Some major uncertainties remain, but six weeks after President Reagan unveiled his proposed fiscal 1983 budget, general agreement has emerged in Congress of what lies ahead:
* Reagan’s budget has been dead almost since the day it was released.
* An influential group of centrist Republicans and Democrats wants to pass a bipartisan alternative, the broad outlines of which are already clear: higher taxes than Reagan proposed, including likely changes in the 10 per cent individual rate cut scheduled to take effect on July 1, 1983; a smaller defense increase; few if any cuts in domestic discretionary spending programs; and a limit on the autematic annual adjustments in entitlement programs, including social security.
* Neither this option nor any other can pass in the face of Reagan’s opposition; at the least, his acquiescence is probably essential. * Moderate and liberal Democrats hold some trump cards of their own, especially in the House, where they control scheduling. But they are extremely wary of playing them lest they be assigned the blame for an election-year recession.
* If the stalemate is not broken by the end of May, the budget crisis will probably not be resolved until after the November elections, and the 1983 federal deficit could exceed $150 billion, a level likely to complicate efforts to reduce the interest rates that are stifling economic recovery.
A year ago, with the enthusiastic support of a Republican Senate and a working majority in the House, Reagan was able to call the shots in legislative showdowns. But this year, his ideas seem outside the political mainstream. Members of Congress in both parties are trying to determine how far they can venture in different directions and still bring him along.
Reagan’s recent attacks on opponents of his budget have poisoned the atmosphere for a bipartisan agreement. “I want to help him,” said House Majority Leader Jim Wright, D-Texas. “But if he slaps our party across the face with the olive branch, our guys feel rebuffed. That’s not productive.”
Although a few Republicans have publicly criticized Reagan’s handling of the budget and many have responded with uneasy silence, GOP congressional leaders have tried to keep open the lines of communication between Reagan and Congress. They believe the President will ultimately accept significant budget changes.
So far, only a small number of players have participated in the attempt to shape a budget alternative, chiefly the party leaders and the chairmen and other interested members of the Senate and House Budget Committees. Lurking in the background are members of the House Ways and Means and Senate Finance Committees who would draft the tax increases and cutbacks in entitlement programs that would be major components of any attempt to reduce the federal deficit.
Perhaps the two most important figures are Sen. Pete V. Domenici, R-N.M., and Rep. James R. Jones, D-Okla., who became Budget Committee chairmen in January 1981. While sternly emphasizing the need to reduce the federal deficit, each has faced conflicting pressures within his own party.
Domenici has consistently—and generally unsuccessfully—tried since last fall to force Reagan to accept tax increases and a slowdown in spending increases for defense, social security and other entitlement programs. Jones’s problem, as it was last year, is to get Democrats, with their formal control of the House, to rally behind comprehensive budget alternatives and find some common ground with the GOP.
Rep. Bill Frenzel of Minnesota, a moderate Republican who sits on both the Budget and Ways and Means Committees and could play an important role in crafting an alternative, said that Jones, Domenici and other advocates of a bipartisan package will need a “longer leash” from party leaders. “The President and the Speaker $(Thomas P. O’Neill Jr., D-Mass.$) may not be actively involved in the negotiations,” Frenzel said, “but I’d be surprised if they’re not on board in support of the efforts.”
Some congressional liberals and some staunch Reagan supporters have no interest in a bipartisan budget. But recent interviews with more than 20 House and Senate Members from both parties showed that most believe such a product is desirable—both economically and politically—although success is by no means certain.
“Everyone will play their own game and try to wait out everyone else,” said House Rules Committee chairman Richard Bolling, D-Mo. “The problems can be resolved, but the details won’t be settled until the $(House-Senate$) conference committee because Democrats are abnormally suspicious of the White House and the ability of Republican leaders to deliver on their offers.”
The first major test is scheduled for the Senate Budget Committee, which plans to begin work on March 23 on a resolution setting over-all spending and revenue targets. Senate and House Members will be watching closely, and many believe that if the committee fails to produce a package with significant Democratic support, substantial steps to cut the deficit this year would be unlikely. Committee members are split on the prospects, although there is general agreement that the 22-member committee will start its work with no majority for anything.
“Unless the President decides to cooperate, nothing will happen,” said Sen. Ernest F. Hollings, D-S.C., who offered the first major alternative to Reagan’s budget. “In an election year, Members won’t destroy their voting records to support something going nowhere.”
Nancy Landon Kassebaum of Kansas, the only Budget Committee Republican to endorse Hollings’s proposal, said she was initially optimistic about a bipartisan budget but recently has become discouraged. “My worry is that partisan positions will harden and things will become more fractious,” she said.
Slade Gorton of Washington, a committee Republican closely allied with Domenici, said the situation is so uncertain that no action, even including passage of a budget, can be taken for granted. But he added that he remains optimistic, if only because “the problem is out there and won’t go away.”
In the House, some bipartisan talks have begun behind the scenes. Though most participants were unwilling to discuss them, two Budget Committee members reported a willingness to reach a compromise but little tangible progress.
“Everyone is circling,” said Ralph S. Regula, R-Ohio.
“A game of budget chicken is going on with Republicans and Democrats watching each other and the President not providing any cover,” said Leon E. Panetta, D-Calif. “So far, no one is willing to move.” THE PRELUDE
The dramatic Reagan victories of 1981 explain the suspicion with which Democrats and some Republicans view the forthcoming battles. “There’s a lot of paranoia from the scars of last year,” said Panetta, who helped shepherd the 1981 spending-cut package through Congress even though he was unhappy with many provisions of the final bill.
Those scars include Democrats’ memories of concessions they made on budget and tax issues, only to find Reagan unwilling to compromise and repeatedly going to the nation to attack them for inflexibility. “I negotiated in good faith toward a bipartisan consensus, but at the last minute the Administration pulled the rug out from under us,” Jones said. “Having learned from that, it’s not up to me to replay that exercise.”
For Republicans and conservative Democrats, past eagerness to cast their lot with the President’s policies has faded with the unexpectedly long and severe recession and uncertain prospects for recovery. “A lot of people got bloodied last year, and they don’t want to get their hand in the wringer with something controversial where the President takes a ‘for me or agin me’ approach,” said Rep. W. G. (Bill) Hefner of North Carolina, a Budget Committee Democrat who did not join southern “boll weevils” in supporting Reagan in 1981.
Republican concern became dramatically evident last fall when Domenici, with encouragement from Majority Leader Howard H. Baker Jr. of Tennessee, labored with other Senate Budget Committee Republicans on a huge deficit-cutting package that ultimately was rejected by Reagan even though it was endorsed by 10 of the panel’s 12 Republicans. That plan, which envisioned balancing the budget in fiscal 1984 with roughly $80 billion in tax increases and $100 billion in spending cuts over three years, will provide Members with some ideas for this year even though a balanced budget is now out of the picture for 1984.
Domenici also hoped that the strong Republican support for tougher steps would influence Reagan’s own 1983 budget proposals. But as Budget Committee staff director Stephen E. Bell conceded: “Domenici’s voice was completely ignored by the President on all issues-defense and entitlement cuts, a freeze on discretionary spending and revenue increases. If we had any influence, it was not obvious.”
Bell noted the dramatic contrast to the previous year, when Domenici and his aides worked daily with Reagan aides, especially Office of Management and Budget director Dave Stockman, in preparing a budget and working for its enactment.
Other Republicans, including the House and Senate party leaders and senior members of the Appropriations Committee, reportedly were surprised and upset by Reagan’s decision last November to veto a stop gap spending bill after they thought they had Stockman’s pledge that Reagan would sign the measure. So it was not surprising that Reagan’s fiscal 1983 budget, officially sent to Congress on Feb. 8, elicited, at best, a lukewarm response even from his own party.
Three days later, House and Senate GOP leaders went to the White House to tell Reagan that changes would be needed. They were especially upset with the proposed deficits—$91.5 billion in 1983, shrinking only to $71.9 billion by 1985. (For a report on Reagan’s budget, see NJ, 2/13/82, p. 268.)
With Reagan’s economic projections cast in doubt by increasingly gloomy reports of unemployment and bankruptcies and serious talk of a possible depression, members of both parties have pushed for a major change in budget policy. Sen. Dan Quayle of Indiana, one of the two Budget Committee Republicans who opposed Domenici’s plan last fall, said: “I thought it was inappropriate then to make changes when $(Reagan’s$) program had not even gotten off the ground. Now that the President has had some breathing room and the economy is worse, my challenge is to work to get the President to change his mind.” ALTERNATIVES
As Republicans and Democrats discuss budget alternatives, they may reach tentative understandings that may not be formalized for many weeks. “A lot of the talk is smoke signals,” said Sen. William L. Armstrong of Colorado, an influential conservative Republican on the Budget and Finance Committees. “What’s important now is not what I say behind closed doors but, for example, things I tell reporters—praising the Hollings plan or saying the Administration plan is not realistic.”
Members will continue to hold their cards close to their vests until, as Jones said, there is “a sense of trust” between Congress and the President. “We’ve made some progress, but there is a long way to go,” Jones said.
The initial public debate was shaped primarily by Hollings and Domenici, the only two major figures who publicly offered alternatives to the Reagan plan. Hollings chaired the Budget Committee for most of 1980 after the resignation of Edmund S. Muskie, D-Maine, and he and Domenici have worked closely on the committee, primarily in support of a significant increase in defense spending proposed by President Carter.
Hollings’s plan for fiscal 1983—no increase in defense spending, no cost-ofliving adjustments for entitlement programs, a freeze on federal pay and elimination of the 10 per cent tax cut scheduled in July 1982—reflected his view that radical steps are needed to avoid huge deficits. Although he did not announce his plan until Feb. 10, aides said he decided on most of the details after attending a meeting in December of the economic advisory group of the Congressional Budget Office, which projected possible deficits of $200 billion a year in the next few years.
Hollings received plaudits from Domenici and from Baker, who called his proposals “both interesting and worthwhile.” Hollings also moved to solicit support from Budget Committee Democrats and influential House Democrats; for example, Rep. Butler Derrick, D-S.C., arranged a meeting for Hollings with key Budget Committee Democrats, and Rep. G. V. (Sonny) Montgomery, D-Miss., organized a meeting with approximately two dozen boll weevil Democrats.
“The Hollings plan was the only viable alternative offered by Democrats,” said Derrick. “It was a good place to start working.”
Domenici’s plan announced on Feb. 23 is similar in direction though not so severe as the measures advocated by Hollings.
Although Domenici did not specifically address the 10 per cent tax rate cuts scheduled for 1982 and 1983, his call for raising an additional $122 billion in revenues by 1985 might require postponement of part of the cuts. He also said spending should be cut $223 billion by 1985. As interesting as the details were his description of a “frightening” economic situation and his criticism of political leaders who “do all a disservice by pretending that we can swallow $100-plus billion deficits as though they were aspirin tablets.”
Subsequently, Domenici began lengthy meetings with Baker; Finance Committee chairman Robert Dole, R-Kan.; Appropriations Committee chairman Mark O. Hatfield, R-Ore.; and longtime Reagan confidant Paul Laxalt, R-Nev., to plan strategy for winning support for budget changes from the Senate and from Reagan. GOP Senators familiar with those sessions said they were designed to focus attention on the difficult options and to build support for Domenici, although the party leaders will probably propose some changes in his earlier plan before the Budget Committee begins work.
“My counsel to the leaders has been to fine-tune the Domenici plan because that is the only game in town,” said Quayle. Senate Republican leaders are also keeping in close touch with Hollings and other Budget Committee Democrats, whose support they consider essential.
In the House, the most significant effort to produce a budget alternative has come from a group of Budget Committee Democrats known because of their past cooperation as the “Gang of Four”-Richard A. Gephardt of Missouri, Panetta and Norman Y. Mineta of California and Timothy E. Wirth of Colorado—plus Les Aspin of Wisconsin, a new Budget Committee member with expertise on defense issues.
“We have gone through this exercise not to come up with a separate document but to feed into the committee process,” said Mineta. “We’ve put together options for Jim Jones after talking to other Members on and off the committee.”
Panetta, who said the recommendations were sent to Jones on March 9, called the details incomplete. The most important step for Democrats, he said, is to “get out some themes to the public,” adding that he is trying to get O’Neill and other party leaders to focus on the problem. In addition to specific tax increases and spending cuts, including social security, Panetta said the group is pushing for legislation “emphasizing job training and restoring some money for education, energy and research and development” and focusing attention on the deteriorating domestic “infrastructure” with proposals for a series of user fees. (For details of the alternative budgets, see box, p. 492.)
The outlines of the Gang of Five’s plan were generally reflected in what Jones outlined as a “consensus” budget based on his own thoughts and those of the dozens of Members with whom he has met.
Cuts from Reagan’s defense plans are “do-able,” said Jones, and support is forming for a 5 per cent increase in real growth that would not affect military readiness but could cancel or stretch out some procurement projects. He estimated a three-year savings of $40 billion to $45 billion in budget outlays, twice as high as Domenici’s plan but roughly half the Hollings total.
On entitlements programs, including social security, Jones said a “private consensus” is growing that they should be controlled through either reductions in the annual cost-of-living adjustments or an over-all limit on spending growth. “But,” he said, “the Administration has to come forward before we can move because of the fear the Administration will use this as a political weapon this fall. ”
On discretionary domestic spending, he said that House and Senate Members agree that Reagan’s proposed additional cuts go too far. But it is too early, he said, to say what Congress will recommend.
Finally, Jones said, there is agreement that revenues must be increased but no consensus on how. The easiest steps, he said, would be to “stretch out” the 1983 tax cut—possibly 5 per cent in 1983 and the other 5 per cent in 1984—and eliminate indexing of tax brackets to compensate for inflation, which is scheduled to begin in 1985. OBSTACLES
The two toughest issues to resolve before agreement can be reached on a bipartisan package are probably the fate of the 1983 tax cut and the cost-of-living adjustment for social security. Reagan has firmly stated he would not sacrifice the tax reduction; O’Neill and many other Democrats have been equally adamant about protecting social security, and Reagan has said he would not support a cutback.
The Congressional Budget Office (CBO) estimates that killing the 1983 tax cut would increase revenues $86 billion by 1985 and that imposing a freeze in 1983 on entitlement spending would save $60 billion by 1985.
Moderates in both parties agree that a significant cut in projected deficits may not be possible without addressing both areas and that, in any case, no option should be ruled off limits. “Everything has to be negotiable,” said Gephardt.
“The President may not be happy with all the parts, such as a change of the tax cut, but I believe he’ll respond to a responsible package if it reduces the size of the federal government and the deficit,” said Regula, the second-ranking Republican on the House Budget Committee.
Perhaps the most intriguing political question is whether Congress can afford in an election year to cut back the cost-ofliving increases that social security recipients have come to expect. Members recall the criticism Reagan received a year ago when he proposed benefit reforms. When Congress rejected those measures, Reagan established a bipartisan task force scheduled to make its recommendations following the November elections.
Rep. James G. Martin, R-N.C., a member of both the Budget and Ways and Means Committees, said Republicans and Democrats on both those panels discussed changes in the annual social security adjustment last year. “If we rely on one party or another to bring out the proposal, we won’t get far,” said Martin. “We need bipartisan support as a nucleus, and then we can grow from there.”
Panetta agreed that social security is “touchy politically” but that a reduction of 1 or 2 percentage points in the 1983 adjustment, with certain poor people exempted, may be the “most workable.”
The political problem of taking responsibility for social security cuts and tax increases is probably far more difficult than deciding on specific adjustments, most Members agree. Democrats want to avoid being attacked by Reagan for undoing his program, and Republicans fear that Democratic leaders will place the blame for social security cuts on the deficits in the Reagan budget.
As a result, some members of each party say it is the other party’s responsibility to make the next move. “One thing that would help would be for the Democrats to show us an alternative,” said Rep. Lynn Martin, R-Ill., a Budget Committee member. “It’s appropriate for the loyal opposition to say what it can live with. I don’t believe they would be irresponsible enough to think they can simply watch the Republicans self-destruct, even though we’re not going to do that.”
But Gephardt said Democrats cannot negotiate with a party whose leader has publicly ruled out changes in his tax and defense programs. “All Democratic leaders will be willing to negotiate so long as there is a belief the President is committed in good faith to the efforts,” Gephardt said. “The principals have to be willing to sit down privately and bargain on the major issues. Until then, no one will put anything on the table. Most of the decisions are tough politically, and I don’t see Congress willing to do much without consensus and presidential leadership.”
A senior House Republican aide said the Democratic “smugness” could backfire. “Although some Democrats have been willing to consider the bipartisan approach, O’Neill and $(Ways and Means chairman Dan$) Rostenkowski $(D-Ill.$) have taken a political posture,” he said. “They could suffer once the public focus turns to them and they don’t have anything to offer.” In that event, the aide said, the pressure would be on Jones, Gephardt, Panetta and other moderates to continue cooperating with Republicans at the risk of working for a plan their party leaders eventually may attack.
For their part, Republicans must consider how far they can go in working with Democrats without arousing the anger of Reagan or strong supporters of his budget, such as Rep. Jack F. Kemp, R-N.Y. Recent harsh comments about Reagan and his aides by a few Republicans have increased party fears of disarray that could hurt candidates in November. (See this issue, p. 517.)
As they develop budget alternatives, members of both parties face a difficult problem caused by what are generally regarded as overly optimistic economic assumptions underlying Reagan’s budget deficit. The CBO estimates that the Reagan plan, which includes many savings that may be hard to achieve politically or economically, would actually leave a deficit of $120.6 billion, and that means that opponents using “honest” numbers begin with a $30 billion handicap.
“We’re on the horns of a dilemma,” said Mineta. “It’s relatively easy for us to get to a $75 billion deficit if we use the President’s unreal economic assumptions, but if we don’t and end up with a deficit close to his, he’ll show that he has a smaller spending program and that Democrats again want to tax, tax, tax.” PROSPECTS
Reagan appears to hold the key to any budget agreement. “Unless and until he starts to talk sense with his own crowd, nothing really occurs,” said Hollings.
“He’s indicated he’s willing to talk, but only if we rule out the tax cut,” added Wright. “That’s like making a lemon pie without lemons. There’s no way to get the budget near balance without coming to grips with the enormity of the tax cut.”
Many Republicans voiced confidence that Reagan would accept a budget agreement with the Democrats if one is achieved. “I don’t regard what I’m doing—or what Bob Michel, Pete Domenici or others are doing—as breaking ranks with the President,” said Rep. Martin of North Carolina. “The White House will accept any package that does not do violence to its concepts… . Dave Stockman has made clear they’re not adamant on all the specifics.”
But Democrats are wary of making compromises and facing a presidential showdown anyway. “We’ve learned to our regret that the President is inclined to overrule his subordinates, as he did on the spending bill last November,” said House Majority Whip Thomas S. Foley, D-Wash.
The legislative calendar does not leave Reagan much time to become conciliatory if he hopes to affect current efforts. the 1974 Congressional Budget Act requires that the House and Senate act jointly by May 15 to approve spending and revenue targets, a date that in recent years has been missed by as much as a month.
But congressional budget experts are counting on a less flexible deadline to force agreement on a major legislative budget package. That deadline is late May, when a bill to increase the federal debt ceiling will be required to keep the federal government creditworthy. (See NJ, 3/6/82, p. 429.)
The ordinarily simple debt ceiling extension could become—in response to instructions in the budget resolution—a vehicle to enact a variety of major tax and spending measures, much like last year’s reconciliation bill. One likely difference, however, is that this year’s actions would primarily involve programs in the jurisdiction of the tax-writing Finance and Ways and Means Committees. Dole, for instance, has produced a lengthy list of possible tax increases aside from any changes in the scheduled 1983 tax cut.
Although this approach could create procedural obstacles, observers said both Dole and Rostenkowski would welcome the initiative provided by the Budget Committees, the action-forcing mechanism of the debt ceiling bill and the likelihood that the Senate panel would consider the issues first. The Constitution requires that the House initiate tax legislation.
The Senate Budget Committee’s action on the budget resolution may suggest what lies ahead. “Domenici is a key,” said Sen. J. J. Exon, D-Neb., who serves on the Budget Committee. “If he can put together a compromise, that will flow to the House, where Jim Jones is a realist… . I think Tip O’Neill is far too shrewd a leader to get himself in the trap of blocking a compromise.”
Jones has been talking with Michel and House Budget Committee Republicans in hopes of reaching such an agreement. “I have to find out if there is good faith on the other side and need some indication Bob Michel can negotiate and control his troops,” said Jones. A few days later, Jones told reporters he may force an early vote on Reagan’s budget unless the White House gives a clear signal that Republicans are free to draft an alternative. “Bob Michel can’t negotiate independently,… so we’re at an impasse,” Jones said.
Jones fears that even if he reaches a compromise with Michel, conservative Republicans may propose an alternative more to the White House’s liking—a tactic that Rep. Newt Gingrich, R-Ga., said he and others are considering.
In any case, the likelihood is that the final package will be prepared by HouseSenate conferees working on the budget resolution and debt ceiling bill, in close consultation with party leaders. In fact, some suggest that the conference committees could decide what to do with the annual social security adjustments and the 1983 tax cut.
If so, the package may upset members of both parties. “When the deal is finally made, the tax changes will mean there won’t be solid Republican support,” said Gorton.
Bolling added that in the Democraticcontrolled House, social security changes are “possible, but only as a last step.”
Few disagree that a comprehensive budget package faces a difficult road. Armstrong, an optimist, said, “There will be a lot of blood, a lot of late sessions and a lot of broken bones, but the alternative of doing nothing is too horrible to contemplate.”
The task will be complicated by shifts in economic news and judgments by Members on what their well-being requires. A major business bankruptcy or public opinion polls showing that the voters want major legislative changes could force the hand of usually cautious lawmakers.
Jones, who said he is waiting for the right time to make his budget proposal, may have adequately summarized the state of the budget: “lf anything is certain about 1982, it’s that things are uncertain.”