Party Chiefs Seek Gains in Budget Negotiations : House-Senate Compromise on Social Security, Defense Funding Could Influence ’86 Elections

WASHINGTON —  More than numbers will be at stake when a conference committee convenes this week to iron out the differences between the House and Senate versions of the fiscal 1986 budget.

In a very real sense, the outcome of these negotiations will help determine which political party--the Republicans, who hope to keep their majority in the Senate, or the Democrats, who control the House--will set the terms of debate for the 1986 elections.

“I don’t go to conference with the idea that it’s a typical year with the typical compromises,” said Senate Budget Committee Chairman Pete V. Domenici (R-N.M.), who will lead Senate negotiators when the conference begins Tuesday. “I’m not convinced we’re going to get any (agreement).”

Democrats, anxious to shed an image as chronic complainers with little to offer as alternatives to Reagan Administration policies, have rallied behind the House-passed budget as a rare political opportunity. Not only does it provide them with a chance to produce a positive proposal of their own, but they believe it also puts them squarely in line with public opinion on both restraining defense spending and preserving Social Security.

GOP Fears Downturn

Meanwhile, the Republicans’ greatest fear as they approach the crucial 1986 elections is a downturn in the economy. They believe the drastic cuts that the Senate recommends for popular spending programs are the only means to slash the deficit enough to prevent a reversal of the economic recovery that has been their greatest political asset.

Thus, House Budget Committee Chairman William H. Gray III (D-Pa.), the House’s leading negotiator, says: “Each budget represents a different set of policies. . . . You’re going to have two sets of discussions. One is deficit reduction. The other is policy.”

While the two versions of the budget passed by the House and Senate claim approximately the same savings--about $56 billion next year--they go about it in opposite directions.

The Senate plan allows defense spending to grow enough next year to keep pace with roughly 4% inflation, the minimum increase President Reagan said he would accept, and denies Social Security recipients and other federal pensioners next year’s cost-of-living allowances.

The House, feeling no obligation to meet a Republican President’s demands on defense spending, would allow no increase in the Pentagon’s 1986 budget but would compensate fully for inflation in Social Security benefits and other pensions.

In overall domestic spending, the House would make only two-thirds of the cuts in the Senate plan. And where the Senate plan calls for the elimination of 13 federal programs over the next few years, the House would terminate only one: federal revenue sharing, which was scheduled to expire anyway in 1987.

Largely because it does not place such severe restraints on domestic programs, the House budget package falls significantly short of the Senate plan in long-term deficit reduction. It would leave a projected deficit of $124 billion in 1988, compared to $104 billion in the Senate plan.

Political Dynamite

As both sides prepare their strategies for the upcoming negotiations, the issue that had last year’s budget conference paralyzed for months--defense spending--is not expected to be a major stumbling block. Instead, it is Social Security that presents the greatest obstacle.

When Senate Republicans put together a package that included a one-year freeze on Social Security benefits, they knew they were playing with political dynamite. Almost half the seats of their fragile 53-member majority are up for reelection in 1986, and Democrats have proved adept in recent years at using Social Security as a weapon at election time.

“They really walked the plank on that one,” said Rep. Delbert L. Latta of Ohio, ranking Republican on the House Budget Committee. Leading House Republicans have publicly opposed any tampering with Social Security.

But Domenici said they had no choice if they were to achieve at least $50 billion in deficit reduction, which is the amount economic experts say is a minimum needed to hold down interest rates and continue the economic recovery.

“The truth of the matter is, when you take a real hard look, other than defense and pensions (the two largest federal programs), there’s not an awful lot you can cut on this budget” and make large savings, he said.

Now, one Republican aide said, “There is no way (the Senate) can come away from this conference without doing something about Social Security. . . . The only thing now that is saving grace to (Senate Republicans up for reelection) is that something is being done about deficit reduction.”

From the House perspective, as one Democrat who will be on the conference committee said bluntly: “They’re trying to get the House to pull their chestnuts out of the fire. . . . I think they’re just feeling the heat.” The Democrat spoke on the condition he not be named.

If House Democrats do not budge on Social Security, they have the tantalizing prospect of campaigning next year as the ones who rushed in to save elderly Americans from the Republican Senate’s drive to cut Social Security.

For Gray’s part, while he insisted that “the House is open to reviewing everything,” he described the unity behind opposition to Social Security cuts as “the strongest position that the House has taken this year, and the strongest I can remember on any subject.”

House Speaker Thomas P. (Tip) O’Neill Jr. (D-Mass.) has said he will be “adamant” against any move to tamper with the program.

Defense spending, the other prime difference in the packages, loomed as a larger dispute when the Senate passed its budget plan than it does now.

Criticism of Package

In the face of conservative criticism that the package put too great a dent in Reagan’s defense buildup, Domenici had vowed after the Senate vote that he would abandon the budget negotiations rather than agree to a lower defense spending level. In fact, the Senate recommendation was a drastic cut from Reagan’s original request for a 6% hike above inflation.

However, shortly after Domenici made that pledge, Defense Secretary Caspar W. Weinberger told the Senate Armed Services Committee that the department had suddenly found $4 billion in unspent money from earlier years--exactly enough to accommodate for spending cuts that had been mandated in the Senate budget resolution.

The disclosure brought an outcry from those who had backed the Pentagon in its earlier claims that it could not live with any further spending restraint.

“We who have supported your efforts to see our defense capabilities rebuilt have also seen our credibility suffer as we seek to gain adequate levels of defense funding,” California Sen. Pete Wilson wrote in a letter to the White House.

Wilson, one of the Pentagon’s strongest Republican allies in the Senate, had good reason to be angry and embarrassed over the Pentagon’s sudden windfall. He had publicly supported a 3% after-inflation increase in defense spending and branded the Senate budget “a turkey” for holding the rise to the rate of inflation.

As one Senate Republican aide put it, Weinberger “lost an awful lot of credibility up here with that stunt.”

Both sides, moreover, say there is wide ground for agreement.

“This year, we’re closer than ever before on defense,” Gray said. And Domenici, despite his earlier vow, agreed last week: “There’s a lot of room there for negotiation.”

The conferees could agree, for example, to cut the rate at which the Pentagon is forecast to spend the money that already has been appropriated for it without forcing restraint in new spending commitments. Although this amounts to accounting gimmickry, it would cut the projected deficit without forcing the Pentagon to change its spending plans.

Or the deal could be simpler: “As far as the defense numbers go, they can be resolved, maybe by splitting the difference,” Latta said.

Whatever the conference committee does, both sides agree it must finish its work quickly. The budget now stands in the way of tax reform and other issues, said Gray, and “we’ve got the legislative tracks all backed up.”

Moreover, as other issues push forward, Domenici said, Congress is losing its enthusiasm for making the hard choices needed to curb the deficit.

“Time is getting away from us. . . . The natural tendency to ignore (the deficit) and go about business as usual is setting in,” he said, adding, “That’s pretty bothersome to me, because you do not move this place on matters as tough as this unless there’s a genuine desire to do it.”