Reagan budget message leaves no doubt: defense comes first

Sending a budget to Congress for next year that includes a $180 billion deficit, President Reagan is underscoring that: His principal objective during his second term remains that of reducing domestic spending and keeping his military buildup on track -- not reducing the nation's soaring deficits. The challenge of bringing the budget more into balance is tossed to Congress.

He is prepared for the first time to cut back on politically sensitive programs for the middle class as well as business subsidies instead of attacking primarily the benefits of low-income groups.

Politically boxed in by his campaign promises, Mr. Reagan submitted a $973.7 billion budget Monday that avoided (1) any tax increase, (2) any reduction in social security benefits, and (3) any decrease in the rate of growth in defense spending. While the President in the end may compromise on these issues, they go the heart of his philosophy of government and for the moment he is hanging firm.

``There is no evidence yet of conceding or throwing in the towel,'' says Allen Schick, a budget expert at the University of Maryland. ``This is not a `dead on arrival' budget, but it won't sail right through, either. It's a bargaining budget. The White House is doing a dance around Congress.''

Economists and political experts say that ``Reagan is being Reagan,'' consistently pursuing the goal of reducing government as he has from the time he assumed office and now seeking to solidify his political revolution. ``Reagan doesn't care about the deficit, he cares about government doing as little as possible,'' says William Schneider of the American Enterprise Institute. ``He says that government is the problem, and the deficit is only the result of government spending.''

Government spending today accounts for 25 percent of the gross national product, while revenue makes up 19 percent -- the gap representing the budget deficit. Under the President's budget proposal, spending would decline to 23 percent of GNP in fiscal 1986 and to 21 percent by the end of the decade, says Budget Director David Stockman.

John Palmer, an economist at the Urban Institute, suggests that Mr. Reagan would be proposing the same domestic cuts even if there were no deficit. ``He's more concerned about cutting domestic spending than the deficit,'' he says. ``We would be seeing similar proposals even if the budget were closer to being in balance -- it has to do with the role of government.''

In his budget message to Congress, the President in fact reiterated his oft-stated view. Citing the economic accomplishments of his first term, he said: ``If we are to attain a new era of sustained peace, prosperity, growth, and freedom, federal domestic spending must be brought under control.''

Acknowledging the growing deficit, Mr. Reagan said his budget was a ``significant step in the right direction'' of achieving a balanced budget. With further reductions in the next two budgets and with ``other spending reductions advanced by Congress,'' he said it will be possible to achieve his goal ``in an orderly fashion.''

The budget for fiscal 1986 calls for reducing the deficit by $51 billion from what it otherwise would be: $47.5 billion to be achieved from program cuts and $3 billion in savings from reduced interest payments on the US debt.

Among the domestic cuts are many programs for special-interest groups which were regarded as sacrosanct during the first four years, when Mr. Reagan sought a dramatic reduction in federal spending without alienating key constituency groups. This time around the President is asking for cuts in pay and retirement benefits for federal employees. He would hold medicare expenditures to $4.2 billion below what would have been spent under existing law, and he would require higher payments by medicare recipients. Veterans benefits and student loans would also be reduced.

Farm subsidies are also hit at a time when many farmers are in deep economic trouble. Mr. Reagan is proposing a $7.4 billion cut in outlays from farm income stabilization, and he would eliminate the direct-loan program of the Export-Import Bank. At the same time many programs that benefit the middle class would be eliminated entirely, including the Small Business Administration, federal revenue sharing, mass-transit subsidies, federal support for Amtrak, the Economic Development Administration, and sewage treatment construction grants. The President acknowledges that there will be resistance to these and other cuts by those who have a ``vested self-interest'' in such benefits. But, he said in his budget message, the question must be asked: `` `Where is the political logrolling going to stop?'

``At some point,'' he said, ``the collective demands upon the public Treasury of all the special interests combined exceed the public's ability and willingness to pay.

``The single most difficult word for a politician to utter is a simple, flat `No.' The patience of the American people has been stretched as far as it will go. They want action; they have demanded it.''

If the government fails to reduce ``excessive federal benefits to special-interest groups,'' the President further states, the country will be saddled with larger deficits or higher taxes, ``either of which would be of greater harm to the American economy and people.''

It lies now primarily with the Republicans in the Senate to tackle a budget compromise, finding a mix of cuts in domestic programs and defense outlays which is acceptable. The sentiment on Capitol Hill is for trimming defense more than the President proposes, perhaps cutting back on social security benefits, and possibly raising taxes. While the ultimate budget produced by Congress may differ in emphasis from that of the President's, it is questionable whether the lawmakers will be able to reduce the deficit substantially. The difficulty in part is that the deficit, although everyone worries about it, remains a long-term problem. As long as the economy is perking along and there is no crisis, it is hard for lawmakers to cut programs that benefit their constituents.

``The difficulties the deficits pose are more in the future than in the present,'' says Mr. Palmer, ``and the cost of doing something now is clear -- an immediate pain traded for a future gain. High deficits are not an immediate threat; they just mean . . . the cost will be pushed on to future generations.'' Chart: Key spending cuts at a glance (Projected savings in FY 1986 over spending required to continue FY '85 programs without policy changes) 1. DEFENSE $8.9 billion 2. FREEZES AND REFORMS

Medicare: freeze payments to hospitals $4.2 billion

and doctors, boost premiums for

``part B'' insurance.

Medicaid: cap federal payments to $1.1 billion

states below 1985 level.

Farm credit: cut back on loans, focus $3.1 billion

on small farmers.

Farm price supports: set support $2.0 billion

prices in line with market, limit

payments to each farmer.

Strategic Petroleum Reserve: stop $1.6 billion

buying oil at end of 1985.

Rural Housing Aid: terminate some $2.2 billion

USDA programs, transfer others.

Housing aid: two-year moratorium on $1.3 billion

funds for additional subsidized

housing.

Student aid: cap aid at $4,000, set $0.7 billion

family income requirements.

Federal worker pensions: freeze $1.4 billion

inflation adjustment for one year

for civilian and military retirees. 3. PROGRAM ELIMINATIONS

General Revenue Sharing with states. $3.4 billion

5 percent pay cut for federal $1.6 billion

civilian workers.

Small Business Administration $1.5 billion

direct loans.

Mass transit aid to cities. $0.8 billion

Amtrack subsidies. $0.6 billion 4. DEBT SERVICE

Interest savings from reduced deficit. $3.1 billion Source: Office of Management and Budget -- 30 --{et