GOP Plan Would Cut Deficit by $30 Billion : Compromise Is Viewed as Most Promising Yet; Gray Cites Progress, Sees ‘Cause for Optimism’

Republicans proposed a $30-billion deficit reduction plan Friday, apparently with the backing of President Reagan, that shows promise of breaking a two-week deadlock in talks between the White House and Congress.

House Minority Leader Robert H. Michel (R-Ill.) presented the compromise, which was seen as the most promising outline yet for reducing the deficit.

House Budget Committee Chairman William H. Gray III said the negotiators had made “significant progress” in discussing the plan for cuts this year. “There is a movement toward each other in the negotiations. . . . I think there is cause for optimism,” the Pennsylvania Democrat said.

‘The Best Opportunity’

Rep. Trent Lott (R-Miss.), the House’s assistant minority leader, described the proposal as “the best opportunity that I’ve seen for us to get an agreement.”

However, all sides cautioned that they are still a long way from final agreement and expect to be working out their differences at least until Tuesday.

Michel’s proposal includes up to $8 billion in new taxes and a cut of almost $5 billion in defense spending. A large measure of its appeal is that, unlike some of the earlier proposals offered, it would not touch politically sensitive cost-of-living increases scheduled for Social Security recipients and others who depend on government checks.

“We haven’t seen the details, but the broad numbers are a good starting point,” Sen. J. Bennett Johnston (D-La.) told reporters as he emerged from the closed negotiations. But Johnston cautioned that Democrats will probably demand more taxes and fewer domestic spending cuts in the final plan.

Before laying his proposal on the bargaining table, Michel and other congressional GOP leaders took it to President Reagan in a brief meeting Friday morning. In talking to the President, Michel said, “I got the distinct impression that we ought to come up here and do what we could to pursue this.”

“They got down to the bare-knuckle task of looking at numbers and what they mean, and looking at specific proposals and how they work, and considering various options and how might they be received by the Democrats,” White House spokesman Marlin Fitzwater said. “We’re down to the point where we need to do analytical work on some of these ideas.”

Pressure on Washington

The negotiations began last week after the Oct. 19 stock market crash intensified pressure on Washington to take action on a federal deficit expected to approach $180 billion this year. But once the talks began, the Republican Administration’s representatives and the Democrats who control Congress found it difficult to find a common ground between the sharp ideological positions they have held throughout most of the seven years of Reagan’s presidency.

Reagan has insisted that Congress look for further cuts in domestic programs for savings, and Democrats have demanded higher taxes and curbs on defense spending. Both political parties, meanwhile, fear the effects of $23 billion in automatic spending cuts that will go into effect Nov. 20 under the Gramm-Rudman law if they do not come up with another means of reducing the deficit by that much.

Michel’s plan would exceed that target by increasing government revenues $14.4 billion, cutting spending on entitlement programs by $5.1 billion and saving $9.3 billion from other areas of domestic spending. An expected $1.2 billion in savings would come from paying less interest on a government debt that grows less once the deficit is reduced.

No Agreement on Taxes

Of the additional revenues, $8 billion is described vaguely in the plan as “receipts,” and the two sides did not agree on how much of that amount would come from higher taxes. Republicans have speculated that $2 billion could come from increasing Internal Revenue Service enforcement of the tax laws.

The remaining revenues would be raised by selling government assets and increasing the fees charged those who use government services.

Negotiators said they had not agreed on methods of achieving savings on entitlement programs, where spending is hardest to control. Michel said he would suggest cutting spending on Medicare, farm subsidies and guaranteed student loans.

In other areas, including defense, Michel proposed freezing spending during the first half of the fiscal year that began Oct. 1 and allowing it to rise only 2% in the final six months.

Military Spending Cut

“I know over at the Pentagon they ain’t going to be very happy,” Michel said. However, the $4.9-billion reduction is less than half the amount that would be hacked from military spending if Gramm-Rudman’s automatic cuts are allowed to take effect.

For fiscal 1989, Michel proposed sharper measures aimed at lowering the deficit by $45.5 billion.

As the negotiations continued Friday, the Senate approved a short-term spending bill to keep the government running into December by continuing spending at fiscal 1987 levels. The bill, which was approved Thursday by the House, was sent to Reagan’s desk.

Included in the stopgap spending bill is $3.2 million in new non-lethal aid for the Nicaraguan rebels, aimed at supplying the Contras with such items as food and medicine while efforts are being made at peace in the region.