Bush’s Deficit Plan Relies on Cuts in Benefits

The Bush Administration Wednesday presented a new deficit reduction package without income tax increases that would cut the deficit $51 billion next fiscal year by relying heavily on reductions in Medicare and other health benefits.

The proposal, outlined by Budget Director Richard G. Darman at talks with congressional leaders, calls for a staged reduction of $444 billion in red-ink spending over the next five years.

“It stinks!” Sen. Jim Sasser (D-Tenn.) said of the first proposal by the White House in the 5-week-old budget meetings. Other participants expressed reservations but said that the new package at least would be a starting point for bargaining.

“I think today we started on serious negotiations,” House Majority Leader Richard A. Gephardt (D-Mo.), chairman of the talks, said after the three-hour closed meeting at which Darman described his proposal.

Darman’s plan calls for an additional $17 billion in cuts of benefits mandated by law in fiscal 1991, including Medicare and Medicaid, congressional sources said. They added that the new plan calls for cutting defense by $3.5 billion more than President Bush’s original plan for cutting $3 billion, and additional cuts of a similar amount in domestic programs.

In the politically sensitive revenues area, Darman presented the same $20-billion figure that Bush already had proposed raising from a variety of “user fees,” such as levies on airline tickets and phone service, and stepped-up enforcement by the Internal Revenue Service.

Leading Democrats said that they would study the detailed proposal overnight before reconvening today to see where the talks will lead. Both sides have said that they hope to determine by the end of June whether a deficit-cutting agreement is possible this year.

Gephardt said that Bush’s original budget, which was spurned by Democrats on both Senate and House Budget committees, still forms the basis for the latest offer and “that presents us with initial difficulty.”

Another concern, Gephardt said, is that he had hoped for a five-year deficit-reduction package of between $500 billion and $600 billion rather than the the $444 billion Darman recommended.

Sen. Pete V. Domenici (R-N.M.), however, said that the Administration plan is “a good starting point that will allow us to proceed” with bargaining on an acceptable package. “Very good proposals for deficit reduction that were not on the table before are now there,” he added.

The proposal was outlined orally by Darman after he told participants in the talks that the deficit for the fiscal year starting Oct. 1 is now estimated at $159 billion--or $59 billion more than his office expected five months ago. At the same time, the Congressional Budget Office gave its deficit estimate for the coming fiscal year as $162 billion.

If the cost of the savings and loan bailouts were included, Darman said, the deficit would range between $200 billion and $227 billion, while CBO’s comparable figure was $232 billion.

In its report, the nonpartisan CBO said that the federal budget deficit for the current fiscal year would approach $200 billion and would average almost $160 billion over the next five years if changes are not made in spending and revenue patterns.

“These projections, however, do not include sufficient resources to resolve the hundreds of insolvent savings and loan associations whose deposits are federally insured,” the CBO said in presenting its revised deficit estimates. “New legislation will be required to provide for these additional spending needs, which if included, would push the projected deficit over $230 billion in 1991 and 1992.”

If Congress passes a substantial multiyear package to reduce the deficit, CBO said, the economy would grow by 2% this year and by about 2.6% in 1991, while interest rates would fall sharply in the next few years.

“If significant deficit reduction measures of the sort assumed by CBO are not enacted, interest rates are likely to be higher and growth rates are likely to be lower than CBO has projected,” the agency’s analysis said.

The President asked Democratic leaders of the Senate and House to take part in a bipartisan effort to reach agreement on a larger deficit reduction package than the $36 billion cut he advanced last January. So far, however, the sessions have outlined the scope of the problem and possible solutions without any proposals from either the White House or members of Congress.

Bush had said that the talks would start with “no preconditions”--then widely interpreted as a relaxation of his 1988 “read my lips” campaign pledge to resist any new taxes. Most independent experts have said that it would be politically impossible to cut the deficit by $50 billion or more without raising taxes.

Under the Gramm-Rudman law, the deficit for fiscal 1991 must be reduced by $74 billion. If the target is not met, automatic spending cuts will take effect Oct. 15.