Negotiators Set $55-Billion Lid on Budget Cuts

White House officials and congressional leaders charged with negotiating a bipartisan budget indicated Thursday that they intend to limit any cuts in the federal deficit to no more than $55 billion, and probably less.

Such a decision would require rewriting the Gramm-Rudman deficit-reduction law to relax its mandatory targets, with negotiators, in effect, letting themselves off the hook politically by changing the rules of the game.

Unless the budget law is changed to lift next year’s deficit ceiling, lawmakers would be forced to make spending cuts and tax increases totaling anywhere from $65 billion to well over $100 billion.

Rep. Leon E. Panetta (D-Carmel Valley), chairman of the House Budget Committee, said budget experts agreed at Thursday’s session that cutting more than $55 billion from the deficit could have negative effects on the economy that would outweigh the benefits from reducing federal borrowing.

And lawmakers “are nervous,” Panetta said, that any effort to close the budget gap by much more than $50 billion runs the risk of plunging the already weak U.S. economy into a recession next year.

The $55-billion figure, which was also suggested by President Bush in his news conference Wednesday, is likely to set an outside limit on the size of any budget package. And there are many lawmakers who expect the savings to fall short of that goal.

Sen. Pete V. Domenici of New Mexico, the top Republican on the Senate Budget Committee, said he would be pleased if budget negotiators are able to reach agreement on a package to reduce the deficit by $40 billion to $50 billion.

Senate Budget Committee Chairman Jim Sasser (D-Tenn.) told reporters after the meeting that negotiators should seek to “reduce the deficit as much as possible without doing damage to the economy.”

Sasser said that participants discussed deficit-reduction goals ranging from $40 billion to $60 billion but did not reach agreement on any particular target. But all of the figures discussed would fall short of the cuts required under Gramm-Rudman.

The Gramm-Rudman law imposes a deficit ceiling of $76 billion for the fiscal year starting Oct. 1. This year’s deficit is expected to be about $190 billion, including the borrowings to finance the bailout of the savings and loan industry.

New budget estimates presented Thursday by the Congressional Budget Office suggest that a package of spending cuts and tax increases of at least $75 billion to $85 billion would be required to reach that target. And even the more optimistic White House Office of Management and Budget told lawmakers that a cut of $64 billion in the deficit is likely to be required to meet the Gramm-Rudman goal.

Although past budget packages often have claimed greater savings, Congress has never agreed to more than about $30 billion in real deficit cuts for any single year.

Moreover, the CBO and White House preliminary estimates for next year’s deficit do not include the extra $50 billion to $60 billion in borrowings expected as part of the S&L; cleanup.

“They’ve reached the limit of being able to lie about the deficit,” said Thomas Mann, director of governmental studies at the Brookings Institution. “Now they have to change the Gramm-Rudman targets. They can’t meet next year’s target and they can’t live with the consequence of not meeting the target.”

Even Sen. Phil Gramm (R-Tex.), co-author of the 1985 legislation aimed at eliminating the budget deficit over a period of several years, acknowledged that he would be satisfied with a budget package that falls short of Gramm-Rudman’s requirements.

“If we reduce (the deficit) by $50 billion,” he said, “things are going to improve rapidly.”

William M. Diefenderfer, the second-ranking White House budget official, said there is a “consensus” among participants in the White House-Congress negotiations, which began Tuesday and are expected to continue for several months, that the “problem is in the $50-billion range.” He added later that the negotiators’ goal should be to “seriously reduce the deficit by $40 billion to $50 billion.”

Diefenderfer, speaking to a breakfast group of business lobbyists at the U.S. Chamber of Commerce, said also that he expects the budget negotiations to drag on for at least three to four months “if we’re going to do it right.”

There is no doubt that the negotiators will have to find a way to change the Gramm-Rudman budget targets. Otherwise, the law would impose harsh across-the-board spending cuts this fall that would slash a wide variety of defense and domestic programs from 20% to 45%.

Given little real choice but to prevent the automatic cuts from taking place, one Administration official observed wryly about the budget negotiations, “we are condemned to succeed.”

MISSING THE TARGET

The Gramm-Rudman budget law is supposed to require steady reductions in the budget deficit. But since the law took effect in 1986, the government has never hit the law’s deficit target. The more the deficit misses the target, the more difficult it becomes to catch up with the next year’s increasingly stringent goal. Congress has already modified the targets once, and the White House and Congress are likely to agree to change the targets once again this year. (in billions) Deficit 1985: $212.3 Gramm-Rudman target 1986: $172 Deficit 1986: $221.2 Gramm-Rudman target 1987: 144 Deficit 1987: 149.7 Gramm-Rudman target 1988: 144 Deficit 1988: 155.1 Gramm-Rudman target 1989: 136 Deficit 1989: 152 Gramm-Rudman target 1990: 100 Deficit 1990: 140* Gramm-Rudman target 1991: 64 Deficit 1991: 138* Gramm-Rudman target 1992: 28 Gramm-Rudman target 1993: 0 Source: Office of Management and Budget

* Estimates (excluding borrowing for savings and loan bailout)