Two-year federal budget compromise in sight: then what?

A few years ago John Tower, who as chairman of the Senate Armed Services Committee was looking to carve some fat out of the Pentagon's swelling budget, hit on a clever notion. What better way to start, the Texas Republican (now retired) figured, than by eliminating a few of the hundreds of military bases scattered across the country. So he sent a letter to his Senate colleagues. Would anyone, he asked, be willing to volunteer a local base, or a local defense program, for elimination? One senator braved a symbolic suggestion. The rest greeted the plan with silence. The idea was forgotten.

The fate of Senator Tower's initiative explains, in part, why the national debt now tilts the scales at $2.1 trillion. If the budget could be balanced on speeches alone, the federal government might be a marvel of fiscal responsibility. But the drive to trim the deficit, much less balance the budget, involves the kind of choices and sacrifices that politicians freely admit they would rather not make unless they absolutely must.

``Certainly no one wants to make them alone,'' says Sen. Ernest Hollings (D) of South Carolina, a member of the Senate Budget Committee. Sen. Alan Simpson (R) of Wyoming agrees: ``Either we all jump off the cliff together or we don't jump at all.''

Wall Street's growling bear market appears to be chasing Congress and the President, at last, over the cliff. As world financial markets twitched nervously throughout the week, congressional leaders and top White House officials sequestered themselves in a room just off the Senate chamber in search of a compromise plan to shrink this year's deficit by about $23 billion. The talks have moved along harmoniously, and participants seem to harbor high hopes for an agreement in time to avoid the across-the-board cuts dictated by the Gramm-Rudman deficit-reduction act.

``The atmosphere is positive,'' says Rep. William Gray III, chairman of the House Budget Committee and one of 12 members of Congress participating in the negotiations. ``But we have to reach agreement by Nov. 15 in order to avoid those Gramm-Rudman cuts on Nov. 20.''

The agreement would provide an unexpected denouement of this year's budget battle - a process that, until Wall Street's crash, was headed nowhere. But lawmakers hold little hope of further serious deficit reduction next year, in the heat of a presidential campaign. So there is talk of crafting this year's compromise package to extend through the end of the Reagan presidency. But then what?

For an answer, one might look to Gramm-Rudman, which has set the framework of the budget process since its passage in 1985 and is likely to loom over deliberations in the next few years. The newly overhauled act mandates a balanced budget in 1993 - a retreat from the 1991 target set by the original law passed two years ago. Yet even this goal may be unrealistic.

The act now schedules mild deficit reduction in the final two years of the Reagan presidency, but imposes comparatively sharp reductions in the years following. While Gramm-Rudman requires an $8 billion deficit reduction between the present fiscal year and fiscal 1989, it calls for a $136 billion drop to a balanced budget during the next four years.

Sen. Phil Gramm (R) of Texas, one of the act's authors, asserts that a growing economy will help reduce the deficit and bring Gramm-Rudman's annual targets within reach. Few others are so sure.

In the event of a recession, the Gramm-Rudman deficit-trimming requirements would be suspended. Even without a recession, the next president may decide Gramm-Rudman's cuts are sufficiently onerous to be put off again.

But events of the last 10 months suggest that old-fashioned political dealing, and not Gramm-Rudman's newly updated timetable, will drive the deficit-reduction process over the next few years. From January through September, Republicans effectively sat on the sidelines of the budget process while congressional Democrats wrote a budget of their own. The Democrats criticized GOP legislators for not participating in the budget process and faulted President Reagan for refusing to consider tax increases.

White House officials, meanwhile, spent much of their free time accusing the Democrat-controlled Congress of budgetary profligacy.

Stalemate has characterized the budget dialogue between White House and Congress before. Twice - in 1982 and '84 - administration officials and congressional leaders met to iron things out. But positions of both hardened between 1984 and '87, and this year's budget disagreement was, in many respects, the bitterest yet.

Despite this, an overhaul of Gramm-Rudman was cobbled together. Yet that achievement seemed only to highlight the failure of the conventional political process.

The new Gramm-Rudman reinstated a provision that imposes across-the-board cuts on federal programs if lawmakers and the president are unable to agree on a way to bring a given year's deficit within targets established by the act. Paradoxically, Democrats who had once opposed the act supported the reinstatement of the automatic cutting provision - they saw it as an opportunity to force President Reagan to the negotiate. Republicans, for the same reasons, resisted the Democratic effort. A compromise was struck, reinstating the automatic cuts in exchange for easier targets during the two final Reagan years.

The prospect of automatic cuts is supposed to be awful enough to drive all sides into the conference room. But for a variety of reasons - particularly a White House conviction that automatic cuts would hurt domestic programs favored by the Democrats more seriously than the defense programs nurtured during the Reagan era - the conference room remained shuttered. Political Washington seemed to be hurtling toward the admitted ignominy of automatic cuts.

Or it did until the New York Stock Exchange collapsed, dragging the world's other major financial markets down with it. ``The crash did what Gramm-Rudman was supposed to do but never did: force everyone to negotiate,'' says Rep. Barney Frank (D) of Massachusetts.

The crash did that, lawmakers say, by injecting a crucial element into this year's budget standoff: a sense of crisis missing when most leading economic indicators suggested a robust economy. More important, says Sen. Dave Durenberger (R) of Minnesota, ``it got Ronald Reagan's attention,'' particularly since the administration's prestige had been buttressed by Wall Street's record five-year bull market.

It also grabbed the public's attention by hitting its wallet, providing, in the process, the President and the Congress with an excuse to move from their battle-hardened positions. Now, White House negotiators seem ready to accept a $12 billion mix of tax increases, though their original budget suggested $6.1 billion worth of new revenues. Both sides have agreed to avoid politically sensitive increases in corporate and personal income taxes or excise taxes on liquor, cigarettes, and gasoline.

Another $12 billion in deficit reductions will come from spending cuts, of which defense programs will bear half. But Democrats have expressed a willingness to consider the administration's suggestions for reductions in domestic spending programs - reductions that until now were inconceivable.

Representative Gray notes that Congress is ``reactive, not proactive,'' and works best with a crisis at hand. Few lawmakers are willing to predict that it will take another crisis to force Washington's elected officials to take the next step toward reducing the deficit. The next serious deficit-cutting effort may well take place after Reagan has left office, by which time the political calculus could have been altered dramatically.

But the deficit problem, says Senate minority leader Robert Dole (R) of Kansas, ``is not going to go away or grow away.'' If it remains safely lodged at the top of the political agenda, something will eventually be done about it. ``It is a question of leadership,'' says Senator Durenberger. It is also a question of when.

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