House-Senate conferees, rushing to finish the 96th Congress' lame-duck business, speedily agreed yesterday to a split-the-difference $632.4 billion budget for 1981 that anticipates a $27.4 billion deficit and a tax cut of $35 billion to $40 billion sometime during the year.
Meanwhile, another set of conferees, working on a $10 billion savings package, agreed to continue twice-a-year cost-of-living increases for retired federal workers. The Senate had wanted to save about $750 million annually by giving pension increases only once a year.
So hurried was the two-hour conference on the budget that it began before House conferees were officially designated, and ended before many details were worked out -- leaving lots of room for President-elect Ronald Reagan and the new Congress to have the final say on taxes and spending.
The tax cut provision allows for a revenue loss of $12.5 billion in the fiscal year ending Sept. 30, enough to accommodate up to $40 billion in tax cuts for the 1981 calendar year, or about what Reagan has discussed, according to committee aides. The conferees' proposal envisions business tax cuts retroactive to Jan. 1, and individual tax cuts to take effect July 1, although details of the legislation would be left to the new Congress.
The agreement is expected to go to the House and Senate floors for final action later this week, clearing away the major obstacle in the way of a scheduled adjournment by Dec. 5.
The slap-dash windup to the long, often painful, fiscal odyssey that started last spring with high hopes of a balanced budget increases the likelihood that Congress will have to pass yet another budget resolution as it considers tax and spending bills next year.
Republicans who will take over the Senate as well as the White House in January have argued from the start of the post-election session that major budget decisions should be left until next year.
Nevertheless, the basic outline of spending for fiscal 1981, which began last October and ends next September, includes a heavy emphasis on defense with cutbacks or slowdowns in the rate of growth for many social programs that the Democrats have championed over the years.
The $632.4 billion spending ceiling is $60 billion higher than spending for fiscal 1980, with most of the increase resulting from inflation and from the military buildup. The deficit of $27.4 billion would be roughly half the 1980 deficit of $59 billion but a far cry from the modest surplus that Congress approved in its budget targets last summer.
Despite the increase in spending numbers, the budget actually calls for a 1.4 percent reduction in overall spending in real-dollar terms, after discounting the effect of inflation on federal revenues, according to Senate Budget Committee Chairman Ernest F. Hollings (D-S.C.). For discretionary domestic programs, the cuts amount to more than 15 percent, Hollings told the Senate on Tuesday.
The speedy conference action came almost immediately after the Senate wound up its budget resolution by voting to double its Budget Committee's proposed deficit to accommodate a tax cut of up to $39 billion on Jan. 1. The House had provided in its resolution for a tax cut of about $30 billion to take effect July 1.
Senate Democrats agreed only a week ago to postpone the tax cut issue until next year, but 18 Democrats joined most Republicans in the 58-to-36 vote to increase the projected deficit from $17.9 billion to $34.7 billion to make room for the tax cut.
The conferees' decision to set the deficit at $27.4 billion was a compromise between the final Senate figure and the $25 billion deficit approved earlier by the House, tilting strongly toward the House position. In the conference, House Budget Committee Chairman Robert N. Giaimo (D-Conn.) contended that a larger deficit would be impossible to pass in the House.
The Senate vote to enlarge the deficit came over strong objections from Hollings and the Senate Budget Committee's ranking minority member, Sen. Henry Bellmon (R-Okla.), who argued that a deficit increase would only fuel inflation.
"This is a vote for inflation . . . to increase the burden of government," complained Hollings, who ridiculed the Republican Kemp-Roth proposal for a 30 percent tax cut over three years as a "Mickey-Mouse, across-the-board, give-'em-a-free-lunch" tax cut.
Bellmon said the tax cut could drive the deficit for fiscal 1981 as high as $50 billion, which he said would be the third highest in history. It would be analogous, he said, to an overstrained corporation borrowing money at high interest rates to pay dividends.
But Republican tax cut champions, joined by Democrats ranging from Sen. Bill Bradley (N.J.) to David L. Boren (Okla.), argued that the voters had, in effect, demanded tax relief in the elections earlier this month. A tax cut is inevitable next year, argues Sen. William V. Roth (R-Del.), a cosponsor of the Kemp-Roth proposal, so why not pave the way now for swift action early next year?
The Senate vote on passage of the budget resolution was 48 to 46, an unusually close margin for the Senate, with many Democrats who opposed the tax cut provision voting against the resolution.
Among Washington-area senators, Harry F. Byrd Jr. (Ind-Va.), John W. Warner (R-Va.) and Paul S. Sarbanes (D-Md.) voted against the resolution. Among the three, only Sarbanes opposed the tax cut inclusion. Sen. Charles Mathias (R-Md.) was not recorded on either vote.