Feuding in the Family

By Ed Magnuson

With a budget showdown looming, the Republicans break ranks

The nation's economy continued to recover from its deep recession, as shown by a modest 3.1% upturn in the gross national product in the year's first quarter. President Reagan's popularity, which had been slipping for two years, finally rose slightly in one national poll. And on the South Lawn of the White House, Reagan signed a bipartisan bill designed to rescue the Social Security system from bankruptcy. Said he: "Our system can still work when men and women of good will join together to make it work."

So why were so many Republicans wearing frowns last week? Because the Grand Old Party, badly split over the Administration's deficit-plagued budget and on whether to withhold taxes on interest and dividends, was having a family feud. Cabinet members were fighting with each other. So, too, were presidential aides. The President was scrapping with Republican leaders in the Senate, and G.O.P. Senators were slipping into squabbling factions. The infighting threatened to throw the congressional budget-making machinery, which is squeaky and erratic to begin with, into chaos.

At the same time that Reagan's tax cuts and military spending hikes were taking a pounding on Capitol Hill, the Administration's policy in Central America was also under fire, mostly from Democrats but also from some Republicans. The President won an uneasy cease-fire by disclosing that he would go before a joint session of Congress this week in a national TV address to defend his strategy in the troubled region.

The Republicans' disarray was most evident in the Senate Budget Committee, chaired by New Mexico Republican Pete Domenici. The committee stuck to its earlier decision to limit next year's military spending to a real increase of 5%, even though Reagan aides had belatedly signaled that he might accept a 7.5% hike instead of the 10% that he has been demanding. It also recommended raising $267 billion in additional revenue over the next five years to avoid budget deficits of $200 billion or more each year. This new revenue was $60 billion more than the Administration had indicated it would accept--and $2 billion more than even the Democrat-controlled House has approved.

By no coincidence, the revenue target for the first year was $30 billion, roughly the amount that will be lost to the Treasury because of the 10% tax cut scheduled to go into effect July 1. It was a clear signal to the President that his sacrosanct tax reduction is in danger of being repealed.

The Senate committee's action was one of the most serious setbacks Reagan has suffered on Capitol Hill. It stemmed in part from the 1982 elections, in which the recession helped elect Democrats, and scared Republican incumbents, making them more independent of the President.

Deputy Presidential Press Secretary Larry Speakes called the committee's tax figures "utterly ridiculous." An angry Reagan declared, "This is no time to sabotage the recovery."

The Administration had fought hard all week long to prevent such a budget defeat. But its own internal dissension, quickly leaked to reporters, did not help. At a Cabinet meeting on Monday, Budget Director David Stockman warned that failure to reach a compromise with Congress on the budget could mean that the "Reagan Administration fiscal revolution and permanent economic recovery will be lost." If the budget process breaks down, he further predicted, there would be $200 billion deficits "as far as the eye could see."

As Reagan looked on, Defense Secretary Caspar Weinberger, who was Budget Director in the Nixon Administration, argued that the President might come closer to achieving his fiscal goals by letting the congressional budget process fall apart. Currently Congress is trying to lay out spending and revenue limits that individual committees have to observe when they take up the specific bills. But Weinberger thought Reagan could do as well without any limits on the appropriations bills, vetoing ones that he thought were out of line. Countered Domenici: "Anyone who thinks that's the way to do it is living in ancient times."

On Tuesday, Domenici, Senate Majority Leader Howard Baker and Senate Finance Committee Chairman Bob Dole went to the White House to confer with five presidential aides, including James Baker and Edwin Meese. Reagan's men discovered that the Republicans were miffed because the President had not delivered on what they took to be a commitment to provide more palatable budget figures after the Easter recess. Said a Reagan aide afterward: "It's going to be damn difficult getting these people together."

Indeed it was. All twelve Republicans on the Senate Budget Committee (there are ten Democrats on it) gathered in Howard Baker's office late Wednesday afternoon to consider a last-ditch Administration proposal presented by James

Baker and Stockman. In effect, it suggested that Reagan's formal budget proposal for 1984 be ignored and that the budget projections made by Congress last year for the next three years be used as the basis of a compromise. That would mean that the President's call for a flat freeze on spending for nondefense programs would be lifted and defense funding would be allowed to rise by 7.5% in fiscal 1984, an additional 7% in 1985 and 6% more in 1986. There would be no large tax increases until it was certain that the economic recovery was strong enough to absorb them.

In responding to the White House overture, the committee Republicans were soon at odds. Washington's Slade Gorton, representing the more liberal faction, objected that military spending would still be too high. Colorado's William Armstrong, speaking for the more conservative members, remained adamant against even the contingency tax increases that the Administration proposed, which would take effect in 1985 if deficits are still high and there is no recession.

On Thursday morning, Domenici concluded that the entire budget process would be imperiled if his committee did not quickly reach a decision. He sent word through aides to Howard Baker, who was briefly hospitalized for treatment of an ulcer, that he could wait no longer. Baker agreed. The budget chairman next lunched with Florida Senator Lawton Chiles, ranking Democrat on the committee. Domenici told Chiles that the White House was seeking yet another delay in the vote. Domenici said he would present the Administration's revenue proposals to the committee; if they lost, as he expected, Chiles should offer the Democratic alternative.

When the vote was held Thursday afternoon, the Reagan compromise on taxes was rejected, 11 to 6. Chiles offered the Democratic revenue-raising figures, and they were approved, 13 to 4. Only three Republicans (Armstrong, Indiana's Dan Quayle and Iowa's Charles Grassley) and Democrat Fritz Hollings, who favors a freeze on most federal spending, voted against the package. Domenici claimed that he had cut a deal with Chiles only to move the issue to the Senate floor. There he intends to fight against the tax increases that his own committee had just approved. Despite this rationale, it was apparent that Domenici had not only lost patience with the Administration, he had lost control of his committee. And the President had watched his influence over the Senate leadership slip badly once again.

Reagan had Republican leaders in the Senate on his side in opposing a massive lobbying effort by the nation's banks to repeal the withholding of 10% of income gained from interest and dividends. He had vowed to veto any such repeal bill, accusing the bankers of "great distortion" in their mail blitz. But with most Democrats meekly bowing to the pressure, the President could only watch helplessly last week as Republican Senators buckled too. In what was called a "compromise" for cosmetic purposes, the Senate voted overwhelmingly to delay the withholding at least until 1987.

The Senate's rejection of withholding was a particularly bitter defeat for Dole, who had assailed the banking lobby for calling the plan a "new tax" when it was really designed to catch tax cheaters and collect some $5.2 billion this year from the 20 million people who fail to report fully their interest and dividend income. Dole had filibustered gamely against the repeal bill, which was sponsored by Republican Bob Kasten, a freshman Senator from Wisconsin. But Dole last week could count only 27 other Senators (including 24 of 54 Republicans) on his side, and three of them were uncertain. "I went down to the White House," he said, "to see how many they had. They did not have any." So Dole worked out his cave-in compromise with Kasten.

Some Democrats in the House will try to delay a vote on the repeal until after July 1, when withholding is due to go into effect. Once the repeal gets out of committee, it is likely to pass easily. Whether Reagan would veto the compromise remained in doubt, but he blasted the Senate action as "quite a triumph for the people who are not paying the taxes they fairly owe." Dole and a few House Democrats have threatened that they may seek new taxes on banks to make up for any revenue lost by a withholding repeal. Said Dole: "I wouldn't break out the champagne yet if I were a banker."

The Administration faces another difficult selling job in persuading the rebellious Congress to go along with its policy of overt aid to the government of El Salvador and covert help to opponents of the government in Nicaragua. In this foreign policy thicket, Democratic opposition is the most serious obstacle. Still, even the Republican-controlled Senate Foreign Relations Committee voted in March to slash in half the $60 million in military aid that Reagan wants to switch from Morocco to El Salvador. The President has also asked for an additional $50 million in military funds for the Salvadoran government. The Senate committee is requiring that the Administration encourage open-ended negotiations between the Salvadoran government and leftist guerrillas as a condition for sending the added funds, a proposition that Secretary of State George Shultz has opposed as an attempt "to carve up power behind the people's back."

The House Foreign Affairs Committee last week also snubbed Reagan on military assistance for El Salvador. By a 19-to-16 vote, with three Republicans joining the Democratic majority, it rejected the Administration's request for that $50 million in extra aid. Moreover, a House Appropriations subcommittee headed by Democrat Clarence Long continued to withhold its approval of the $60 million transfer of funds. Long wants to pressure the Administration into sending a special envoy to El Salvador. Shultz, just returned from a visit to Mexico, spent 3 1/2 hours answering questions from the House Select Intelligence Committee about the Administration's support of anti-Sandinista forces in Nicaragua.

The rising opposition to its policy in Central America has persuaded the Administration to intensify its public defense of the U.S. role. "We have long needed to explain it coherently and logically," conceded a State Department policymaker last week. "The only one who can do that and make it stick is the President."

Reagan will attempt to do just that in this week's speech. The President will be tough without being strident, his advisers say, and he will not change course. The political question, frets one high official, is whether "one speech can turn this thing around." Reagan also tried to turn public opinion with his recent star wars appeal for military spending increases. As last week's events made clear, that speech failed to convince even the Republicans. With friends like that, who needs Democrats? --By Ed Magnuson. Reported by Laurence I. Barrett and Neil MacNeil/Washington

With reporting by Laurence I. Barrett, Neil MacNeil/Washington This file is automatically generated by a robot program, so viewer discretion is required.