‘An Imperfect Solution’ : Governors Ambivalent on Gramm-Rudman

The Gramm-Rudman deficit reduction law is best understood as a “planned train wreck” that will take place unless President Reagan and Congress cut the deficit on their own, Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) told leaders of the National Governors’ Assn. here Sunday.

Picking up on Domenici’s metaphor, Democratic Gov. Bill Clinton of Arkansas responded: “Given the President’s budget priorities, almost all of us would be better off with the train wreck.”

The exchange illustrated the ambivalent attitude toward Gramm-Rudman that many of the nation’s governors shared as they opened their annual winter conference here. Whatever misgivings they have about the law must be weighed against the potential consequences of the fiscal alternatives.

Not surprisingly, there is uneasiness in the ranks of the governors about the meat-ax approach of Gramm-Rudman, which will impose across-the-board spending cuts if Congress and the White House cannot find a way to keep up with the new law’s five-year timetable for reducing the deficit. But a number of governors, such as Clinton, do not like President Reagan’s own approach to cutting the deficit, as outlined in his budget proposal.

‘One-Way Street’ Budget

A report of the National Governors’ Assn. staff complains that the Administration’s policy toward the states that is embodied in the budget “appears to be a one-way street--where the federal government unilaterally assigns additional federal costs to state and local governments without acknowledging its obligation to increase spending in areas that are properly a federal responsibility.”

But as distasteful as those cuts might seem, the governors are at least as fearful of what continuing huge federal deficits might do. Oregon’s Gov. Victor G. Atiyeh, a Republican, said that findings of a study conducted in his state indicated that 18,000 jobs eventually would be lost if the deficit was not brought under control.

Viewed in this context, Gramm-Rudman takes on a certain appeal. “It’s an imperfect solution,” said Gov. Richard D. Lamm of Colorado, a Democrat and one of the governors who met with Domenici. “But I think most governors see Gramm-Rudman as an action-causing event that will eventually lead to a solution.”

The governors are mindful that a federal court has held one part of Gramm-Rudman to be unconstitutional and the law, along with the fiscal salvation it is perceived to offer, eventually may be overturned by the Supreme Court. But the governors are used to being in a situation in which their own destinies and those of their states are controlled by decisions made by other government agencies.

Viewpoint on Tax Law

The subject of income-tax reform, which also came up for discussion at Sunday’s session, provided another example of the governors’ passive predicament. Although most of them favor the idea of simplifying the tax code, Colorado’s Lamm said, many governors also would like to see some of the revenue gained by closing loopholes used to reduce the deficit, instead of having all of it go toward lowering the tax rates.

President Reagan has insisted from the beginning, however, that a tax-law overhaul must not increase overall federal revenue. Domenici, asked whether Congress might modify that dictum to lower the federal deficit, told the governors: “I don’t believe that will be done.”

On another issue of direct importance to them, Sen. Bill Bradley (D-N.J.) told the governors that the Senate would probably go along with the provision in the House-passed tax bill that retains the deductibility of state and local income taxes. Bradley, one of the early leaders of the drive for tax reform, noted that the President had proposed eliminating those deductions, but said: “My guess is that it will be retained in the Senate.”