Reagan’s Final Budget : California Congressman Heads Key Panel : Panetta Hopes for Deal With Bush

In the looming battle of the budget between President-elect Bush and the Democrat-controlled Congress, the veteran California lawmaker who will play a key role is hoping that Bush will be more pragmatic and less partisan than his predecessor.

For Rep. Leon E. Panetta (D-Monterey), the new chairman of the House Budget Committee, taming the massive federal deficit is too important for the politics-as-usual confrontations that marked relations between the White House and Congress during President Reagan’s two terms.

On the basis of conversations with some of Bush’s key aides, however, Panetta fears that the new President’s spending blueprint will not reflect the “kinder, gentler nation” that he promised during last year’s election campaign. Particularly troubling to Panetta is Bush’s insistence that he will not tolerate new taxes.

‘Cursed With a Lot of Debt’

‘I don’t think we’ve got a lot of time,” Panetta said in an interview, his tones emphasizing the importance that he attaches to the issue. “We’ve been on a borrowing, bailout and buyout binge for the last couple of years and we’re cursed with a lot of debt. If we don’t solve problems through leadership, we’ll all suffer for it.”

Panetta belittled the budget submitted by President Reagan on Monday as “an interesting historical document.” Failure by Bush to address the nation’s deficit in a more credible way, he said, will persuade foreign investors to withdraw their funds and force the United States to look elsewhere to finance its red-ink hemorrhage of the last eight years.

“It’s going to take a process of give and take between Congress and the President to deal with the tough choices,” Panetta said. If Bush and congressional leaders do not meet quickly to hammer out a deficit-reduction package, he said, “then we’re in for a longer period of recriminations. What you’re basically doing is increasing the risk to the country.”

White House Deal Sought

Panetta’s views reflect those of the many congressional Democrats who want to make a deal with the White House that would involve tax increases as well as spending cuts. Some Republicans, weary of defending sharp cutbacks in domestic spending, have expressed similar goals.

As a 12-year veteran of the House who was a Democratic commander on the losing side of the early budget wars with Reagan, Panetta has vast experience in the intricacies of the federal budget. Along the way, he has gained the respect of Republicans as well as mainstream Democrats in Congress.

“A little less free-spending than most Northern liberals, operating with extensive experience in government and an instinctive understanding of how it works, he built up credibility on both sides of the aisle,” the nonpartisan reference work Politics in America once said of him.

“Panetta has added a voice of calm reason and pragmatism to the highly political act of deciding how federal money should be raised and spent,” the independent Almanac of American Politics said.

Still a relatively youthful and energetic 50-year-old, this self-confessed budget junkie is coming to center stage when Bush’s first budget, the continuing huge deficit and possible tax increases appear likely to dominate the congressional agenda.

Panetta’s committee is scheduled to draw up its own spending and tax blueprint for House passage by April 15. Later, under the leadership of Sen. Jim Sasser (D-Tenn.), the new chairman of the Senate Budget Committee, the Senate will adopt its own version of a budget, and a compromise measure will emerge from a Senate-House conference.

Sasser, who speaks with a distinctive Tennessee twang, agrees with Panetta that the Reagan budget is unacceptable, but he fears that Bush might go along with its basic outlines anyway.

In a joint news conference with Panetta, Sasser said it would be “difficult, but not impossible” for Bush to submit an acceptable budget without proposing any increase in taxes this year. Panetta, by contrast, called a tax increase essential.

There are other differences of tactics, if not strategy, among the ruling Democrats. Speaker Jim Wright (D-Tex.), professing cooperation with Bush, has rebuked Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) for suggesting a 15-cent increase in the federal gasoline tax as one way of cutting the deficit.

Wright, along with other top leaders, believes that Congress should await Bush’s recommendations and not get out in front on the politically sensitive issue of raising taxes, particularly the gasoline tax, which hits the poor hard.

But it is Panetta who, in the first instance, will guide the Democratic response to the Bush Administration budget. And he realizes that Bush will have difficulty moving away from his strong stance against new taxes.

“George Bush is not Ronald Reagan in that he doesn’t have the political license to glide around this (deficit) issue,” Panetta said. “Second, he doesn’t have the economic cushion that Reagan did when he came into office.”

An economic crisis--a recession or a dramatic drop in the dollar--also could force Bush and Congress to settle any differences over the budget, Panetta noted. But that kind of shotgun marriage, he said, would erode confidence in American leadership.

If a budget impasse pushes the deficit to more than $110 billion in fiscal 1990, it would trigger automatic reductions in nearly all defense and domestic spending programs under the Gramm-Rudman law. Panetta calculated that as much as $15 billion might have to be chopped from defense and another $15 billion from domestic programs.

“There’s no way,” he said, “that this (Bush) Administration could accept this depth of defense cuts or that this Congress could accept that depth of domestic cuts.”

During the interview, Panetta rattled off budget figures and percentages from memory as others might recall baseball batting averages. He said he made a similar presentation to the President-elect, warning that there would be a scarcity of federal resources for any of Bush’s promised programs unless the deficit could be narrowed.

Panetta said he told Bush that the usual “smoke and mirrors” of budget-making no longer work. “The world is watching,” he recalled telling Bush. “Foreign ministers and foreign investors, once they lose confidence, will begin to diversify their investments, and then where will we get the money to finance our debt?”

What was Bush’s reaction? “He didn’t say I was wrong,” Panetta replied.

Switched From GOP

The new Budget Committee chairman was once a liberal Republican who worked for former California Sen. Thomas H. Kuchel. After serving as director of civil rights enforcement for the Health, Education and Welfare Department in the Richard M. Nixon Administration, Panetta switched parties, partly to protest what he said was a GOP leadership attack on moderate members of the party.

Panetta was passed over for the chairmanship of the House Budget Committee in 1985, when Speaker Thomas P. (Tip) O’Neill Jr. (D-Mass.) and Wright, the majority leader, believed that he might be too independent and challenge their authority. Even so, he was drafted to participate in the November, 1987, budget summit that resulted in a package of spending reductions and new taxes after the October stock market crash.

Bush should learn from that summit, Panetta said.

“The choices must be bipartisan,” he said. “They must deal both with spending restraint and revenues and cover a two-year period.

As Panetta prepares for the 1989 battle of the budget, he recognizes that the process has its own internal rhythms.

“We’re just starting our annual budget dance,” he told reporters with a smile. “We do it every year.”