Negotiators Fail to Reduce Deficit : Reagan to Order Gramm-Rudman Cuts Today; Congress Can Still Act

Congressional and Reagan Administration negotiators failed Thursday to finish work on a deficit-reduction package, and it appeared that the across-the-board spending cuts mandated by the Gramm-Rudman law will take effect today--at least temporarily.

The deficit talks will be resumed today, and one negotiator contended that agreement is “imminent.”

But the negotiators have been predicting agreement for a week, and White House Chief of Staff Howard H. Baker Jr. said that President Reagan will sign an order putting the across-the-board cuts into effect even if the negotiators reach a last-minute agreement.

Could Delay Deadline

Under terms of the Gramm-Rudman law, only a deficit-reduction package signed by the President--not merely an agreement among negotiators--can avert the across-the-board spending cuts. In the event of such an agreement, Congress could postpone tonight’s midnight deadline for ordering the cuts, but opposition in the Senate appeared to rule out that course.

The cuts, totaling $23 billion, are required by the Gramm-Rudman deficit-reduction law in the absence of congressional action to reduce the fiscal 1988 deficit by that amount.

They would pare 8.5% from all domestic spending programs except Social Security and some other benefit programs, which are exempted, and 10.5% from all Defense Department programs, excluding military personnel, which Reagan exempted.

The across-the-board cuts are “not irretrievable or beyond adjustment,” said House Majority Leader Thomas S. Foley (D-Wash.). They would be superseded if Congress finally enacts tax increases and spending cuts of at least $23 billion.

As negotiators worked past the dinner hour Thursday, the outlines of a possible deficit-reduction package took shape. When the talks broke up, some negotiators said all that was needed was the final approval of Reagan, Senate Majority Leader Robert C. Byrd (D-W. Va.) and House Speaker Jim Wright (D-Tex.).

But Foley said: “You should not assume agreement has been reached.”

Budget negotiators said they were aware that allowing the across-the-board spending cuts to take effect would convince world financial markets that Washington has lost control of the deficit. That, they warned, could cause another steep decline in stock prices like the 508-point plunge in the Dow Jones industrial average on Oct. 19 that led to the current budget negotiations.

Tokyo Stocks Higher

In Tokyo today, the key index, the 225-share Nikkei stock average, rallied in afternoon trading to gain 36.76 points and close at 22,705.56. The dollar gained 0.52 yen and finished at 135.37 yen.

“The real problem is one of confidence in the U.S. political process to deal with the deficit, or even to function,” said Allen Sinai, chief economist with the brokerage house of Shearson Lehman Bros. in New York. “On that ground, we can expect more market fallout: in the dollar, perhaps in the stock market.”

Earlier in the day, Reagan had implored the negotiators to produce an agreement and Congress to support it.

“While the final package may not be all that I might want, it will not be all that Congress wants either,” Reagan said in a speech to the U.S. Chamber of Commerce. “But it is vital that the negotiators complete their work now.

“Any agreement that comes from these sessions probably will not be the final word on reducing the federal budget deficit, but it will be the right signal at the right time and will show our determination to work together to solve this problem.”

The package that was taking shape Thursday would reduce the deficit by about $30 billion from the $180 billion that it is otherwise expected to reach in fiscal 1988, which began on Oct. 1.

Its primary elements included $9 billion or $10 billion in higher taxes, $4.9 billion in defense spending cuts, reductions of $2.6 billion in most types of domestic spending and $4-billion worth of reductions in Medicare and other programs that guarantee federal benefits to certain individuals.

One unsettled area was taxes. The negotiators were considering levying as much as $13 billion in new taxes and then returning about $3 billion in the form of tax breaks to favored constituent groups.

Republican Opposition

Despite Reagan’s plea, many congressional factions opposed the plan, with Republicans leading the way. They complained that it included too little in spending cuts and too much in new taxes.

“Nobody is supporting the package,” Rep. Connie Mack (R-Fla.) said. “It’s not a compromise, it’s a retreat.”

Democrats said that they would oppose the package unless Republicans agreed to vote for it. “I’m not going to ask Democrats to jump off the cliff while Republicans wave at us,” House Budget Committee Chairman William H. Gray III (D-Pa.) said.

A measure to delay the cuts until Dec. 16 was cleared by the House Rules Committee Thursday for a vote by the full House. But there appeared to be little sentiment in the Senate to face the public condemnation that probably would greet a decision to put off the across-the-board spending cuts without agreement on some other deficit-cutting package.

Even an agreement today among the negotiators would not be enough to avert the across-the-board cuts. Only legislation implementing the agreement could do that. And getting such legislation through Congress would be no sure thing.

Postponement Unlikely

If the negotiators reach agreement today, Congress might find it easier to pass legislation postponing the across-the-board cuts. But even that outcome appeared unlikely in light of widespread opposition in Congress to many of the components of the sketchy deficit-cutting package being discussed by the budget negotiators.

White House Chief of Staff Baker said that he did not see how Reagan could unilaterally avoid the Gramm-Rudman mandate that he sign the order imposing the across-the-board spending cuts.

“If we fail to come to an agreement, I suppose he’ll have to,” Baker said. “I don’t think he has any discretion.”

Even if the across-the-board cuts take effect today, they can be superseded later if Congress finally enacts a deficit-reduction package. Government agencies that spent at the reduced levels mandated by the across-the-board cuts could, if permitted by the new deficit-cutting plan, make up the difference later in the year.

Relatively Mild Impact

The initial impact of the across-the-board cuts could be relatively mild. All government agencies have been ordered by the Office of Management and Budget to be prepared to spend 8.5% or 10.5% less than Congress has provided, but they have the option of spending at full speed now and implementing the cuts later in the fiscal year--in hopes that Congress will have reversed the cuts by then.

Although many Republicans said they would prefer the Gramm-Rudman law’s indiscriminate cuts to the package being discussed by the negotiators, the size of the ultimate reductions--particularly the 10.5% reduction in defense--was forcing some to reconsider.

“Until I looked at the defense figures, I was inclined to say let’s go with Gramm-Rudman,” said Rep. David Dreier (R-La Verne). But he said the prospect of allowing the law to slash the Pentagon budget has “given me pause.”

Staff writers James Gerstenzang and Oswald Johnston contributed to this story.