Reagan Budget at $1.02 Trillion : Scales Back on Social Program Cuts, Defense Spending Requests

President Reagan, setting the stage for a months-long confrontation with the new Democrat-led Congress over spending priorities, Monday proposed a $1.02-trillion federal budget that would sustain his defense buildup, avoid cuts in Social Security benefits and curtail many domestic programs.

But Reagan’s budget for fiscal 1988 represents only a modest echo of his more radical budget proposals of previous years. He retreated from previous calls for huge increases in defense spending and scaled back his efforts to kill dozens of specific federal agencies and social programs.

Once again ruling out any general tax increase, the White House budget for the fiscal year that begins on Oct. 1 calls for a variety of spending cuts and revenue measures aimed at slicing the deficit by about $42 billion below its level if current policies remain in force.

Gramm-Rudman Target

That would bring the deficit down to $108 billion, exactly the target spelled out by the Gramm-Rudman deficit reduction law. By contrast, the deficit for fiscal 1987, which ends on Sept. 30, is now estimated at $173 billion.

“The 1988 budget can deal the deficit a crucial blow,” Reagan said in his message sending the budget to Capitol Hill. “Given the good start made in 1987, Congress has an opportunity this year--by enacting this budget--to put the worst of the deficit problem behind us.”

Yet Reagan’s budget, which assumes steady economic growth of more than 3% a year, shows that federal deficits would not be wiped out until 1992 at the earliest--three years after he is scheduled to leave office.

“This budget doesn’t exactly slay the deficit dragon,” acknowledged James C. Miller III, director of Reagan’s Office of Management and Budget. “Last year we put the fire out, this year we will throw the net over it and get it under control.”

Even before Reagan’s budget was formally unveiled Monday, Democratic lawmakers had lined up to challenge his priorities. They promised to prevent the defense budget from rising faster than inflation and vowed to expand spending on education as the centerpiece of their effort to improve the nation’s ability to compete in the world economy.

Sen. Robert C. Byrd (D-W.Va.), the new Senate majority leader, objected that Reagan’s budget would slash education aid by 25% over the next five years while allowing defense spending to grow by $20 billion a year.

Key congressional budget writers already have begun talking about relaxing the $108-billion deficit goal of Gramm-Rudman. That goal remains in force although the Supreme Court ruled that the law’s key enforcement mechanism--automatic across-the-board spending cuts--is unconstitutional.

Reagan urged Congress to stick to the target. “If the deficit reduction goals were to be abandoned,” he insisted, “we could see unparalleled spending growth that this nation cannot afford.”

But Rep. Butler Derrick (D-S.C.), a member of the House Budget Committee, predicted “a strong move to change the target.” Slashing the deficit from $173 billion this year to $108 billion next year, he said, could have “a very negative impact on a fragile, slow-growth economy.”

Sees No ‘Magic’ in Number

Sen. Lawton Chiles (D-Fla.), who will chair the Senate Budget Committee in the new Congress, added: “I’ve never felt there is a magic in the $108-billion number. The signal you want to send is that you have a plan to get (the deficit) to zero in a fixed amount of time.” At the same time, he insisted that the Gramm-Rudman target should not be abandoned unless “we have something as good or better to take its place.”

Democrats remained reluctant to confront Reagan over his insistence that taxes not be raised. Instead, they urged the President to convene high-level negotiations between the Administration and congressional leaders to piece together a compromise package of spending cuts and tax increases.

Chiles, repeating his call for a “summit meeting” between the White House and Congress, offered to propose at such a meeting a temporary tax surcharge that would last three to five years and raise money only for purposes of deficit reduction. Other Democratic leaders have been calling for a substantial new tax on imported goods as part of a twin assault on the budget and trade deficits.

Sen. Pete V. Domenici of New Mexico, the senior Republican on the Budget Committee, expressed concern, however, that what would be billed as a summit meeting might only amount to “a whole batch of posturing.”

Congressional leaders also challenged Reagan’s budget figures. They contended that a separate estimate by the nonpartisan Congressional Budget Office shows that the deficit would be $169 billion in 1988 without any further spending cuts or revenue measures, rather than the $150 billion estimated by the Administration.

“If your starting line is false, then you won’t hit the Gramm-Rudman target,” said House Budget Committee Chairman William H. Gray III (D-Pa.). “It’s not a realistic starting point.”

Gray also maintained that buried in the plan are at least $3.7 billion in plainly marked “taxes. That’s right, folks, taxes. There are taxes in this proposal”--including a payroll tax on state and local employees for Medicare and repeal of gasohol’s exemption from gasoline taxes.

Also included in the plan, Gray said, are revenues labeled “user fees, which I am sure Joe Six-Pack would say is a tax.” When asked whether he thought taxes would be necessary, Gray dodged the question by replying: “The President already has answered that question.”

Congressional Republicans supported the President’s reluctance to yield on his opposition to any new tax increase and challenged Democratic critics to produce a better plan.

Senate Republican leader Bob Dole of Kansas urged his colleagues to avoid the “annual rain dance of criticism” of Reagan’s budget. “We don’t have time to sit around wringing our hands and posturing in long-winded speeches,” he said. “We have a deficit problem to solve.”

Contrasted with recent budgets, the Administration this year toned down its effort to eliminate more than 40 domestic programs. It abandoned, for instance, its past proposal to abolish the Small Business Administration and sought to increase certain fees for housing loans rather than abolish the agencies that administer them.

More Success Seen

Although Reagan’s budget consists largely of watered-down proposals--many of which Congress has rejected in the past--it also includes several initiatives that are likely to meet with more success this year.

The White House would rework existing job retraining programs and establish a $1-billion program designed to help workers who lost their jobs because of foreign competition. It would spend $534 million for AIDS research, more than double the level of just a year ago, and pump $1 billion into modernizing the air traffic control system.

Another of the winners in Reagan’s 1988 budget is the National Aeronautics and Space Administration. Spending for the space shuttle and other space programs would be increased to $5.6 billion from the current $4.3 billion.

The Administration faces another bitter fight on Capitol Hill over farm programs, which have run out of control in just the one year since Congress approved a comprehensive program that was supposed to hold farm spending to about $50 billion during the three years from 1986 through 1988.

Spending on all farm subsidy programs for next year would fall to $26.3 billion from the current $31.1 billion, but the cuts would be achieved largely by pushing some expenses back into 1987. Only in later years would there be real savings, which would total about $24 billion through 1992.

Federal Pay Hikes

Along with his budget, Reagan also sent Congress a proposal for pay increases that would range as high as 15% for the highest-level federal employees, who have not received a salary hike except for inflation adjustments since 1977.

The presidential action, which will take effect automatically unless rejected by both chambers of Congress, would boost congressional salaries to $89,500 from the current $77,400. Under the proposal, the vice president’s pay would rise from $100,800 to $115,000, and Supreme Court justices would receive a salary of $110,000, up from 107,200.

Government civil servants would receive a proposed overall salary increase of 2% on top of a recent 3% hike, with larger hikes targeted for more productive bureaucrats. Administration officials conceded that the hike would still leave government workers with increases below the expected inflation rate.

Increased Revenues

Of the $42 billion in deficit reduction measures being proposed, nearly $23 billion would be raised by boosting revenues.

Increased fees for using such government services as the national parks would yield $3.2 billion. Another $5.5 billion would be raised by selling government loans, and the sale of other assets, such as Amtrak and selected federal power marketing agencies, would produce $5.4 billion.

In addition, part of the $23 billion in revenues would be reaped through a handful of minor tax hikes, including the Medicare tax on state and local government workers and elimination of the gasohol exemption.

In a carry-over from previous Reagan proposals, the Administration is again proposing to eliminate most grants for building mass transit systems, including the Metrorail project in Los Angeles.

$312 Billion for Defense

The budget would raise new Defense Department spending authority to $312 billion. The $22-billion increase from this year’s congressional authorization represents the smallest Reagan has sought since taking office. The White House has also been seeking a $2.8-billion supplemental defense spending request for this year, a request that Congress is likely to whittle down considerably.

Included in the budget request for next year is another $105 million in aid for the rebels fighting the leftist government in Nicaragua, on top of this year’s $100 million.

The State Department is seeking $15.2 billion for all forms of foreign aid--$12.6 billion of it for individual countries and 42% of that for Israel and Egypt. Of the total, $2 billion is set aside for nations that grant base rights to U.S. military forces and $1 billion would go to Central America. Africa, the poorest continent, would receive less than $900 million.

In addition, Secretary of State George P. Shultz submitted a request for $1.3 billion in supplemental funds for the current fiscal year because he said the current appropriation was inadequate to meet the nation’s foreign policy needs.