Reagan's Budget Battle

By Ed Magnuson

A historic debate on economic theology

All we need to do is act, and the time for action is now," declared Ronald Reagan as he ended a triumphantly successful televised address to a joint session of Congress. And this week both the House and Senate will act. The first crucial votes that may well shape the most drastic turnabout in the Federal Government's economic policies since New Deal days will be taken on the floors of both chambers.

Almost certainly, the recuperating President will win much of what he seeks: a sharp curtailment of the Government's propensity to spend ever more. Yet whether Congress will Peter Sweeney also accept Reagan's bold, if risky, three-year cut in income tax rates for individuals remains in doubt. The outcome could vastly influence the nation's immediate economic future.

The historic debate centers on arcane fragments of economic theology: "supply-side" tax theory; conflicting projections of how specific cuts in tax rates will affect inflation; varied assessments of the impact of budget deficits on the cost of living; different interpretations of who is "truly needy." In an incredibly confusing numbers game, the competing players are juggling figures wildly. Their tables and projections are important -- but more in political terms than economic ones. Even though the estimates seem as solid as quicksand, the two parties have similar destinations in mind, but want to arrive there by significantly different routes. The Democrats seek to protect more of their traditional social services, while the Republicans want deep cuts in these areas.

At issue this week are budget resolutions meant to set the broad outlines of economic policy, including spending lim its, tax revenues and budget deficits. None are legally binding on the Congress; they are meant mainly to impress the will of the majority on committees of the two houses that will later work out the many laws that must be enacted to produce a final economic package. Still, any consensus that develops this week could critically influence the legislation. That is why Ronald Reagan's first national address since a gunman's bullet missed his heart by a mere one inch was aptly timed.

The speech came at a moment when Reagan is still doing well with the public. An Associated Press-NBC News poll indicated that 66% consider his performance overall as good or excellent, a shade better than Jimmy Carter's rating at about the same time in 1977. But Reagan is only working half-days in the Oval Office. Perhaps as a result, the Administration's foreign policy is still in some disarray. Even before a politically weakened Alexander Haig flew off to a meeting of NATO foreign ministers in Rome, aides of the Secretary of State were trying to counter the impression that by its strong pro-Israel stance the Administration had given the Israelis the green light to attack Syrian positions in the danger-laden war in Lebanon.

Never before had a U.S. President been shot and recovered to appear before Congress. Rarely, if ever, had the Secret Service felt the need to post an agent at the President's side as he worked his way slowly through the cheering House chamber. And on only a few occasions had a President enjoyed such a shouting, clapping, emotional reception from the assembled lawmakers. Reagan's voice was thin and hoarse, but his complexion was ruddy. He deftly turned his own recuperation into a powerful plea for his prescription for curing the nation's economic ills.

The sustained standing ovation that greeted the President was bipartisan. The lawmakers demonstrated their affection for a likable man, who had borne up under the shooting ordeal with courage, humor and no hint of self-pity. Sensitive to the situation, Reagan, with a thespian's finesse, did not overplay his role. His voice faltered only slightly as he expressed his and Nancy's thanks for "your messages, your flowers, and most of all, your prayers--not only for me but for those others who fell beside me." That public outpouring of "friendship and, yes, love" was, he said, the answer to those who claimed that the shooting showed the U.S. was "a sick society."

Reagan stirred loud laughter when he pulled a letter from his pocket and read the words of eight-year-old Peter Sweeney, a second-grader in Rockville Centre, N.Y., "I hope you get well quick or you might have to make a speech in your pajamas." Reagan let the laughter subside, then read Peter's postscript: "If you have to make a speech in your pajamas, I warned you." More laughter. The letter, part of a class project, had been picked out of mountains of mail by Chief Speechwriter Ken Khachigian, but no one on Reagan's staff knew that the President had decided to read it on television.

Reagan's restrained references to the shooting had been drafted without the aid of his writers; some of his advisers had urged him to say more. Quite rightly, Reagan had replied: "I want them [his TV viewers and critics] to say that I didn't exploit the shooting." He did not.

But as Reagan's voice grew stronger in his spirited assault on alternatives to his spending and taxing plans, Democrats found much less to applaud. They knew that he was there, however amiably, to do them in politically. His biggest ovation in a 20-minute speech that was interrupted 13 times by applause came as he chided Congress for its past practice of taking only timid steps toward change. "The old and comfortable way is to shave a little here and add a little there," he said. "Well, that's not acceptable any more. I think this great and historic Congress knows that way is no longer acceptable." Republicans led the shouts of approval, then rose to applaud longer.

Sitting in the VIP gallery near Nancy Reagan, White House Congressional Liaison Max Friedersdorf thought he counted some 70 Democrats standing up too. Said he jokingly to an aide: "Can't we count this as our vote and pack up and go home?" Friedersdorf was referring to the fact that Reagan needs up to 40 Democrats to join the Republicans, minus a small number of defectors, in order to carry his program through the Democratic-controlled House. Behind Reagan at the Speaker's desk, Democrat Tip O'Neill noted the applauding members of his party, turned to Vice President George Bush beside him and conceded: "Here's your 40 votes."

Reagan's plan, virtually intact, was approved last week by the Senate Budget Committee. Three conservative Republican Senators, who had revolted against the large budget deficits it would produce, rejoined their party ranks. They did so after New Mexico Republican Pete Domenici, chairman of the committee, agreed to a revised set of estimates projecting that the Reagan plan would produce a balanced budget by 1984 instead of a $44.7 billion deficit. The plan assumes that there will be an additional but unspecified $22.7 billion in budget cuts by 1984, that $7.7 billion will be saved by reducing waste and fraud by then, and that the Defense Department will finance 40% of scheduled pay raises by attrition and freezing civilian employment. Complained Ohio Democrat Howard Metzenbaum: "I don't think the way to balance the budget is by gimmicking up the figures." Still, this plan should gain easy approval in the Republican-controlled Senate this week.

The real fight will be in the House.

For the first time, Reagan in his speech endorsed what he termed a "bipartisan substitute" for his own proposals, claiming that it "will achieve all the essential aims" of his program. Indeed, it would, since it calls for even deeper budget cuts than did his original package and includes the 10%-a-year, three-year Kemp-Roth reduction in individual tax rates. Sponsored by two conservatives, Republican Delbert Latta of Ohio and Democrat Phil Gramm of Texas, it was worked out with David Stockman, Reagan's Budget Director. But it is bipartisan only in the sense that an unknown--and ardently courted --number of conservative Democrats may support it.

Reagan, on the other hand, sharply attacked the House Budget Committee resolution, which is supported by most Democrats. Cleverly devised by Oklahoma Democrat James Jones, chairman of the committee, it would cut the budget almost as sharply as the Gramm-Latta substitute. But it would provide more funds for many social programs. The lure for conservative Democrats is that Jones' proposal includes only a one-year tax cut and projects a much smaller budget deficit of $24.7 billion for 1982. Reagan, however, insisted that this plan was just "an echo of the past rather than a benchmark for the future."

As a final ovation for Reagan's speech rolled through the great hall, another intriguing colloquy took place above and behind the President. Bush turned to O'Neill and asked with a grin: "Wasn't that wonderful?" Growled the Speaker: "Was it?

To me, it's the same voodoo economics you were reporting [in the Republican presidential primaries] a year ago."

O'Neill had a reason to be grumpy.

Not only had Reagan jumped back into the budget fight with surprising strength, but the Speaker had lost face within his own party by virtually conceding that the Democrats had no chance to stop Reagan's "velvet steamroller." It was a bad blunder by the old pro. O'Neill had spent the Easter recess in Australia and New Zealand rather than drumming up support for the Democratic alternative. Criticized by his colleagues for that junket, he then threw in the towel before making any kind of head count or sounding out the sentiment of other Democrats.

Actually, head counters in both the White House and the House saw the vote as so close that either side could win, although Reagan had regained momentum.

By one estimate, about 30 Democrats might possibly bolt their party, while six Republicans might jump to the other side.

If so, the Democrats would have 217 votes --a paper-thin majority.

A debate opened on the House floor, the Democratic strategy was clear:

1) to zero in on the budget deficits and the three-year Kemp-Roth tax program as grave weaknesses in the Reagan-backed substitute, and 2) to insist House members would betray a public trust if they vote for the Reagan budget cuts now, but vote against his tax plan later. Republicans, on the other hand, rallied around the argument that the Democratic resolution amounts to a surrender to special interests. Argued Latta: "We can't keep saying yes, yes, yes to the groups saying give us more, more, more."

As it happened, one special interest group--the farmers--was doing its best to undercut the President's program last week. The Republican-controlled Senate Agriculture Committee lavishly boosted dairy supports $1.4 billion above Reagan's recommendation for the next four years and then, on top of Reagan's removing the Soviet grain embargo, the committee increased corn and grain subsidies by some $4 billion for the same period.

Buoyed by the reception of his speech, the President continued to apply his special brand of polite pressure. He invited twelve uncertain Republicans, all Middle West or Northeast moderates, to the White House for low-key, one-on-one chats. He began to treat conservative Democrats to similar White House group-therapy sessions that will run right up to the eve of the vote. At a meeting with 25 top Republicans, Reagan emphasized that he considered his leadership prestige to be at stake in this week's House vote. For Republicans, Ronald Reagan's personal popularity looked like the best weapon they have in the battle of the budget. --By Ed Magnuson.

Reported by Neil MacNeil and Johanna McGeary/Washington

With reporting by Neil MacNeil, Johanna McGeary

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