House-Senate talks hold key to future of budget, recovery

A group of lawmakers, huddled around a conference table on Capitol Hill, is attempting to rescue a federal budget process that is in big trouble. And according to some, so is the future of the economic recovery.

''There's no use kidding ourselves,'' Senate Budget Committee chairman Pete V. Domenici (R) of New Mexico told members of the Senate-House conference now trying to work out a budget compromise. ''The budget process is at stake.''

Although the process of writing a congressional budget has been limping along almost since it was established in 1974, this year the budget has had the rudest treatment yet. It has been all but ignored.

The White House has apparently lost interest and pulled out of the discussions. And now Congress is proceeding with its annual appropriations bills for 1984 as if it didn't need a 1984 budget to set guidelines for spending.

As Senate majority leader Howard H. Baker Jr. (R) of Tennessee pointed out this week, the government would not grind to a halt if no budget is passed. Moreover, goes one line of reasoning, President Reagan could provide discipline by vetoing any bill that spends too much.

Mr. Reagan ''is going to have to be the force,'' argued Rep. Ed Bethune, an Arkansas Republican, at the budget conference committee. He said he was skeptical that Congress can control spending even with a budget.

Supporters of the budget process, however, are warning that losing the budget could be disastrous for control of federal spending. Included in the budget would be instructions for cutting costs of major entitlement programs, including medicare, medicaid, and federal pensions.

Some of those cuts have already been accepted in theory by both houses, but unless Congress enacts them into law, they will not be made. The programs will continue to expand on ''automatic pilot'' under current laws. Reagan could whittle down some domestic spending by veto, but Senator Domenici pointed out to conferees that discretionary programs ''don't exceed 20 percent'' of federal spending. The biggest part of domestic spending, entitlements, can be cut only if Congress passes a law to change them.

''The veto can't establish any entitlement reform,'' says Sen. Slade Gorton (R) of Washington, a budget conferee, in an interview in which he said he was bothered by reports that Reagan would resort to a veto strategy and abandon the budget process.

Senator Gorton, a moderate, led the bipartisan effort that produced a Senate budget last month by a one-vote margin, and he says he is optimistic that a final budget will pass both houses. He holds that the economy depends on its success.

''In the long term, the budget resolution is an indicator that budget deficits are important and have to come down,'' he says.

If no budget is passed, ''I believe that will have a real impact on the economy,'' the senator says. Among others on Capitol Hill, he points to the recent 0.5 percent rise in a key mortgage rate as evidence that the financial market is jittery about federal deficits.

''The biggest problem is that there is no pressure to make hard choices,'' House Budget Committee chairman James R. Jones (D) of Oklahoma told reporters this week. He said that until recently Americans, preoccupied by the recession, paid little attention to the federal deficit, which has climbed to the unprecedented level of $200 billion-plus this year.

''The deficits are so big, you put it out of mind and roll with the flow,'' said Representative Jones. However, he said he has noticed that as the economy improves, some business and citizen groups are beginning to take a hard look at deficit figures, which are blamed for forcing interest rates up.

''The biggest missing ingredient is public pressure to solve the problem'' of deficits, according to Jones.

In the absence of a clear public mandate, the budget talks on Capitol Hill are having trouble keeping clear of partisan politics. Democrats have already recharged their ''fairness'' theme of '82 by proposing to cap the July 1 tax cut for upper-income brackets, and thus lower the deficits.

The President has the double opportunity of blasting the Democrats for raising taxes, while demonstrating his opposition to spending by vetoing appropriations bills.

From both sides of the budget conference table, the plea is to tone down political rhetoric for the sake of a budget resolution. ''I think we can succeed ,'' said Domenici, but only if each party is ''willing to put aside partisan differences.''

The conference has until next Thursday night to come up with a compromise that would then go to the House and Senate for a vote.