After three weeks of high-stakes bargaining between the White House and Congress, a deficit-reduction package now hinges upon reaching agreement on roughly $2 billion in additional cuts in entitlement programs, sources said Saturday.
President Reagan expressed optimism in his radio address Saturday, and predicted that a "fair and enforceable" package will emerge from the private negotiations this week.
Unless the two sides can agree by Friday, more than $23 billion in indiscriminate spending cuts will go into effect automatically under the Gramm-Rudman law.
Concern for Stock Market
Beyond the pain caused by slashing both military and domestic spending, the automatic cuts could send the stock market into another panic by indicating that elected officials have lost control of a deficit that is projected to reach $180 billion this year if left unchecked.
Entitlement programs--those such as welfare and Social Security, for which people automatically become eligible according to income, age or other criteria--have grown into one of the most uncontrollable areas of the federal budget.
"The failure to reach an agreement will send a terrible signal to this nation and to the world that neither the President nor the Congress of the United States is able to govern in the face of crisis," Rep. Leon E. Panetta (D-Monterey), one of the congressional negotiators, said in the Democrats' weekly radio address.
Reagan predicted that the ultimate deficit-reduction agreement will cut the government's projected budgetary shortfall by $30 billion this fiscal year--well above the amount needed to avoid the Gramm-Rudman cuts--and by $50 billion in fiscal 1988.
Unspecified New Taxes
Its major elements are expected to include between $9 billion and $10 billion in unspecified new taxes--more than double the $4 billion the President originally indicated he would accept. The deal also is likely to call for cutting almost $3 billion from projected spending on most types of domestic programs and $5 billion from the Pentagon's budget.
Additional savings would be achieved through stiffer enforcement of tax laws, refinancing certain government loans, imposing higher fees on those who use government services and from selling off federal assets.
Although the remaining $2-billion gap might appear relatively insignificant for negotiators who are grappling with a $1-trillion budget, all of the proposals for bridging it touch raw political nerves.
Congressional staff members were working over the weekend to compile what one source described as "a series of options" for further cuts in entitlement programs, and will present it to both sides on Monday.
However, he cautioned, "there's no agreement at all" on which of the measures is likely to be included in the final package.
Negotiators have already tentatively agreed on about $3 billion in entitlement cuts. Among the proposals for reaching a total of $5 billion, sources said, is a politically explosive plan to save $2 billion by delaying for three months next year's scheduled cost-of-living increases for federal employees, Social Security recipients and others dependent on government retirement checks.
Variations Shot Down
Variations of this option have emerged repeatedly throughout the negotiations and have been quickly shot down every time. Reagan himself has said that Social Security is the only program that cannot be put "on the table."
Among the other options that will be included in the list that will be submitted to the negotiators on Monday are a series of suggestions for cutting federal Medicare spending without increasing the out-of-pocket costs being paid by the program's recipients.
By some estimates, the government could save as much as $6 billion a year by updating the figures it uses when it calculates the amount it reimburses doctors and hospitals for performing various types of medical procedures on Medicare patients.
Other Cuts Possible
Smaller savings, each amounting to hundreds of millions annually, could be achieved through such measures as:
--Cracking down on states for their errors in administering the food stamp program.
--Cutting back on what some lawmakers see as the overly cautious reserves that banks carry against the possibility of default on federally guaranteed student loans.
--Reducing the share that Washington chips in to help states run low-income programs such as Medicaid, Aid to Families With Dependent Children and food stamps.
The talks began in the wake of the Oct. 19 stock market crash, when Reagan gave his first indication that he was willing to back away from his opposition to increasing taxes beyond the relatively modest amounts proposed in his own budget.
Reagan's team has been led by White House Chief of Staff Howard H. Baker Jr., Treasury Secretary James A. Baker III and Budget Director James C. Miller III.
Appeared to Bog Down
As recently as Thursday, the negotiations appeared to have bogged down as each side emerged from behind closed doors and angrily accused the other of scuttling a potential agreement.
But on Friday, with news of the snag making Wall Street investors nervous, the tone once again turned amicable. Asked what accounted for the sudden and dramatic change in mood, one Democratic staff member replied: "Fear."
The ultimate deal is likely to be only a broad outline, leaving it to congressional committees and each house of Congress to approve the specific tax increases and spending cuts needed to reach the targets. Thus, Republican and Democratic leaders are viewing these negotiations as only a first step.
"After we all come to agreement, there's another component: Where are the votes to sell it?" House Minority Leader Robert H. Michel (R-Ill.) said last week. "I'm going to have one whale of a problem on my side," where many conservative Republicans are adamantly opposed to higher taxes.
Meanwhile, many liberal Democrats are likely to object strongly to the expected domestic spending cuts, and to complain that military spending has not been pared back enough. "Agreement unless you can pass something doesn't mean anything," said House Appropriations Committee Chairman Jamie L. Whitten (D-Miss.).