Panetta Signals Possible Budget Compromise

Signaling the shape of a possible compromise, the White House said Friday that it is willing to balance the budget in eight rather than 10 years--under certain conditions--to break the stalemate with congressional Republicans over the fiscal 1996 budget.

White House Chief of Staff Leon E. Panetta said in an interview that the White House might agree to such a deal if the GOP is willing to accept Administration forecasts about economic growth and government spending needs, which would require smaller cutbacks than called for in projections developed by the Congressional Budget Office.

“If there is movement toward the assumptions that we have, it creates more flexibility as to whether we can do this in seven or eight years,” said Panetta, who speaks regularly on budget matters and other issues with House Speaker Newt Gingrich (R-Ga.).

If Administration assumptions were fully accepted, the government would be required to pare about $200 billion less from spending over seven years than the CBO projects is needed to get to a balanced budget. The CBO estimates that reductions of roughly $900 billion would be required over that period to balance federal revenues and spending.

The White House proposal marks an important shift toward compromise at a time when both sides are warning that catastrophe looms ahead if they do not quickly find a deal acceptable to their increasingly unruly rank-and-file lawmakers.

Officials are racing to complete the 13 major appropriations bills and the final spending bill, called reconciliation legislation, before a Nov. 15 deadline for lifting the ceiling on government borrowing.

“It sounds like an olive branch to me,” said Allen Schick, a budget specialist at the Brookings Institution think tank in Washington.

Reacting to congressional Republicans’ full-scale assault on government spending, the Administration last June offered a revised budget that proposed to eliminate the deficit in 10 years. Later in the summer, officials said that improved economic forecasts would make it possible to get the job done in nine years, while protecting the Administration’s priorities.

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Asked Friday about the Administration’s latest thinking on this number, Panetta responded:

“Well, an awful lot depends on whether they’re willing to move toward our assumptions, which I think are frankly conservative. . . . I think you can probably make this work on an eight-year track pretty well. But, obviously, one of the issues on the table will be whether you do it in seven or eight years--and . . . if they’re coming hard at seven years, there’re going to be some trade-offs.”

The chief of staff said the Administration’s numbers, developed by the Office of Management and Budget, are more cautious than economic assumptions used by well-known economists in the Blue Chip forecasting survey.

Panetta’s statements come at a time when leaders on both sides are alternately sounding conciliatory and firm as they grope for a compromise that will bring a budget deal without alienating their core supporters.

Later Friday, a spokesman for Panetta called a reporter to say that the staff chief did not mean to suggest that the Administration is simply offering to split the difference with the Republicans.

“He was saying . . . you could probably work your way to eight years a lot more easily using our economic assumptions,” the spokesman said, seeking to downplay Panetta’s words.

The OMB’s economic assumptions and the Congressional Budget Office differ in two major respects. The OMB assumes that federal medical spending--led by the big Medicare and Medicaid programs--will grow at 9% a year; the CBO assumes that the rate will be 10%.

The CBO also assumes an economic growth rate that is about 0.2% less annually than the OMB’s figures. While those numbers are small, their cumulative impact over several years is large.

Schick said that, in his remarks, Panetta may have had the twin goals of feeling out the other side and pointing out to Republicans that switching assumptions would be a relatively low-cost way of finding a middle ground.

Some Republican aides, while cheered by a sign of White House flexibility, speculated that the notion would nonetheless be a hard sell to many GOP lawmakers.

“I find it encouraging that he’s coming toward seven years,” said Dan Meyer, Gingrich’s chief of staff. But, noting that Clinton had once declared CBO numbers to be definitive, he said it would be “pretty hard for a lot of our folks to accept those numbers.”

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Gingrich publicly asserted last month that he would accept “seven years and one month, yes. But eight years, no.”

A House Republican leadership aide said GOP lawmakers would be suspicious of such an approach. It would be “like putting in neon lights that we are trying to game this thing,” the aide said.

Gary Bass, executive director of OMB Watch, a liberal advocacy group, was also uneasy about the notion of locking the government into a finite period for eliminating the deficit. “My general inclination is that anything with an outer bounds like seven or eight years would be very troubling,” he said.