The White House indicated yesterday that President Carter may be backing away from his pledge to U.S. allies to boost the defense budget next year by 3 percent after inflation.
While asserting that Carter still is committed to that goal, press secretary Jody Powell said the promise hinged on domestic economic conditions, hinting it may have to be abandoned to help combat inflation at home.
The administration has been under heavy pressure from liberals to abandon Carter's earlier decision to exempt defense spending from cutbacks while social programs are being squeezed as a consequence.
Carter's three top economic advisers - budget director James T. McIntyre, Treasury Secretary W. Michael Blumenthal and their economist Charles L. Schultz - all have been pressing for a cutback in the 3 percent.
Yesterday, the president's new antiinflation czar, Alfred E. Kahn, brought the protest out into the open. Asked at a luncheon appearance to justify the 3 percent increase, Kahn replied simply: "I can't."
Insiders say Carter still hasn't made a decision on the issue, but is expected to within a few days. Previously, officials and been planning a defense budget of $125 billion, up from $112 billion in fiscal 1979.
It wasn't quite clear how much, if any, the president would decide to cut from the $125 billion budget. Although some White House sources speculated the cuts might total $2 billion or more, most placed the figure at $1 billion.
While several sources stressed that the cutback decision hasn't been made yet, officials speculated that if Carter chose to back away from the pledge, it most likely would be on grounds that economic conditions have changed.
The promise, made to the North Atlantic Treaty Organization (NATO) at a meeting after the 1977 economic summit in London 17 months ago, contained two important caveats:
First, it specified that the annual increase in defense spending should be "in the region of 3 percent," and not at 3 percent precisely. This vagueness, officials say, could leave room for several billion dollars' difference.
Second, the rise was made contingent on "recognizing that for some individual countries, economic circumstances will affect what can be achieved." The goal was adopted by several major industrial countries.
The administration is embarked on a major budget-paring effort as part of its new anti-inflation program.Carter has pledged to hold the budget deficit next year to just under $30 billion.
Officials also are divided over whether the 3 percent pledge applies only to outlays for NATO or to overall defense spending, which would make a substantial difference. McIntyre and others are pressing for the narrower interpretation.
Carter had told budgetmakers several weeks ago to exempt defense spending from any major budget cutbacks next year in order to keep his 3 percent pledge. The administration proposed a 3 percent rise in fiscal 1979.
However, most analysts believe Carter will be forced to trim the increase for defense spending at least slightly, if only to blunt opposition from traditional Democratic constituent groups, which are insisting cuts be made evenly.
Ironically, the development surfaced only a day after Powell denied that Carter was reneging on his pledge, despite an assertion by the president on Monday that the defense budget would not be "sacrosanct."
Powell said late Monday that the remarks, delivered by Carter earlier before an audience of mayors convened at the National League of Cities meeting in St. Louis, were only intended to warn Pentagon officials that they would not have a "free pass" on budget cuts.
Powell said yesterday there "is no way for an informed guess as to what level defense spending will be." He said Carter mentioned defense spending in his St. Louis speech to thwart any impression that he was locked in to any single figure.
In a related development yesterday, White House officials denied that the administration is assuming a 10 percent inflation rate in preparing the fiscal 1980 budget.
In St. Louis Monday at a briefing for National League of Cities officials, Bowman Cutter, associate director of the Office of Management and Budget, was quoted as using the 10 percent figure as an administration assumption. The briefing was closed to the press, with Cutter's remarks relayed to reporters by George Gross, director of federal relations for the National League of Cities.
White House officials said yesterday that Cutter "neither stated nor implied that we were assuming a 10 percent inflation rate" and that those economic forecasts will not be sent to the president until mid-December.