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Lawmakers Seek Easing of Deficit Law

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WASHINGTON--Faced with a deficit-reduction task they regard as impossible to achieve, Democratic leaders in the Congress, with some Republican support, appear to be searching for a way out.

Leaders in both the House and the Senate are seeking relief from the strict deficit targets set out in the Gramm-Rudman-Holling budget-balancing law passed by the Congress two years ago.

Unwilling to back deep reductions in defense spending, and convinced that education and other domestic programs have already been cut to the bone, a growing number of influential Democrats are advocating a retreat from the law's goal of balancing the federal budget by 1991.

And despite President Reagan's repeated vow to veto any effort to raise taxes, some leaders, including Speaker of the House James Wright, are speaking out in favor of just such an increase.

Education groups are also expressing their support for increased revenues as a way to solve the deficit impasse. In its latest analysis of the Administration's budget, the Committee for Education Funding urged the Congress to "maintain the responsibility for setting budget priorities and, if necessary, raise the needed revenues to pay for those priorities.''

Alternative is Stalemate

The alternative to compromise, observers warn, is a budget stalemate that would trigger a provision in the law that requires the Congress to make deep, across-the-board cuts in most federal programs, including education.

While key leaders in the House and Senate differ on what the solution should be, all agree on the problem: The annual deficit targets set by Gramm-Rudman-Hollings are too ambitious.

"You ain't gonna get there from here,'' said Senator Lawton Chiles, the Democrat from Florida who is chairman of the Senate Budget Committee, in addressing members of the National Governors' Association late last month.

Mr. Chiles, along with his counterpart on the House Budget Committee, William H. Gray of Pennsylvania, are seeking to draft counterproposals to the Reagan Administration's budget plan, which was released in January.

On paper at least, the President's plan complies with the Gramm-Rudman-Holling's mandate to trim the deficit to no more than $108 billion in the fiscal year that begins on Oct. 1. Mr. Chiles, Mr. Gray, and other Democratic critics argue, however, that the Administration's budget is based on unrealistic economic forecasts and on one-shot gimmicks that will not result in lasting cuts.

The Congressional Budget Office, a nonpartisan agency that advises the Congress on economic affairs, has estimated that next year's deficit will approach, and perhaps exceed, $170 billion, about $20 billion more than the Administration's forecast.

According to Mr. Chiles, reducing the deficit to $108 billion in fiscal 1988 would require a budget that freezes domestic spending and cuts defense outlays by about one-third, or one that freezes defense and cuts domestic programs by about 45 percent.

In contrast, the Administration's budget plan, roundly denounced by education interest groups as "draconian,'' would cut the Education Department's budget by 28 percent.

"It's clear to just about anyone that cuts of that size are not going to happen,'' Mr. Chiles said.

Wrong at the Start

The problem, as characterized by Democrats and some Republicans, is that the original Gramm-Rudman-Hollings targets were off-base from the start.

The idea behind the law, critics note, was to eliminate the deficit gradually over five years, reducing it in equal steps each year.

When the law was approved by the Congress in late 1985, analysts were forecasting a fiscal 1986 deficit of about $180 billion. Dividing that figure by five yielded the annual reduction targets--$36 billion.

But the forecasts have proved to be overly optimistic. The actual shortfall for 1986 was more than $50 billion higher than expected, throwing the Gramm-Rudman-Hollings process off track before it even started.

"I do not think it undermines anything to admit that we started in good faith, but with the wrong number,'' Representative Bill Gradison, Republican of Ohio, wrote in a letter to his colleagues.

In recent public speeches, Mr. Gray, Mr. Chiles, and other members of the two budget panels have called for a new agreement that would cut the deficit by about $40 billion a year, while abandoning the specific targets set out by Gramm-Rudman-Hollings. Such a plan, Mr. Chiles said, would be "doable.''

Mr. Chiles has also added his voice to the growing number of Democrats who are openly advocating a tax increase to stave off deep cuts in defense and social programs.

While declining to name the specific taxes he thinks should be raised, Mr. Chiles has suggested that any new revenues be directed by law to go solely toward the task of reducing the deficit.

Cautious Reaction

On the House side, Democratic leaders reacted cautiously last week to a suggestion from Mr. Wright that a special surtax be imposed on the purchase and sale of public stocks. Such a tax, the Speaker said in a speech to the National League of Cities, would raise about $17 billion without hurting most working people.

In a statement, Representative Daniel Rostenkowski, chairman of the House Ways and Means Committee, which handles tax matters, said it was "too early'' to discuss specific options.

And President Reagan will oppose any move to raise taxes--or to abandon the original Gramm-Rudman-Hollings targets, according to Administration officials.

Last week, Mr. Wright met with members of the House Budget Committee to discuss his deficit strategy. The Speaker promised to fight aggressively for the needed revenues, telling reporters that he was ready to confront the President on the issue.

Mr. Wright's proposed tax on stocks, however, is likely to encounter heated opposition from institutions that hold large stock investments, such as teacher pension funds, a financial analyst predicted.

In a recent letter to the President, a group of 17 House Democrats asked Mr. Reagan to choose between three options--a tax increase, deep cuts in the defense budget, or a change in the deficit targets.

"Your leadership on this issue would be most helpful to us,'' the letter stated. "The three choices are clear. Which one do you prefer?''

So far, Mr. Reagan has not responded to the question, sources on Capitol Hill said, although his budget director, James Miller, insists that defense cuts and tax increases are both non-negotiable.

Pressure Still On

For now, however, the pressure is still on the Congress to devise an acceptable alternative to Mr. Reagan's budget proposal. Mr. Gray, the House Budget Committee chairman, has promised to have a plan of his own ready within the next two weeks, and Mr. Chiles has set a similar timetable for producing a Senate version.

The two men may find it difficult to sell their plans to their colleagues, however. In both the House and the Senate, Republican members have drafted letters condemning any retreat from the Gramm-Rudman-Hollings targets. All 11 Republican members of the Senate budget panel have written to Mr. Chiles, warning that they will fight any effort to relax the targets.

For the education community, education lobbyists say, the worst outcome of the debate would be a failure to agree at all. Under Gramm-Rudman-Hollings, such a stalemate would trigger deep automatic reductions--known as "sequestrations''--in all but a handful of programs.

Although Mr. Chiles has warned that every federal agency, including the Education Department, will have to "share the pain'' of a negotiated settlement, it is unlikely that such cuts would fall as heavily as those caused by sequestration.

The Congressional Budget Office has estimated that deficit reduction of the size called for by Gramm-Rudman-Hollings would require most domestic programs to absorb automatic cuts of at least 20 percent. Under the law, all of the Education Department's programs are vulnerable to sequestration, except for vocational-rehabilitation grants and guaranteed student loans, which are partially shielded.

Although the Supreme Court struck down a provision of the Gramm-Rudman-Hollings measure that gave an independent federal agency, the General Accounting Office, authority to impose the automatic cuts, the Congress is still required to approve a similar sequestration order if the deficit exceeds the legal target.

While observers have noted that legislators have the power to ignore or repeal that provision, some House leaders, including Mr. Gray, have indicated that they would support a move to vest the sequestration authority in the Office of Management and Budget.

Because the O.M.B. is under the President's control, most legal scholars believe that such an arrangement would pass constitutional muster with the courts.

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