3-Year Freeze on Defense Studied : But Bush Plan Still May Not Provide Enough Funds to Meet Deficit Target

President Bush is considering a plan advocated by his budget director to prevent any growth beyond inflation in the defense budget over at least the next three years, budget officials said Friday.

That freeze in the defense budget would yield substantial savings from former President Ronald Reagan’s proposed 2% annual real growth rate for the next five years.

But despite the defense cutbacks, White House Budget Director Richard G. Darman and his staff are finding it all but impossible to include enough money in Bush’s fiscal 1990 budget to make good on all of Bush’s campaign pledges and still meet the $100-billion deficit target required by the Gramm-Rudman budget law.

Bush will make the tough budget choices in the next few days before laying out his plans in a speech to Congress on Thursday. Budget planners say that he will be hard-pressed to fund enough initiatives to satisfy Congress.

“The Bush budget is basically the Reagan budget,” one aide said. “We’re not going to be able to make everybody happy.”

Vulnerable to Attacks

White House budget aides already have decided to scale back Bush’s proposed child-care tax credit for the working poor to about $1 billion, congressional sources said, compared to the $2.5-billion proposal advocated by congressional Democrats. That could leave Bush vulnerable to attacks on Capitol Hill.

During the presidential campaign, Bush offered to create federal tax credits and incentives for employers, worth a combined $2.2 billion a year, to expand the nation’s day-care network.

Unlike the current child-care tax credit, which is limited to two-income families, Bush’s proposal is designed to benefit families with only one working parent and children less than 4 years old. Nearly all of the new incentives would be targeted to families with incomes of less than $20,000.

It was not clear Friday what changes the White House would make in the proposal to curb the loss of tax revenues.

Another Bush campaign idea that budget planners are expected to exclude from next year’s budget is his proposal to give $500 million a year to schools that show an improving ability to serve disadvantaged students.

Bush is also reportedly planning to redirect some education funds from existing programs to benefit the disadvantaged, but he has not yet decided how much new money to spend on the popular Head Start program for preschoolers.

“You’re going to see Bush being kinder and gentler on a diet,” said one congressional aide.

Elsewhere in the budget, though, Bush is planning to cancel Reagan’s proposed cut in Medicaid. That would restore about $1.7 billion that Reagan wanted to take away from the states that run the health program for the poor.

More for Weapons Plants

The White House also expects to provide some additional money for other education programs, the environment, anti-drug efforts and the homeless. A lawmaker also said that Bush, under pressure from congressional critics and his own weapons experts, is planning to designate more money than Reagan for modernizing and cleaning up the nation’s antiquated nuclear weapons factories.

As previously reported, however, Budget Director Darman has indicated that he intends to stick with Reagan’s $5.5 billion in proposed Medicare savings from doctors and hospitals that provide health care services to the elderly and disabled. Darman is also recommending that Bush go along with Reagan’s plan to make federal employees pay more for health insurance and accept limits on pay hikes and retirement benefits.

A small circle of officials, including Darman, Treasury Secretary Nicholas F. Brady, chief economist Michael J. Boskin and political consultant Robert Teeter, have been meeting daily to thrash out budget options. The discussions also include White House Chief of Staff John H. Sununu and domestic-policy adviser Roger Porter.

One Administration official said that a number of program decisions have been dispatched to the various agencies and departments to determine the final costs.

Enterprise Zones

For example, he said, the Treasury and Housing and Urban Development departments are examining the budgetary consequences of creating a limited number of enterprise zones--tax havens in depressed inner-city and rural areas intended to spur economic growth. A number of departments were also being asked to total the cost of proposed anti-drug programs.

The official characterized the step as “one final measure” to answer the question: “Does what we decided upon fit into our fiscal space?”

Inside the Pentagon, officials are preparing possible ways to scale back defense programs to meet Bush’s goals, but they have received little guidance from Defense Secretary-designate John Tower. They are urging Bush to allow some real increases in the defense budget after 1992 so that the Pentagon will not be forced to cancel or scale back as many programs as a five-year, no-growth budget would require.

A three-year freeze in new spending authority would cut about $2.1 billion in actual spending from Reagan’s $303-billion request for the next fiscal year, which begins Oct. 1, and save a total of about $15 billion over a three-year period.

According to one aide, the White House is expected to recommend reviving some budgetary growth for the Pentagon in later years, partly to keep a bargaining chip in future negotiations with lawmakers seeking to freeze inflation-adjusted defense spending at current levels.

Staff writers William J. Eaton, James Gerstenzang and Stanley Meisler contributed to this story.