Senate Passes Budget Package : $1-Trillion Plan May Spur Showdown on Taxes

A weary Senate early today overwhelmingly approved a $1-trillion fiscal 1987 budget that would slash President Reagan’s defense spending request by about $19 billion and more than double the amount he had proposed in new revenues, setting Congress on a collision course with the White House over the issue of higher taxes.

It drew strong support from both parties--marking the first time in years that a budget plan has passed the Senate with such a strong bipartisan majority and indicating that it could frame the upcoming budget debate in the heavily Democratic House. The measure passed 70 to 25, with California Democrat Alan Cranston voting for it and Republican Pete Wilson opposing it.

Senate Majority Leader Bob Dole (R-Kan.) said Reagan was expected to express “some disappointment” with the package, which Reagan believed went “too far on the revenues and not far enough on defense, and not far enough on (domestic) spending reductions.”

White House Chief of Staff Donald T. Regan had discussed the proposal Thursday with Dole by telephone from an Indonesian airport shortly before Reagan departed for the economic summit in Japan.

Dole said Regan had told him that the President nonetheless “appreciates the fact that the Senate has met its responsibility.”

Although Reagan does not have the power to veto the budget resolution that Congress ultimately produces, he can block the subsequent tax and spending bills that will turn the broad outlines of the spending blueprint into reality.

The measure took a middle ground between Reagan’s spending proposal and the plan approved last month by the Senate Budget Committee, which had drawn sharp criticism from both the White House and many Republicans in the Senate.

Two Weeks of Talks

It was patched together by Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) and ranking committee Democrat Lawton Chiles of Florida late Thursday, after more than two weeks of fruitless deliberation over the committee package.

“I am convinced we either do this or we do nothing,” Domenici said.

Chiles said the plan amounted to “the strongest signal we could send to the White House that we’re serious about deficit reduction,” and that the task “is going to take some revenues.”

Reagan had recommended a relatively modest $6 billion in new revenues, most of which would come from increasing fees for use of government services and selling off federal assets, compared with about $19 billion in the committee plan, which would include raising taxes. Since that time, about $2 billion of those additional revenues have been enacted into law.

The package approved by the Senate included about $6 billion more in revenues than Reagan had asked. It does not specify how those revenues would be raised--leaving that issue to be decided by the Senate Finance Committee--but it is virtually certain that a tax increase would be required to meet such a large goal.

Tax Amnesty Proposed

Among the options that have been suggested are an oil import fee, a sales tax on gasoline and a one-time amnesty for delinquent taxpayers who come forward and offer to pay back taxes that they owe.

Although the spending plan would greatly reduce Reagan’s request for 8% growth in defense spending beyond anticipated inflation of about 3%, it was about $6 billion higher than the Pentagon budget figure recommended by the Budget Committee. Critics had said that the committee proposal would not even increase the Pentagon’s budget enough to keep pace with rising prices, which meant it would actually cut military purchasing power.

The new Gramm-Rudman balanced-budget law has added urgency to this year’s budget debate. Unless Congress and Reagan can agree on a means of cutting the projected deficit by about $40 billion before October, lawmakers will find themselves facing the sweeping and painful automatic spending cuts mandated by the law only weeks before this fall’s elections.

From the start, Reagan has argued that cutting social spending--rather than curbing defense growth or raising taxes--is the way to meet the $144-billion deficit target set by the new law.

The budget plan approved by the Senate would eliminate about a dozen relatively minor federal programs, but generally rejects most of the more dramatic social-spending cuts that Reagan had asked.

Chiles said that if the House follows the Senate lead on the budget, it would put Congress in a strong position to go to the White House and plead: “We need your help. We need you to get on board.”

House leaders have not yet begun public deliberations on the budget, but pledged to produce a plan within days of final Senate action.

‘Laying a Trap’

Dole had earlier accused Democratic House members of laying “a trap” for the Senate if it approved a budget plan that included taxes by passing one of their own that did not.

While House Budget Committee Chairman William H. Gray III said “revenues are needed,” and added that “the House will not consider them until the President and the Republicans signal agreement.”

Senate leaders bridged part of the gap between their budget and the President’s by changing their estimates of how much inflation would rise. That allowed them to count about $3 billion in savings by assuming that cost-of-living increases in Social Security and other inflation-adjusted federal programs would rise by only 2%, rather than the 3.4% earlier estimated.

Some senators criticized that approach as betting on improvements in the economy that had not actually happened. Sen. Daniel J. Evans (R-Wash.) described that approach as “roll the dice and hope for snake eyes.”

However, Domenici insisted that the adjustments were in line with the best estimates available.