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Negotiators Agree on $30-Billion Deficit Cut : Mandatory Cutbacks Are Now in Effect

November 21, 1987|KAREN TUMULTY | Times Staff Writer

WASHINGTON — After four weeks of intense negotiations, President Reagan and congressional leaders agreed Friday on a plan to pare the federal deficit by $30 billion this year.

The agreement, too late to head off $23 billion in automatic spending reductions under the Gramm-Rudman law, is short on specifics and instead sets out general goals for tax increases and domestic and defense spending cuts. House and Senate committees will have to translate those goals into legislation that Congress can be induced to pass and Reagan to sign.

And, with all sides expressing only lukewarm support for the package, that job could be difficult.

'Solid Beginning'

"This agreement is probably not the best deal that could be made, but it's a good, solid beginning," Reagan said.

Shortly after the agreement, Reagan signed an order implementing the $23 billion in spending cuts required by the Gramm-Rudman law, half of them from domestic programs and half from defense spending.

Those nearly across-the-board cuts will be reversed if Congress can follow through on Friday's agreement by enacting at least as large a combination of tax increases and spending cuts for the 1988 fiscal year, which began Oct. 1.

The package is also designed to cut the deficit by almost $46 billion in fiscal 1989, but many legislators expressed doubts that it would achieve that goal.

Relying on Guarantees

It is impossible for any agreement this year to bind next year's Congress--particularly in the hotly charged atmosphere of an election year. However, Treasury Secretary James A. Baker III said the Administration would rely on "the full faith and personal guarantee of the (congressional) leadership."

Friday's agreement became possible only when all sides yielded on some long-held positions.

For Reagan, the agreement means supporting $9 billion in unspecified new taxes and accepting $5 billion in defense spending cuts.

Democrats had to abandon their hopes for a larger tax increase and accept $6.6 billion in domestic spending reductions, almost two-thirds of which will come from Medicare and other benefit programs.

Some negotiators were scornful of the failure to agree on specific tax increases and spending cuts.

"It's kind of like Vietnam," Rep. Jamie L. Whitten (D-Miss.) said. "Announce a victory and work it out later." Whitten is chairman of the House Appropriations Committee, which must find $2.6 billion in cuts from the domestic programs in its jurisdiction.

Reagan's biggest challenge may be selling the plan to his own party in Congress, where Republicans have roundly denounced it as having too few spending cuts and too many taxes. Many contend also that it will never live up to its promises.

'Biggest Mistake'

Reagan "is now making, domestically, the biggest mistake of his second term," Rep. Newt Gingrich (R-Ga.) complained.

The plan's backers hope that when opponents consider the alternative--the automatic cuts that took effect Friday under the Gramm-Rudman law--they will decide that Friday's agreement is the lesser evil.

Although it was the Oct. 19 stock market crash that led to the budget negotiations, the agreement brought only mixed signals from the market. The Dow Jones industrial average rose 15 points in the hour after the agreement was announced, but more stocks declined than rose.

"The capital markets are not that dumb," said Sen. William L. Armstrong (R-Colo.), an outspoken opponent of the package.

Plan 'Disappointing'

Allen Sinai, chief economist with the New York brokerage firm of Shearson Lehman Bros., described the plan as "extremely disappointing" and predicted that it will not make "any significant dent in the deficit."

Even if Congress follows through on the promise to slash $30.2 billion from the projected fiscal 1988 deficit of $180 billion, the plan still would leave that year's deficit at about $150 billion. That is more red ink than the $148 billion recorded in fiscal 1987.

"The bigger picture is that we are losing," Sinai said. "That's very sobering."

Reagan answered the criticism by suggesting that Wall Street itself was partly to blame for the recent volatility in financial markets and should "straighten out themselves, also." The President quoted a point made in a letter he received from a voter: "Even a farm hand cleaning out the stalls in a barn knows that what he is cleaning out didn't come from outside."

But the negotiators, who had to shepherd the agreement through vicious political crosscurrents, said that the package was simply the best they could do. "I just don't think now was the time to do any more," said Sen. Pete V. Domenici (R-N. M.), one of the negotiators. "I regret that."

One-Shot Windfalls

Although Reagan said that the agreement's value is in "laying the foundation for long-term solutions" to the deficit problem, a substantial part of the reduction would come from one-shot windfalls and revenue generators that have yet to be tested.

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