Budget Conferees Weigh Freezes in Federal Spending

White House and congressional negotiators Wednesday discussed possible freezes in some federal spending programs as part of a major deficit-reduction package designed to reassure shaky financial markets.

President Reagan “would like to reach an agreement as soon as possible but, under the circumstances, it will probably take a few days,” White House spokesman Marlin Fitzwater told reporters traveling with the President to a speaking engagement in West Point, N.Y.

However, congressional participants in the session here were cautious, warning that the delicate task of seeking a multiyear compromise could take longer than that.

“We have a piece of paper with several different freezes,” Sen. J. Bennett Johnston (D-La.) said after the closed-door negotiating session. “We have to go back and see what’s in there.”

The freeze is essentially the Reagan Administration’s opening gambit in the difficult negotiations. A “hard freeze,” which could wipe out annual cost-of-living allowances for military and civilian retirees and restrict social welfare programs, would save $11 billion, but almost certainly would be rejected by Democrats.

‘Slush Freeze’ Weighed

However, a lesser curtailment, jokingly called a “slush freeze,” probably would be more acceptable to them. This would curtail some programs, but allow cost-of-living increases, permit growth in spending for the poor and avoid layoffs of government workers.

Wednesday’s session, the second day of the budget meetings, focused on spending programs. After meeting four hours during the day, a small group of the negotiators worked late on details of possible savings from a freeze on spending programs.

The debate over taxes will come later, because there is a universal assumption that the Reagan Administration, shaken by the stock market crash, is likely to accept tax increases once flatly rejected by the President.

Democrats are expected to insist that taxes provide $12 billion of the $23-billion deficit reduction package for fiscal 1988, which began Oct. 1. The President’s apparent willingness to consider taxes is something new. “It wasn’t Congress that changed positions after Black Monday (when the Dow Jones average dropped 508 points); the White House did,” said Rep. William H. Gray III (D-Pa.), chairman of the House Budget Committee.

The negotiators agree that any successful plan should have multiyear benefits, with tax revenues growing and spending cuts remaining intact. The result should be deficit reduction of more than $100 billion over three years, presumably enough to demonstrate a serious determination to solve the nation’s fiscal problems.

Fashioning an Agreement

However, fashioning an agreement will be difficult. The White House wants to protect the defense budget, which officials believe has already been cut too severely. Democrats, on the other hand, want to insulate domestic programs from further reductions.

On the tax side, the Administration has identified only $6 billion in revenue measures it approves, just half of the Democratic target. But the negotiators hope to put aside partisan considerations to soothe nervous investors and jittery consumers.

“There’s a feeling the markets are really looking at what we’re doing,” Johnston said.

There is a note of urgency to the discussions. Staff aides were excluded temporarily from the session Wednesday to ensure a frank and confidential discussion among six senators, eight House members and top Administration officials. Representing the White House were Chief of Staff Howard H. Baker Jr., Treasury Secretary James A. Baker III and Budget Director James C. Miller III.

“In three years as the chairman of the Budget Committee, this is the most positive atmosphere for deficit reduction I’ve seen,” Gray said.

Similar praise came from the Administration, which is “pleased with the temper and tone of the negotiations,” Fitzwater said. “We expect hard bargaining. But we’re confident all parties are serious.”

The negotiators are working against a deadline of Nov. 20, when federal law would mandate automatic spending cuts to reach the target of $23 billion in deficit reduction. All programs except Social Security, welfare benefits and veterans’ benefits would be reduced.

Gray warned of the consequences, should the budget negotiations fail. “It will send an absolutely horrible signal to the market,” he said. But he noted “a new sense of urgency” driving the negotiators.

Nevertheless, the talks moved slowly. “We’re touching gloves and circling the ring,” Sen. Bob Packwood (R-Ore.) told reporters.

Sen. Pete V. Domenici (R-N.M.) said the discussions were “slow, but I would say (there was) progress. . . . We’re beginning to work on some specific numbers.”