Clashes and Compromises

By WALTER ISAACSON

The budget struggle begins anew with disputes over defense and jobs

"Nothing is certain but death, taxes and congressional cuts in the defense budget," proclaimed Republican Senator John Warner of Virginia, a former Navy Secretary. Actually, in the budget battle that began last week, the question of taxes is very much a matter of uncertainty. But military spending has already become a blazing battleground that promises to produce some cuts and much political bleeding.

Armed with red, white and blue charts detailing the Soviet military threat, Defense Secretary Caspar Weinberger marched up to Capitol Hill to erect a defiant rampart around his $239 billion share of the $848 billion budget. After three days of crossfire from Congressmen of both parties, the Iron Duke of Defense emerged battered but unbending. "We simply cannot reduce defense spending any further without undermining the security of the United States," he adamantly declared.

The skirmishing on defense was the opening round in the struggle between Congress and the Reagan Administration over spending priorities in the budget for fiscal 1984, which begins in October. The President has proposed a spending "freeze" that will in fact reduce funds for some programs for the poor, such as food stamps and child nutrition, by about 8%, while boosting the defense budget by 14%. But lawmakers on both sides of the aisle are loath to make further cuts in programs for the poor. Moreover, there is considerable bipartisan support for a public works jobs program to stimulate employment. Predicted Republican Congressman Silvio Conte of Massachusetts: "There will be a hell of a shift from defense to social programs, no doubt about it."

Republicans pleaded with Weinberger for help in making the inevitable excisions. "The worst thing we can do is dig in our heels," warned Senator Dan Quayle of Indiana. But Weinberger's rigidity was reinforced by the President himself, who dispatched a statement to his beleaguered Defense Secretary advising him to tell Congress that "we have reached the bone and that any further cuts would do severe damage to our national security." Republican leaders were forced to come up with their own suggestions. Warner proposed reducing the size of the armed forces by up to 7%. Senate Budget Committee Chairman Pete Domenici of New Mexico argued that military spending could be cut by 5%, bringing it down to the growth rate put forward by Reagan two years ago. Slade Gorton of Washington suggested freezing defense spending at the fiscal 1983 level, $209 billion.

The Democrats' attack on the defense budget was even harsher. Senator Edward Kennedy badgered Weinberger to say whether America's armed forces could defend the U.S. When Weinberger replied that the country's current power to deter attack is not "sufficient," the Massachusetts Senator declared, "You are the first Secretary of Defense to appear and say we are unprepared and vulnerable." Weinberger told Kennedy: "You still have a propensity not to listen." The Democratic barrage culminated when Senator Donald Riegle of Michigan called Weinberger "an ideologue" and "a fanatic" who was "damaging the national defense." Weinberger labeled Riegle's tirade "demagogic . . . insulting and wrong."

Warner likened the Defense Secretary's stance to that of the legendary Confederate general at the first battle of Manassas. Said he: "In Virginia we have a saying, 'There stands Jackson like a stone wall.' " When it came to finding defense programs to prune, the congressional confrontation was more like the Wilderness Campaign, with lots of smoke and fire but no clear targets. Senator John Tower of Texas, the hawkish chairman of the Armed Services Committee, highlighted the problem when he read a letter he had written inviting each Senator to submit a list "of any defense-related project in his or her state where a reduction of expenditures could be made." The request was met with nervous laughter. Many members criticized the only substantive cut the Administration has proposed, freezing military pay for a year, an objection that was tacitly endorsed by General John Vessey, Chairman of the Joint Chiefs of Staff, who told the lawmakers he would prefer cuts in weapons procurement instead.

Enthusiasm for emergency jobs was running especially high among Democrats, some of whom pressed for a huge antirecession package costing upwards of $30 billion. But the party elders, including House Speaker Tip O'Neill, were chilled by Reagan's deficit projections and opted instead for a plan that would cost from $5 billion to $7 billion. "It doesn't help the unemployed," explained one Democratic leader, "to propose a $50 billion program that would not pass."

Republicans began putting together proposals of their own. In the bipartisan burst, few bothered to point out that the impact of jobs programs usually comes only after recovery is under way. House Minority Leader Robert Michel of Illinois appointed a ten-member task force to write a jobs bill. Senators Howard Baker of Tennessee and Paul Laxalt of Nevada met with Presidential Counsellor Edwin Meese to enlist his support. Later in the week the White House announced that Reagan was considering a limited and as yet unformulated plan to speed up Government construction projects in order to create more jobs.

The President's top economic advisers also reflected some willingness to compromise on spending for the unemployed. "That's certainly something we should look into," Martin Feldstein, chairman of the Council of Economic Advisers, amiably agreed when the Joint Economic Committee pressed him over the possibility of including more money for "soup kitchens." Responding to questions about adding a "reasonable" relief program to the package, Budget Director David Stockman told Senators: "I'm sure there is room in the budget for it."

The Administration's economic triumvirate also proclaimed its faith last week that the 19-month-long recession is finally ending. "The recovery may well be under way," Treasury Secretary Donald Regan told the Senate Finance Committee. Said Stockman: "Recovery begins this quarter." According to Feldstein, this prospect may make the deficit forecasts in the Reagan budget, which Congressmen praised as "grim" but "realistic," actually too pessimistic--a sharp contrast to last year's budget, which Congress peremptorily dismissed because the rosy economic assumptions were patently phony. A resurgence in home construction and a strengthening of consumer spending are signs that economic growth this year may exceed the 3% rate projected in the budget by 2 percentage points. That alone could reduce the deficit by $20 billion.

Reagan seized upon the intimations of economic revival during a visit to a Chrysler plant near St. Louis. The stop was added to a scheduled trip after the White House heard that the car factory was beginning to recall laid-off workers. "America is on the mend," Reagan said. "The shoots of an economic recovery are beginning to push up through the recession." With Lee lacocca at his elbow, he adopted the Chrysler chairman's televised sales pitch to defend his economic policy. "If you can find a better program than that, buy it," he told the warm but somewhat wary autoworkers.

The President's trip was part of an energetic campaign, instigated by Reagan, to boost confidence in the economy--and in his Administration. As in the past when political campaigns showed signs of faltering, Reagan insisted on increasing his personal contacts with the press and public. "He really prompted this initiative because he kept saying over and over that we had to do a better job in telling our story," says his close aide Michael Deaver.

Reagan's contagious optimism was further bolstered by Friday's announcement that the unemployment rate dipped from 10.8% in December to 10.4% in January. A new statistic, which includes the U.S.-based armed forces in the labor pool to reflect the reality that armed service is now voluntary, put the jobless rate at 10.2%. The vagaries of seasonal adjustments mean that it is too early to tell whether the downward trend will continue, but Reagan exulted in the news at one of his increasingly frequent informal press conferences. "It is one more sign that America is on the mend," he said. "Millions of Americans can take heart."

In his speech to the autoworkers, Reagan boasted that "our projections call for, as we get beyond 1984, a decline and rather steep decline in the deficits." But in fact his budget assumes that the deficit will rise once again in 1985, and decline steeply after that only if new tax hikes go into effect. The budget battle brewing with Congress emphasizes that he still has a long way to go in forging a spending and revenue plan that is perceived as fair and not wildly out of balance.

But the realistic numbers that Reagan submitted last week ensure that his budget document will serve as the starting point for this session's debate over priorities. Indeed, the fact that Feldstein and others persuaded the President to present such cautious forecasts in the budget will make any faster recovery, and consequent drop in the deficit, seem all the more salutary. The Reaganesque optimism that now infects the White House could conceivably catch fire in the country just in time for the President's decision, expected to come late this summer, on whether to run again.

--By Walter Isaacson. Reported by Neil MacNeil and Bruce W. Nelan/Washington

With reporting by Neil MacNeil, Bruce W. Nelan This file is automatically generated by a robot program, so viewer discretion is required.