Deficits: the talk of Pennsylvania Ave

Officials at both ends of Pennsylvania Avenue spent Wednesday exploring ways to keep a flood of red ink from engulfing the federal budget. At one end of this city's key thoroughfare, Rudolph G. Penner, director of the Congressional Budget Office (CBO), handed the Senate Budget Committee a report outlining 138 ways to cut the deficit. Included in the 276-page document were 98 spending-cut proposals and 40 tax-boosting methods.

''It is a complicated enough task so that we have to start work on it right away,'' Mr. Penner said. Major tax increases or spending cuts are needed ''just to avoid the possibility of explosive growth in interest'' on the debt, he added.

Meanwhile, negotiators from Capitol Hill and the White House were meeting at Blair House, an official guest residence across Pennsylvania Avenue from the White House. There, congressional and administration representatives began preliminary discussions on the three-year, $100 billion deficit reduction ''down payment'' that President Reagan called for in his State of the Union address.

Events at both ends of Washington show how difficult it will be to achieve meaningful reductions in the deficit in an election year.

Before the Blair House meeting began, key Democrats said they were pessimistic about the chances for success. Senate minority leader Robert C. Byrd (D) of West Virginia said he had doubts about what could be accomplished by a ''small group of public officials, meeting behind closed doors and without the testimony of administration witnesses on the record.''

Such talks, he asserted, ''cannot substitute for personal presidential leadership.''

But Sen. Paul Laxalt (R) of Nevada, a close friend of the President, said he expected ''positive results. I certainly am not going into this as a political exercise.''

When the meeting broke up, the negotiators had agreed that social security benefits would not be cut back this year. ''That is the only thing that has been taken off the table,'' says House majority leader Jim Wright (D) of Texas.

The Democrats proposed that the White House stretch out its military spending plan over an additional year to curb costs.

Senator Laxalt said the Republicans would study the proposal and had suggested almost $100 billion in other deficit-trimming action for the Democrats to consider.

The negotiators said they hoped to met again within two weeks.

Meanwhile, on Capitol Hill, the CBO's Mr. Penner admitted that the harm from the deficits ''is gradual, and there is no easily identifiable, traumatic event that clearly illustrates the effects of deficits.''

Instead of a violent collision between private borrowing (to build homes and factories) and government borrowing (to cover the deficit), Penner predicted ''a gradual erosion of our future prospects. . . . A nation, like a household, can live pretty well on borrowed money as long as people are willing to lend it to us.''

As Senate Budget Committee chairman Pete V. Domenici (R) of New Mexico notes, that makes action difficult: ''The things (voters) feel and talk about at the breakfast table or dinner table are all better than they were. The deficit is a theoretical thing (to voters).''

But that makes the problem no less important to solve.

Penner says that the deficits must be reduced to keep interest payments on the federal debt from grabbing a growing share of the nation's income - which, according to CBO projections, is happening under current policies.

Such reductions won't be easy. Last year, Congress set a target: By fiscal 1986, it wanted to trim the deficit to 3 percent of the gross national product (GNP), the value of the nation's total output of goods and services. (The CBO's projection for fiscal '84 puts the deficit at 5.3 percent of GNP.) Penner said that if last year's target is extended to fiscal '87, it would require a $110 billion cut in that year's projected deficit. Bringing the deficit to 2 percent of the GNP, typical in the 1970s, would require an '87 deficit $160 billion lower than currently projected.

Lawmakers can attack major programs and still not come close to the 3-percent target. Penner noted that Congress would fall short of its goal even if it froze real growth in defense spending in 1985, skipped the 1985 cost-of-living adjustment in all indexed programs, repealed indexation of income taxes for inflation, and imposed a 1 percent national sales tax in 1987.

Despite the obstacles, however, ''our budgetary predicament requires that we make difficult choices and search for the least damaging package of deficit-reduction options that can command majority support,'' Penner said.

PROJECTED BUDGET OUTLAYS (in billions of dollars) Percent FY 1984 '87 change National Defence $235 $ 331 40.9% Entitlements and other mandatory spending: 1. Medicaid $ 21 $ 27 28.6% 2. Other means-tested benefits$ 40 $ 45 12.5% 3. Social security $173 $ 211 22.0% 4. Medicare $ 64 $ 94 46.9% 5. Other nonmeans-tested programs $101 $ 114 12.9% Nondefense discretionary spending $156 $ 178 14.1% Net interest $108 $ 168 55.6% Gross outlays $898 $1,167 30.0% Offsetting receipts m-$ 48m -$ 55m 19.6%m TOTAL BUDGET OUTLAYS $852 $1,113 30.6%

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