Why US government nearly closed up shop

By , Senior economics correspondent of The Christian Science Monitor

A widening split between Congress and the White House over which parts of American society should bear the brunt of budget-cutting lies at the root of the fiscal impasse that threatened to shut down parts of the federal government.

This political hot potato - capable of searing any politician who mishandles it - is being tossed back and forth along Pennsylvania Avenue, with Democrats and Republicans pinning blame on each other.

The immediate crisis was eased when the House voted 221 to 176 to give President Reagan an extension to Dec. 15 of the funding resolution which had fed government money into federal programs through Nov. 20.

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The Senate was expected to follow suit. A swift presidential signature would allow the federal government to resume full operations and would send weary legislators and Mr. Reagan off to Thanksgiving vacations.

Fundamentally, however, the problem would remain unsolved and unclarified, perhaps until President Reagan unveils his proposed fiscal 1983 budget next January.

That proposal should cut through the murk of confusion surrounding fiscal 1982 and provide firm guidelines as to how much, and where, Reagan wants to clip the wings of government spending in the future.

Critics of the President's approach, including House Speaker Thomas P. O'Neill Jr. (D) of Massachusetts, contend that he cannot boost defense outlays, cut taxes hugely, and expect Congress to enact further cuts in programs affecting the poor, aged, and other vulnerable Americans.

These critics - centered among Democrats but including some Republicans - stress that 70 percent of the $35.2 billion trimmed from the budget last summer comes out of benefits for the poor, jobless, and handicapped.

Strong sentiment rises in both House and Senate to spread budget cuts more evenly to include defense, an area the President has largely shielded from spending trims.

The dispute sharpened after disclosure that Budget Director David A. Stockman had been forbidden by the White House to put the defense budget under the same microscopic survey to which he was subjecting social programs.

Mr. Stockman, in his now-famous interview published in the Atlantic Monthly, spoke of greed and waste at the Pentagon and gave the impression he was thirsting to get his hands on the defense budget later on.

Stockman contends that both defense outlays and entitlement programs - social security and other income transfers to groups of Americans - must be cut, or future budget deficits will soar out of sight.

The budget for fiscal 1982, which ends Sept. 30, 1982, is expected to wind up from $80 to $100 billion in the red, compared with $57.9 billion for fiscal 1981 . Highest deficit on record was $65.6 billion, chalked up in 1976 under President Ford.

Reagan has given up hope of balancing the budget by 1984, but strives to shape a 1983 budget - largely through future spending trims - that will make next year's deficit smaller than that of 1982.

By this means he hopes to convince the investment community, symbolized by Wall Street, that his program will work. Distrust of Reaganomics has been a major factor in pegging interest rates abnormally high.

A missing ingredient, according to Wall Street critics, is some restoration of tax revenues to the US Treasury, either through the imposition of new taxes or postponement of some part of the Reagan tax cut program.

So far the President stonewalls his critics, by insisting that the tax cuts should proceed on schedule and that defense outlays are not to be trimmed significantly.

The budget tangle essentially began on March 10, when Mr. Reagan asked Congress to slash $48.6 billion from the fiscal 1982 budget as shaped by outgoing President Carter.

Months of wrestling between Democrats and Republicans resulted in a package of cuts worth $35.2 billion in fiscal 1982, with the bulk of the trims coming in social programs.

A jubilant President, vacationing at his California ranch, signed the package into law Aug. 13. Already, however, doubts were accumulating about the realism of the budget numbers.

Interest rates clung stubbornly high, adding billions of dollars to government outlays. Congress, at least in the White House view, padded appropriation bills beyond the agreed-upon figures.

When Reagan returned to Washington from vacation, his aides - led by Stockman - told him that more budget cuts were needed to hold the 1982 deficit to $43.1 billion and to balance the budget in fiscal 1984.

So, on Sept. 24, Reagan went on national TV to ask Congress for additional cuts, amounting to a 12 percent reduction in nondefense programs below - and this was crucial - his original March proposals.

This threw Congress into disarray, reopening the summer's bitter battles over spending priorities. Despite a great deal of talk and bluster, the budget process ground almost to a halt.

By law, Congress is supposed to agree on binding budget figures for the upcoming fiscal year by Sept. 15. Both houses missed the deadline and - though they realized their act was meaningless - legislators simply readopted their first, tentative budget resolution of last spring.

Thirteen appropriations bills, assigning specific authority to spend government money, were supposed to be in place before Oct. 1, when fiscal 1982 began. None had been sent to the President on that date.

To keep the government going, Congress passed a 50-day ''continuing resolution,'' authorizing program funding through Nov. 20. This was to be at the fiscal 1981 level or at the level of the relevant House-passed bill for 1982, whichever was lower.

As October wore into November, what the government was spending to keep programs going bore little relation to the 1982 measure which the President had signed so joyfully on Aug. 13.

Senate Republicans, meanwhile, led by majority leader Howard Baker (R) of Tennessee, waited for President Reagan to spell out his 12 percent cut proposals of Sept. 24.

Reagan did not respond, partly because the economy was dropping so swiftly into recession that White House economic projections were woefully out-of-date.

The President in effect decided to wait until next January, when his Council of Economic Advisers will revise its estimate of what the economy is expected to do in 1982. At that time the President will send his 1983 budget to Congress.

Nov. 20 came and went - still with no agreement on what to do about fiscal 1982. When a weary Congress finally sent new spending figures to the White House , they were too high for Reagan's liking.

He vetoed the bill and thousands of federal bureaucrats began streaming home from their offices - furloughed without pay until Congress whiped together an extension of the continuing resolution.

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