Kennedy Urges $210-Billion Defense Cut : Budget: He says the savings should be used to increase spending for domestic programs and stimulate the economy.

TIMES STAFF WRITER

Sen. Edward M. Kennedy (D-Mass.), advocating the largest peace dividend to date, proposed Tuesday a $210-billion cut in defense spending over seven years to stimulate the economy and support domestic programs.

Kennedy, one of the most liberal members of the Senate, said the collapse of the Soviet Union would allow the shift of Pentagon spending to home-front needs without jeopardizing national security. He did not specify where the defense cuts should be made.

"For too long, the American people have waited for effective leadership to revive the economy," Kennedy said. "Economic mismanagement over the past year has allowed a mild recession to turn into a near-depression."

His plan calls for channeling $40 billion to state and local governments during the next nine months. The funds would be earmarked for government construction projects and for education, job training and health care programs.

Kennedy's plan also calls for $170 billion to be allocated through 1999 for education, job training, research and development and a universal health care system.

"We must begin to repair the damage that a decade of neglect has done to our economic strength," Kennedy said at a Boston news conference where he was sharply critical of President Bush. A copy of his remarks was made available here.

The proposal came a day after Sen. Phil Gramm (R-Tex.) proposed a 5% cut in Pentagon outlays in the next fiscal year to pay for an across-the-board tax cut that would yield savings of $466 a year for a typical middle-income family.

Earlier, Democratic leaders in the House and Senate had said they favor using cuts in defense spending to bolster domestic programs.

Bush, who has promised to present his own economy-stimulating plan to Congress when he delivers his State of the Union message Jan. 28, has said more than once that he favors returning any peace dividend to taxpayers rather than spending it on domestic programs.

The conflicting ideas over how to combat the recession and how much to reduce Pentagon outlays are expected to dominate the election-year session of Congress starting in two weeks.

The Bush Administration's Republican allies on Capitol Hill also generally prefer to return the peace dividend to voters in the form of tax cuts.

In staking out his position, however, Kennedy said it would be a serious mistake to use Pentagon savings to cut federal income taxes.

"Private sector investment is important," he said. "But the dominant lesson of the past decade of disastrous experience with Reaganomics and its continuation under President Bush is that the private sector cannot adequately address many of the most essential needs of a strong economy, especially education, health care, job training and other elements of the basic infrastructure of our modern society."

Kennedy said he favors a tax cut for middle-income families but only if it is financed by raising taxes on the wealthiest Americans. He said he supports investment incentives for business that would be financed by higher taxes on the most profitable corporations.

Kennedy said his plan would increase the deficit, but only in the short term.

Meantime, Kennedy's nephew, Rep. Joseph Kennedy (D-Mass.), and four other House Democrats introduced a balanced-budget amendment to the Constitution that would require equal amounts of spending cuts and revenue increases to eliminate future deficits. The amendment would also limit the growth of government to the increase in the national economy unless the provision was suspended by a three-fifths vote of both the House and Senate.

"Government's ability to act is becoming paralyzed by debt," the younger Kennedy said at a Washington news conference. "It is because of, not despite, our party's caring for the poor and working families that we believe a balanced budget is necessary. We are on the verge of seeing their programs strangled by a national debt which is devouring scarce funds."

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