President Announces Broad Budget Accord : But Plan to Hold Deficit Under $100 Billion Puts Off Key Decisions on Spending and Taxes

President Bush, with most congressional leaders lining up behind him, announced a broad agreement Friday on a bipartisan budget designed to hold next year’s federal deficit under $100 billion.

But the deal, by postponing many critical decisions, will require the White House and Congress in future years to dig much deeper into popular government spending programs or raise taxes significantly if the federal government is to keep making progress toward a balanced budget.

“The budget agreement does not complete the whole deficit-reduction job that is to be done by fiscal year 1993, not by a long shot,” Bush acknowledged in a statement in the White House Rose Garden.

‘Ahead of Schedule’

But it marks “a first manageable step,” he said, “and this budget agreement is the first such agreement reached ahead of schedule and not framed in the context of crisis.”

The budget plan calls for about $27 billion in spending cuts and revenue increases from levels that would be reached if current policies were continued. Bush believes that the additional revenue could be achieved without violating his pledge not to raise taxes. He has proposed cutting the capital gains tax rates, and argues that this tax break for investment profits would generate so much economic activity that it would actually boost government revenues by more than $5 billion a year.

To keep the year’s deficit to $99.4 billion, the plan requires Bush to reduce his defense spending plans in return for winning support from Congress to keep domestic programs under a relatively tight rein.

The agreement significantly improves the chances that Congress will avoid an impasse with the Administration over the budget for fiscal year 1990, which begins Oct. 1. The plan, however, must still clear a number of hurdles and does not resolve many specific issues that may still become embroiled in legislative wrangling.

Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.), who attended the White House meeting with other leading lawmakers, was so dismayed by the way in which negotiators had papered over their differences that he refused to join in the announcement.

Bentsen, whose panel must approve any tax changes, “told the President he thought it was a marginal agreement and a marginal budget,” according to his spokesman, Jack DeVore. “And he believes there is a great gulf remaining on how you raise $5.3 billion in taxes, so he just left.”

Negotiators settled on little more than a general promise to raise a total of $14.2 billion in new revenues, with $5.3 billion coming from additional tax revenue and the rest from sales of government assets, fees for the use of federal services and tougher enforcement of tax laws.

Democrats, however, doubt that Bush’s proposed capital gains tax cut would actually produce a revenue increase and oppose it as a giveaway to the wealthy. But they conceded as part of the budget plan that they would not propose any other tax measures unless they met with White House approval.

“In my view, the capital gains tax (cut) . . . has two chances of passage by this Congress: slim and none,” Senate Budget Committee Chairman Jim Sasser (D-Tenn.) told a news briefing.

And White House budget chief Richard G. Darman told reporters he has “discussed a lot of possible ways” to boost revenues without violating Bush’s pledge against higher taxes.

Optimistic Assumptions

The new budget agreement also rests on the White House’s assumption that the economy will continue to grow at a robust pace while inflation and interest rates fall abruptly from current levels. If those assumptions prove too optimistic, as most economists believe they will, the federal deficit is likely to turn out to be much higher than $100 billion.

“We have an economy that has some major bleeding going on in terms of the deficit,” said House Budget Committee Chairman Leon E. Panetta (D-Monterey). “We’re applying a tourniquet here and, ultimately, we’re going to have to take the next major step.”

Even if the agreement is implemented fully, future budget blueprints will demand far harsher measures to meet the deficit targets set by the Gramm-Rudman law for subsequent years.

Compared to the $27 billion in deficit savings called for under this plan for fiscal 1991, Sen. Pete V. Domenici (R-N. M.) said, lawmakers will have to find roughly $60 billion to stay under the $64-billion ceiling.

‘Everything on Table’

In future budget negotiations, Panetta said: “I think everything has to be on the table--taxes, entitlements and defense . . . . The hope that’s expressed here is that for the first time (in the 1980s), there is a willingness here to try to work on a much bolder package for the future.”

Administration officials refused to discuss the next step, however, insisting that they had made no deal to include higher taxes in later budgets.

Under the budget agreement, defense spending, which soared in the early years of the Ronald Reagan Administration, would fail for the fifth straight year to keep pace with inflation.

Bush had originally asked for authority to allocate more than $309 billion to the Pentagon, enough to match the expected rise in prices, but he finally settled for a figure of $305.5 billion, almost $4 billion lower. The authorization level, which determines how much money the military can commit to its various programs, should hold actual spending to about $299.2 billion, slightly lower than Bush’s original $300.6-billion spending request.

“We’re into the bone right now, and this is going to go deeper,” a senior defense official said.

Arms System Delays Seen

The cuts will almost certainly mean a reduction in the overall number of men and women in uniform, the official said. Other defense sources said that production of new, high-technology weapons systems--particularly the B-2 stealth bomber and the V-22 helicopter-airplane--are likely to be delayed at least one or two years.

“Already the secretary of defense faces some gut-wrenching decisions,” Adm. William J. Crowe Jr., chairman of the Joint Chiefs of Staff, told a Senate committee Friday. “It’s going to require some reductions in some of the pillars. There is no way you can have more defense for less money.”

Under the budget plan, members of the armed forces would receive a 3.6% pay raise, but civilian workers might be limited to a 2% hike.

The plan also calls for about $7.3 billion in cuts from programs that entitle certain categories of individuals to federal benefits. Of the total, $2.7 billion would come from limitations on Medicare payments to hospitals and doctors and $2.2 billion would be trimmed from farm subsidy programs.

Lawmakers, however, rejected Bush’s call to freeze government pensions for a year and abandoned his efforts to make deep cuts in a host of domestic spending programs. Instead, budget negotiators agreed to let overall domestic spending rise with inflation. They promised to find savings in certain areas to pay for programs to help the homeless, promote child care and aid education.

And in response to the Alaska oil spill, the negotiators threw out more than $2 billion in revenues that Bush sought from offshore leasing in the Alaskan National Wildlife Refuge.

SHIFTING BUDGET PRIORITIES

(Spending and revenue in the budget agreement announced by President Bush and members of Congress, compared with Bush’s original budget proposal, in billions of dollars)

Spending Agreement Change Defense $299.2 -$1.4 Foreign aid 17.0 -0.3 Payments to individuals for retirement, farm subsidies, etc. 539.7 +8.3 Other domestic programs 181.3 +5.4 Interest payments 173.2 +0.1 Offsetting receipts, collections and asset sales -41.8 -0.1 Total Outlays 1,168.7 +12.0 Total Revenues 1,065.7 +0.1 Estimating Adjustment -3.5 -3.5 Deficit 99.4 +8.3

Note: Some figures do not add precisely because of rounding

SOURCE: Office of Management and Budget