Agreement Among Allies

By Amy Wilentz

The task was not easy. But with a slash here and a snip there, negotiators from Capitol Hill worked out with the White House a compromise budget plan that would eventually cut projected deficits by more than half. President Reagan agreed to scale back on two sacred programs: defense and Social Security. Yet there was one catch amid the hype about what Donald Regan, the White House chief of staff, hailed as "the most ambitious budget-reduction plan in postwar history." The celebrated agreement was not with the Democratic House, which will have to approve it. It was with leaders of Reagan's own party in the Senate.

Republicans began publicly squirming about Reagan's fiscal 1986 budget as soon as he proposed it in February. The plan ripped into every domestic spending program (except Social Security), but it provided the Pentagon with a spending increase of nearly 6% over inflation. Unless deep cuts could be made, annual deficits projected at well above $200 billion loomed over the rest of Reagan's term. The Senate Budget Committee, controlled by the Republicans, responded with a plan that included less drastic domestic cuts offset by , savings from holding the military to a "zero growth rate" for 1986.

A G.O.P. summit conference was obviously in order. Senate Majority Leader Robert Dole, heading a negotiating committee, held nine meetings with Budget Director David Stockman to tackle the Government's two biggest spending items: the Pentagon, which accounts for 26.5% of the current budget, and Social Security and Medicare, which account for 26.8%. The agreement they announced last week would cut the projected deficit for fiscal 1986 by $52 billion (to $175 billion), and they envision even greater reductions that could bring the deficit below $100 billion by Reagan's last year in office.

Under the compromise, the rise in defense spending would be held to 3%, meaning that funding for many big-ticket items, from the MX missile to Star Wars research, would be pared or stretched out. The Senate Armed Services Committee last week drafted a proposal for a 3% military increase in fiscal 1986--a cut of almost $10 billion from Reagan's original budget that did not eliminate any major weapons programs. Instead, it deferred a scheduled military pay increase and scaled back by 60% a request for increased manpower.

The plan's surprise swipe at Social Security would hold cost of living adjustments (COLAs) to 2% next year, instead of a projected 4%, unless inflation is higher than expected. Diet Cola is the latest nickname for the complex new formula, which is already under fire from retirees' associations. Pensions for military and civil service retirees, attacked by Stockman when he presented the President's original budget, would also come under this formula. The President says he will support the new plan, which goes against his clear- cut campaign promise not to touch retirees' benefits. Demanded Democratic Congressman Claude Pepper of Florida: "Mr. President, keep your word!"

The budget proposal calls for the termination of some domestic programs that members of both parties say they will fight to retain, including Amtrak passenger subsidies, the Small Business Administration, the Job Corps, Urban Development Action Grants and the rural housing program. Spending on farm programs would be reduced by $14.9 billion over three years, and the levels of some Medicare payments would be frozen.

Despite his party's six-seat majority in the Senate, Pennsylvania Republican John Heinz predicts that "the compromise is not going to be an easy sell." Warns Democrat James Sasser of Tennessee: "I would see almost no bipartisan support." Even if Dole can keep all his colleagues in line, which is by no means certain, the plan faces a more formidable obstacle: the Democrats have a 69-seat majority in the House, where there is strong sentiment to preserve domestic programs and hold the military to zero growth. Despite the willingness of Reagan and Regan to compromise with Senate Republicans, there are no signs that they will bend much further to satisfy House Democrats.

With reporting by Christopher Redman/Washington