Big Battles on Two Fronts

By WALTER ISAACSON

Reagan fights Congress on the budget (again) and taxes

With the flourish of a man assured of his political popularity and the righteousness of his electoral mandate, the President last week threw down the gauntlet to Congress. Said Ronald Reagan at his press conference: "I am asking Congress today to deliver to my desk before the August recess not one, but two bills--a spending bill and a tax bill." Determined to alter the direction of Federal Government and, as he put it, "rescue the economy from high inflation and high unemployment," Reagan has become impatient with those Congressmen who have flinched at supporting his new economic proposals. "There is no longer any reason to delay," he insisted.

Not that Congress has been exactly lethargic. Last month both houses approved budget resolutions that directed their individual committees to cut some $36 billion in spending for fiscal 1982, and more than $100 billion over the following two years. Since then, through the "reconciliation" process, 15 committees of the House and 16 of the Senate have labored to produce the most imposing piece of legislation ever considered by Congress: a 4,000-page omnibus budget bill that cuts back the scope and thrust of no fewer than 175 federally funded programs. That bill now goes to the floor of the two houses for possible amendment and debate.

There are indeed two versions of the bill, which differ not so much in dollars as in direction. The one presented to the Senate by its Budget Committee closely tracks the proposals made for the Administration by David Stockman, Director of the Office of Management and Budget. Reagan's press conference complaint about "congressional backsliding and a return to spending as usual" was directed at the House version, in which, the President charged, "some committees reported spending cuts they know can't be made." Reagan had in mind the House Education and Labor Committee, a nest of old-time liberals headed by Democrat Carl Perkins of Kentucky. Perkins' ploy was to meet the goals of the House budget resolution by cynically slashing politically popular programs, for which funding would almost certainly be restored during floor debate. Examples: ending college loans for families making more than $25,000 a year and cutting off "impact aid" to school districts that serve federal facilities, primarily military bases. Other committees met their "goals" by proposing to close 10,000 post offices, abolish the Export-Import Bank and eliminate a program that provides meals for the elderly. "That's the kind of junk we are facing," said one presidential aide.

Presentation of the House bill set the stage for a subtle parliamentary battle. House Speaker Tip O'Neill, who has helped guide passage of progressive social legislation for nearly three decades, initially went along with Perkins' ploy to make cuts that were not meant to stick. He told Perkins and other key chairmen that he would support amendments on the House floor that restored money for the popular programs, even if it meant exceeding the House resolution's budget goals. But there was one hitch: if floor amendments were permitted, the Republicans might propose an Administration-backed substitute for the entire budget bill. Reagan made just such a threat at his press conference. Said he: "My Administration will have no other choice than to support the proposal of a number of Representatives to offer a budget substitute on the floor." Indeed, Stockman had been working for three weeks with House Republicans and some Southern Democrats on an Administration alternative.

Even before Reagan made his televised threat. Democrats were having second thoughts about trying to get by with unrealistic cuts that would later be reversed. Congressman Leon Panetta of California, a member of the Budget Committee, telephoned Perkins in Kentucky to warn that the Republicans, as they had with the bipartisan budget resolution, might be able to sway enough conservative Democrats to pass their own budget plan. Democrats decided to reverse some of their cuts. Perkins called his committee Democrats into caucus and chose to restore $1.75 billion for such programs as school impact aid, student loans and Head Start preschool education centers. The committee offset that by eliminating $1.57 billion from other programs --$1 billion from the Comprehensive Employment and Training Act (CETA) job program, as the Administration had recommended.

According to the Administration, the House bill still does not contain enough big budget cuts for 1983 and 1984 and is filled with "bookkeeping gimmicks." For example, it reduces expenditures for entitlement programs like food stamps without adequately changing eligibility requirements. After meeting later in the week with key advisers, Reagan agreed to back the Stockman-prepared amendment. known on the Hill as "son of Gramm-Latta."--

The 100-page Republican proposal is not a complete substitute for the Budget :ommittee package. A Reagan aide called it "a perfecting amendment," dealing only with the appropriations made by the seven most recalcitrant House committees, including Education and Labor. The Republican amendment proposes an additional $5.5 billion in real spending cuts in fiscal 1982 to make up in part for what Stockman claims is more than $7 billion in "phony" reductions in the House bill. Entitlement programs would be the target of the largest slashes, such as further revising food-stamp eligibility to save $1.2 billion and limiting cost of living adjustments for federal retirees to once a year, saving $900 million.

If "son of Gramm-Latta" is rejected, major differences between the House and Senate versions of the bill will have to be ironed out in a joint conference committee, where Republicans may be able to overturn some of the House cuts. But the Administration does not want to wait until this stage to fight for its revisions. Reason: if funding disparities could not be resolved, they would be eliminated from both bills, meaning that certain programs would remain at current spending levels with no cuts at all.

Despite the assessment of his own aides that he did not yet have bipartisan support for this budget fight, Reagan was not worried. Losing this second budget battle, he felt, was preferable to endorsing a bill that might lead to unacceptable deficits in 1982 and 1983 and thus undermine his arguments for future tax cuts.

If he fights and fails, he at least can try to blame the Democrats in the 1982 elections for any of the economy's shortcomings. At one White House strategy session, said a participant, some aides were "hesitant to go all out for an alternative budget because a loss could cost momentum on the tax bill." But Reagan told them to battle on. Said he: "If it comes to a fight, I say damn the torpedoes, full speed ahead."

As Reagan left for a weekend at Camp David, he paused to plug his budget amendment. "Certain House committees have not yet received the message of last November that the people want less bureaucratic overhead in Washington," he said. "We can and we will stop this fiscal joy ride." This week he plans to make speeches on behalf of his budget alternative in San Antonio and Los Angeles. His aides are also considering a national media campaign of commercials, paid for by the Republican National Committee, and perhaps a televised speech by the Administration's No. 1 salesman.

The budget brawl overshadowed a struggle on a second front: Reagan's push "or his broad multiyear tax cut. There are no serious problems with the Republican-controlled Senate. In fact, Russell Long, the ranking Democrat on the Finance Committee. told the President at a White House meeting, "You have the votes in the Senate to pass your tax bill." At that session, Long's Louisiana colleague, Democrat J. Bennett Johnston, urged inclusion in the package of a "trigger mechanism'' that would eliminate a proposed third year of tax cuts if deficits rose too high. But Reagan's attitude was 5-10-10 or fight. Said he, "Government spends all the taxes it gets. If we reduce taxes, we'll reduce spending."

The Finance Committee went along, approving, 15 to 4, a threeyear, 25% income tax reduction to begin Oct. 1. The Finance Committee and the Administration also agree on proposals that would reduce the "marriage penalty" tax paid by wage-earning couples and allow faster tax write-offs for business investments.

Reagan's tax proposals are faring less well in the House Ways and Means Committee. Nonetheless, actions by the Democratic majority there demonstrated how completely the Republicans have dominated the economic debate. The committee last week voted for two proposals designed to please business quite as much as Reagan wanted, or even more.

Reagan had merely requested speeding up the schedule for depreciation write-offs, but the Democrats approved a measure that would allow some businesses to deduct the cost of new equipment in the year purchases were made, a move designed to encourage investment. They also voted a gradual reduction in the top corporate tax rate from 46% to 34%, very much in line with White House proposals. After the committee votes, one Administration official observed: "If they move toward us any closer, maybe we should just adopt their bill and declare victory."

At his press conference Reagan insisted his election was "an overwhelming mandate to rescue the economy." He has been firm so far in fighting for passage of his radical budget and tax cuts. The Democrats, lacking a comprehensive alternative that can hold their House majority in line, have done little more than salvage a few programs and obstruct a handful of Reagan proposals. But they did have one small consolation last week. Because of the increased work load of the Office of Management and Budget, Stockman asked for a 12% increase in appropriations for his agency. Said liberal Democrat Edward Roybal of California, "Children will be left hungry, the aged left weary and cold, the truly needy wanting, and Mr. Stockman thinks his OMB's duties should take priority." A House Appropriations subcommittee denied the request. --By Walter Isaacson. Reported by Douglas Brew and Neil MacNeil/Washington

*Among the sponsors of the substitute are Democrat Phil Gramm of Texas and Republican Delbert Latta of Ohio, who proposed the Reagan-backed bipartisan budget resolution that was approved by the House last month.

With reporting by Douglas Brew, Neil MacNeil/Washington

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