Greenspan Boosts Budget Pact but Opposition Grows : Congress: Defeat would mean trouble in financial markets, the Fed chief says. Democrats join GOP critics. Calls from voters heavily oppose the deficit-cutting deal.

Federal Reserve Chairman Alan Greenspan warned Wednesday that there will be trouble in the financial markets if the new bipartisan budget accord is defeated, but opposition in Congress surged as Democrats joined Republicans in opposing key provisions.

In testimony before Congress, Greenspan said failure to enact the agreement “would have an adverse reaction in the financial markets that could undercut our economy.” President Bush echoed that, saying: “If we . . . don’t get a deal . . . we are courting economic disaster.”

The developments came as the $500-billion deficit reduction package ran into a firestorm of protests from voters Wednesday, raising the risk that it could be defeated in the House today, despite intensive lobbying by Bush and top congressional leaders.

Rebellious House Republicans, upset over higher taxes, were joined by key Democrats, who protested the agreement’s provisions for Medicare cuts and new tax incentives for wealthy investors on the eve of the first test vote on the plan.

At the same time, lawmakers of both parties reported receiving a barrage of telephone calls from constituents protesting key elements of the budget-cutting package, prompting some lawmakers to reconsider supporting the pact. Many reported that opposition to the pact was running as high as 20 to 1.

Rep. Bruce A. Morrison (D-Conn.), who opposes the plan, said his phone calls were averaging 3 to 1 against it after Bush’s televised appeal. “The cuts are all flesh and blood, while the deficit is abstract, and (President Bush) didn’t succeed in changing that” in his speech,” he said.

The lawmakers are scheduled to vote today on a fiscal 1991 congressional budget resolution--the first of a series of such ballots designed to incorporate the new budget plan into law. The process is slated to be completed by Oct. 19.

Bush canceled a Republican party fund-raising trip to New England to try to round up votes for the agreement, telephoning undecided Republicans and meeting with regional reporters to help promote the plan.

Although strategists in both parties acknowledged that they still lack the votes to pass the resolution in the House, Speaker Thomas S. Foley (D-Wash.) said his “intuition” still tells him that the measure will pass.

Meanwhile, Budget Director Richard G. Darman asserted that Bush will not accept any changes in the agreement, even if he was offered a chance to restore his own proposal for a cut in capital gains taxes.

“If we start to change this, it will unravel,” Darman told reporters at a Washington luncheon Wednesday. “You are either for it or you are not. It’s got to be a package.”

There were these other developments:

--House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) protested that some parts of the accord will “muck up the tax code,” hinting that his panel probably will rewrite much of that part of the pact.

Rostenkowski indicated that at the least he will try to change a new incentive for investors in start-up firms that have a total stock equity of less than $50 million, which he said would help only the wealthy at the expense of the poor and the elderly.

--Rep. David R. Obey (D-Wis.), a ranking Democrat on the House Appropriations Committee, organized a group of liberal Democrats to oppose the budget resolution on grounds that it would give “tax breaks to the rich while socking the middle class with new taxes.”

--Both parties reported that they were still short of the votes needed to approve the budget agreement in the House. Republicans acknowledged that they were at least 20 votes shy of the necessary 89 needed to provide the GOP’s House endorsement of the accord.

And Democratic leaders also fell short of nailing down the 130 votes that they would have to deliver. “We haven’t got the votes yet,” one insider said. “The outcome is uncertain.” Under the terms of the pact, a majority of each party must endorse it before it takes effect.

Democratic leaders scheduled a third caucus of rank-and-file members just before today’s scheduled vote in hopes of generating additional support, but one of Foley’s lieutenants said time seemed to be working against the agreement.

By far the most stunning development Wednesday on Capitol Hill seemed to be the impact of the deluge of telephone calls that lawmakers received from their constituents.

One supporter of the plan, Rep. Don J. Pease (D-Ohio) received 136 calls in his district offices and only seven of them favored it. “It’s the gas tax and Medicare,” an aide said.

Rep. Ron Marlenee (R-Mont.), an opponent of the plan, said calls to his office were running 80% against, and Rep. Jerry Lewis (R-Highland), who endorsed the President’s speech, said his telephone calls were running almost as heavily against the accord.

Greenspan’s comments Wednesday reflected a fear that he has expressed before--that defeat of the accord would plunge the financial markets into turmoil and might send the economy into a serious recession.

Those fears have been supported in financial markets in recent days. The dollar has been sliding for several weeks, largely because of investors’ dismay over U.S. economic policies before the budget accord was negotiated.

Bush argued to a group of reporters Wednesday that one of the major unheralded benefits of approving the accord would be “staving off economic catastrophe.” He said foreign investors already have balked at financing the huge U.S. budget deficit.

Greenspan has been telling both sides for weeks that, if the White House and Congress reached a credible accord on how to reduce the budget deficit, the financial markets probably would be revitalized and interest rates would go down on their own.

At the same time, he has refused to ease monetary policy to help push interest rates down artificially, as the Administration has asked, contending that such a move would only fuel fears that the Federal Reserve was abandoning the fight against inflation and ultimately would send interest rates rising in the markets.

Asked Wednesday if he believes that interest rates would decline if the current accord was approved, he replied without hesitation: “Most certainly.”

On Wednesday, Treasury Secretary Nicholas F. Brady, who previously has been urging Greenspan to help push interest rates down artificially, sided with the Fed chairman and argued that enacting the budget plan would produce that same effect.

“It’s simple,” Brady said in a statement late Wednesday: “If Congress passes the budget agreement, interest rates will come down. If they don’t, interest rates will go up.” He called the accord “credible and enforceable.”

For all the sharp divisions in the House, strategists say prospects in the Senate are far brighter. “Compared to the House, our waters are calm--not smooth, but calm,” said Sen. Wyche Fowler Jr. (D-Ga.), one of the original budget negotiators.

In his meeting with reporters, Bush said he would encourage lawmakers to make him the scapegoat, if necessary, to support the agreement. “Say the President encouraged you,” he said. “Blame me, because I know what’s best for our country.”

Just the same, the vote slated in the House for today appeared likely to be close.

“My prediction is that it will pass by one vote--it’s tough going on both sides” of the aisle, said Rep. Charles W. Stenholm (D-Tex.). “I don’t like it at all, but I’m supporting it because there is no credible alternative.”

House Democrats from California, who usually support their party’s leadership on major votes, were against the plan, 13 to 5, at their weekly breakfast. A delegation source said he expects as many as 18 of its 27 members to oppose the package when the vote is taken.

Meanwhile, frictions intensified Wednesday between the White House and House Republican Whip Newt Gingrich (R-Ga.), who has annoyed the Administration by leading a GOP revolt against the accord.

In one incident Wednesday, Bush pointedly snubbed Gingrich when the Georgian came to the Executive Mansion for a ceremony celebrating Atlanta’s success in landing the 1992 summer Olympics. Gingrich shrugged it off, terming the President a “tough competitor.”

And Darman predicted that the conservative rebellion that Gingrich is leading ultimately would prove to be only “a distraction. I do not believe his objections will be lethal” to passage of the accord.

Gingrich said Wednesday that he had received 775 calls, 83% of them siding with him against the President.

Other offices, although reporting a lower volume of calls than Gingrich, said they were running heavily against the agreement, primarily because of its Medicare cutbacks and a big increase in the gasoline tax.

The office of Rep. Mel Levine (D-Santa Monica), for example, tallied 86 calls against the plan and only six in favor of it by midday Wednesday. “People are not just opposed, they’re vehemently opposed,” said Levine’s top aide, William Andresen.

Other House members surveyed by The Times reported similar counts. They included Howard L. Berman (D-Panorama City), Anthony C. Beilenson (D-Los Angeles), Elton Gallegly (R-Simi Valley) and Henry A. Waxman (D-Los Angeles).

Rep. George E. Brown Jr. (D-Colton) said he probably would vote against the package because of its cutbacks in Medicare and higher taxes on gasoline and beer.

Voting on the package only weeks before the Nov. 6 elections makes it more likely that House members, who all stand for reelection every two years, may vote against the agreement, congressional sources acknowledged.

Staff writers James Risen and David Lauter contributed to this story.

THE BATTLE FOR THE BUDGET Where the major players stand:

BUSH ADMINISTRATION: President Bush stepped up his lobbying. “It is our last, best chance to try to get this federal deficit under control. . . . A major benefit is short-run--a staving off of economic catastrophe.”

FEDERAL RESERVE CHAIRMAN: Alan Greenspan strongly endorsed the package. Although he did not promise to ease credit, he said he expected interest rates to fall if it passes.

CONGRESSIONAL LEADERSHIP: House Speaker Thomas S. Foley said he expects a majority of both parties in the House will vote for the plan today. Senate Majority Leader George J. Mitchell said it would pass if a majority of Republicans decide to back Bush.

CHIEF TAX WRITER: Dan Rostenkowski, House Ways and Means Committee chairman, complained the budget deal “mucks up the tax code” by providing new tax shelters for the wealthy at the expense of the poor.

CONSERVATIVE REPUBLICANS: The rebellion led by Rep. Newt Gingrich, the second-ranking GOP leader, lost some steam. “Gingrich is just a distraction,” said White House Budget Director Richard G. Darman. “He’s got a bright future, but not right now.”

LIBERAL DEMOCRATS: A group of liberal Democrats led by Rep. David R. Obey organized to try to scuttle the agreement. “I really think it stinks,” said another liberal, Rep. Patricia Schroeder. “It’s very unfair to the middle class.”