The opposition can call it ‘dead on arrival,’ but from my point of view it’s the beginning.”

Would Hurt Some Programs

Even though the spending plan does not slash as deeply as expected, however, it nonetheless anticipates eliminating a host of federal agencies and cutting deeply into a wide variety of government programs that benefit farmers, fishermen, bus and subway commuters, the poor and local business.

Among the programs targeted for extinction: Amtrak rail passenger service; small business loans; mass transit construction subsidies, including Los Angeles’ proposed Metrorail; the new GI Bill; Urban Development Action Grants to subsidize construction in blighted areas; the Legal Services Corp.; maritime subsidies for commercial fishing; energy cost assistance, and soil conservation aid.

The largest spending cuts would come out of Medicare aid for the elderly, housing subsidies, Medicaid assistance for the poor and subsidized loans for college students.

The White House proposed to deny federal retirees cost-of-living increases for another year and said it would save additional money by trimming the government work force and limiting pay increases for federal workers.

Would Sell Assets

In a new initiative, the Administration suggested that the government should dispose of a number of major assets, including five large agencies that sell low-cost electricity from federal dams and power plants, mostly to consumers in the Western United States. In addition, the budget proposes selling the Energy Department’s two naval petroleum reserves at Elk Hills in California and Teapot Dome in Wyoming.

At the same time, the Reagan Administration wants to begin selling off its huge portfolio of government loans that have been used for such programs as housing, student aid and rural development. The loans, many of which are in default, would be sold to private investors at whatever price they could fetch.

Only a tiny number of programs were singled out for increases above the levels projected for them under current policies: The State Department is supposed to receive additional money to protect its embassies abroad from terrorists, foreign aid was designated for an extra $1.5 billion and dislocated workers should benefit slightly from a new aid program.

Conforming to projected trends, the White House proposed raising actual Defense Department spending by $15.9 billion over this year’s level, to $274.3 billion, and allowing Social Security benefits to increase by $12 billion to $209.6 billion, while acknowledging that interest payments would continue to rise, climbing an estimated $5.3 billion to $148 billion.

Would Absorb Cuts

The remaining 36% of the budget would be required to absorb nearly all the proposed cuts, with welfare and food stamp programs falling slightly--by $800 million to $39.4 billion--and other domestic programs dropping by $18.6 billion to $352.9 billion.

About $8.7 billion would be raised by keeping the cigarette tax at 16 cents a pack, increasing tax collections through stepped-up enforcement and boosting rates for users of government services, such as entrance fees for tourists at national parks, customs charges for exporters and importers and fees for boat owners who rely on the Coast Guard.

Overall, spending would rise from an estimated $979.9 billion this year to $994 billion in fiscal 1987, while federal revenues are expected to grow from $777.1 billion to $850.4 billion.

Current Year Changes

For the current fiscal year, the Reagan Administration proposed going back and making spending changes worth a total of more than $10 billion, estimating that they would trim the deficit for fiscal 1986 by about $3.3 billion. If Congress rejects the cuts in current spending plans, Miller said, it would add about $1 billion to next year’s projected budget deficit.

The White House estimated that the budget deficit for this year would hit $205.6 billion with no change in policies, shrinking to $103.9 billion by 1991 as long as the economy continues to improve strongly.

If Congress approves the spending plan, Reagan’s budget projected, the deficit would fall to $143.6 billion next year, dropping rapidly each subsequent year to a $1.3-billion surplus in 1991. Under its economic assumptions, the budget deficit would meet the targets established by the Gramm-Rudman measure for the next five years.