2% Yearly Defense Cuts Backed by White House : Budget: A five-year plan reflects a major shift in U.S. priorities. But Congress may seek sharper reductions.

In another step toward scaling down the nation’s military, the White House has approved a tight-money budget scenario that calls for defense spending to shrink by 2% annually over the next five years, Bush Administration officials confirmed Friday.

The White House action brings closer to reality what is expected to be a major recasting of U.S. defense priorities, cancellation of weapons programs and demobilization of thousands of troops in response to budget constraints and improving East-West relations.

At the time the Pentagon drew up its budget last year, the 2% cutbacks were considered a worst-case scenario, less likely to go into effect than other, more modest options. But now, with the upheaval in Eastern Europe continuing, they have become the Administration’s plan.

Defense Secretary Dick Cheney is to relay the broad outlines of the 1991-95 budget plan later this month to Congress, which is expected to demand even sharper reductions.

The plan, which Administration sources said was approved by White House Budget Director Richard G. Darman in late December, projects that defense budgets will rise from $295.1 billion in 1991 to $312 billion in 1995.

But, after accounting for the effects of expected inflation in those years, the defense budget would actually decline by 2% each year, Administration officials said.

In drafting contingency plans at Cheney’s instruction, the military services warned in November that they would have to cut 290,000 military personnel from their rolls over the next five years.

Pentagon officials have said that they hope to maintain the war-readiness of U.S. forces as the size of the armed forces shrinks, but they have acknowledged that the troops will be equipped with older weapons.

For the Army, which is expected to order a demobilization as sweeping as that following the Vietnam War, the coming budget shrinkage already has spurred a major redefinition of the service’s principal missions and the arms needed to accomplish them.

Between 1991 and 1995, the scaled-back spending targets would require the services to cut a total of about $160 billion from their earlier projections, which had assumed that the defense budget would rise by as much as 2% yearly after inflation.

Under Cheney’s new five-year budget, the Pentagon’s request would rise from $295.1 billion in 1991 to $300 billion in 1992, $304 billion in 1993, $308 billion in 1994 and $312 billion in 1995, Administration sources said.

“We’ve gotten away from the tried-and-true formula that has guided the preparation of five-year defense plans in the past--that you always assume 150% of what you’ll get,” said a senior Pentagon official involved in the sweeping review.

The result, the official said, will be a more rational winding down than has resulted from the average 2% annual inflation-adjusted declines that Congress has imposed on the Pentagon since 1985.

Cheney is expected to submit a detailed version of the five-year defense plan to Congress in April after outlining its scope when he forwards the Pentagon’s 1992 defense request, now set at $295.1 billion, to Capitol Hill on Jan. 29.

Defense officials said the new budget plan demonstrates that the Pentagon has come to view the changes in Eastern Europe as having caused a lasting reduction in the military threat faced by the United States and its allies.

It also represents Cheney’s willingness to engage Congress in what he believes are realistic budget discussions. “He has repeatedly said he’s going to send up reasonable numbers that he thinks the market will bear,” a senior defense official said.

But many in Congress already have called for far deeper reductions and are likely to consider the proposed budget cuts marginal.

Because more than 50% of the Pentagon budget traditionally has gone to defend Western Europe, many analysts have said that far greater savings are possible now that the military threat to Western Europe has declined significantly.

However, some leading congressional Republicans have been quick to warn that Cheney’s plans for budget shrinkage assume that the United States will complete arms agreements on conventional and strategic nuclear weapons in the next two years.

Cheney has said that, as U.S. forces are scaled back, he will try to protect America’s strategic nuclear deterrent, and he has vowed to maintain the pre-eminence of the U.S. Navy. At the same time, he has said that the Army’s future role is “up for grabs.”

Still, the Navy has warned that budget cutbacks and the likely reduction of 40,000 sailors will force the early retirement of vessels from the U.S. fleet, including two battleships by the end of this year.

Defense sources said that the Long Beach-based battleship New Jersey and the battleship Iowa, which is based in Norfolk, Va., top the list of ships destined for mothballs. The Iowa was crippled by a massive explosion in one of its gun turrets last April.

The Navy expects also to retire dozens of older frigates in the next several years. At the same time, the service is fighting proposals to scale back its fleet of 14 aircraft carriers, considered the backbone of the Navy, to as few as 11.

A senior Air Force official said recently that, if Cheney demanded 2% annual budget declines, the service would be forced to terminate one of its five largest acquisition programs--the C-17 cargo aircraft, the Milstar spy satellite, the advanced tactical fighter, the Amraam air-to-air missile or the B-2 bomber.

The Air Force, facing a cut of 100,000 airmen and women over the next five years, also has drawn up contingency plans to reduce by five its current force of 36 tactical fighter wings. Each wing includes about 72 combat jets.

Under the new five-year plan, the Army is planning to cut its troop strength by 17.6%. The service plans to recast itself substantially, retraining and re-equipping more of the remaining forces for rapid deployment to distant Third World conflicts, such as Panama.

Under the Army’s plans, the service would maintain 15 divisions--down from its current level of 18--and reduce the proportion of U.S. troops deployed abroad in such places as Europe, Korea and Panama. The 4 2/3 Army divisions stationed in Europe, for instance, would shrink to about two.

Army planners are charting a course to shrink the service to about 75% of its current size by the year 2000.

Meanwhile, Cheney has said that high-technology defense research must be spared from deep cuts so that U.S. forces can modernize and rebuild quickly if the massive East Bloc threat to Western Europe re-emerges.

Cheney hopes to keep funding for “Star Wars” missile defense research on a rising path, at least until the Pentagon is able to lay out deployment options for the President.

The defense chief, who is one of the Bush Administration’s leading skeptics on the prospects for lasting change in the Soviet Union, has told Pentagon planners that, in the near term, changes to U.S. forces must be “reversible.”