Gulf Crisis Scrambles US Budget Equation

IRAQ is altering the arithmetic of budget negotiations in Washington. The cost of sending US troops to the Gulf will make it very difficult for the White House and Congress to make serious cuts in the federal budget deficit this year.

Budget Director Richard Darman has ordered federal agencies - except the military - to submit plans by Aug. 27 for cutting 31.9 percent from their fiscal 1991 budgets.

If no action is taken on the budget, the Gramm-Rudman anti-deficit law cuts $100 billion from a broad range of programs, beginning in October. Defense cuts would amount to about 25 percent of the Pentagon's $300 billion budget.

President Bush, however, will use his option to exempt military personnel needed to counter Iraq in the Gulf region, according to the White House. This means that other defense programs would be cut deeper - some by as much as 42 percent.

Negotiators agree that a $100 billion, across-the-board cut in federal spending would endanger economic growth, however. House Budget Committee chairman Leon Panetta (D) of California has acknowledged the new political difficulties for a deal, but still hopes that the deficit can be cut by at least $40 billion.

The budget summiteers had loosely agreed to relax the Gramm-Rudman deficit limits by $50 billion in any deal, leaving them $50 billion to close up through spending cuts and tax increases.

Now the $50 billion in deficit closing looks further from reach, for three reasons:

Iraq has made the defense budget suddenly relevant.

Oil prices are making energy tax increases less popular. Congressional aides had been working on proposals for a broad-based energy tax as part of the deficit package before the Iraqi invasion of Kuwait. The plan reportedly would have raised $12 billion to $14 billion a year.

The weak economy makes deficit-cutting more dangerous to growth. Growth has averaged 1.3 percent for the last 15 months, a slide from the approximately 2.5 percent rate during the Reagan years.

After the Iraq crisis began, White House spokesman Marlin Fitzwater said, ``We may need to amend our proposal'' on how to cut the budget. He has not discussed new deficit numbers.

Alice Rivlin, former director of the Congressional Budget Office, says she is still optimistic for a significant deficit-cutting deal, though less so than before the crisis.

``Politicians like any excuse they can find not to do difficult things,'' she told reporters last week. ``Now they've been handed two'' - Iraq and an economy blurring into recession.

House Speaker Thomas Foley (D) of Washington predicts that no deal will appear until a couple weeks before the Oct. 1 automatic cuts are triggered. Any earlier, he said at a Monitor breakfast, and special interests have time to gear up political offensives against it. ``There will be arguments that the economy is simply too weak for any kind of a budget agreement,'' he said, adding that the Iraq situation may make the argument more appealing. ``That's the easy course, and I'm worried about us taking easy courses.''

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