President Reagan yesterday denounced as "phony" a congressional critique of his budget and torpedoed a Republican move to make further spending cuts by restraining cost-of-living increases for Social Security and other benefits.
Reagan paid his second visit to Capitol Hill in as many months just as the Senate Budget Committee began an item-by-item review of his $48.6 billion budget retrenchment program for fiscal 1982. The Senate agreed with most of his proposals and called for deeper cuts in some cases.
The biggest new savings recommended by the committe for next year was $3 billion from Reagan's allocation for government payments to fill the strategic petroleum reserve.
Under a proposal by Sen. Nancy L. Kassebaum (R-Kan.), the committee would require oil companies to buy the oil at a rate of 125 million barrels a year, with the government reimbursing them over 11 years at an overall profit of 10 percent for the companies.
At the end of the day, the committee had recommended more than $12 billion worth of cuts, reducing Reagan's projected savings by only $25 million and adding about $3.2 billion of its own, mainly from extending payments for the petroleum reserve.
The committee rejected a proposal to impose a one-year delay on all federal civilian pay increases. Action on most of the major and controversial Reagan cuts is expected today.
As Reagan arrived to meet with Republican congressional leaders, he was asked about a preliminary analysis from the Congressional Budget Office that indicates he may have understimated 1982 spending by up to $25 billion. He responded: "The figures are phony."
After the meeting, he said he shouldn't have used the word "phony" but vowed nonethless to ignore the CBO reestimate of his budget because, he said it fails to take into account the inflation-curbing and growth-stimulating impact that his economic program is designed to have.
"Actually what they [the CBO figures] really are is differing assumptions," said Reagan, "and I think their assumptions are based on the continuing curve of decline in the economy. In other words, that our program is not going to have any effect on the economy."
His remarks came as the House Education and Labor Committee, in one of the first congressional rebellions against his budget requests, refused in a series of party-line votes to concur in job and education cuts he has proposed [Details on Page A3]. In the Senate, meanwhile, has prososal to defer an April 1 increase in milk price supports was also sidetracked temporarily [Detailed on Page A4].
In its analysis of his budget, which Democrats immediately pounced upon as evidence that Reagan was building up a deficit of as much as $70 billion for next year, the CBO suggested that Reagan was underestimating the cost of some programs and overestimating the impact of his policies on inflation, unemployment, interest rates and economic growth.
The problem with the CBO's analysis, said Budget Director David A. Stockman, is that it assumes the economic policy changes that Reagan is proposing will register "like a tree falling in an empty forest" -- an assumption Stockman said was wrong. Senate Majority Leader Howard H. Baker Jr. (R-Tenn.) also rallied to the defense of the administration's numbers.
Reagan's reaffirmation of his opposition to any retrenchment in basic Social Security benefits or other so-called "safety net" programs had the effect of derailing a move by Republicans on the Senate Budget Committee to add to Reagan's spending cut ledger by several billions of dollars.
The Republicans caucused late into Monday night and, according to committee sources, agreed to push, if Reagan would go along, for some modification in the current system of automatic annual benefit increases to offset the effect of inflation on retirees' income.
But when the Republicans asked Reagan if he would change his position and he said no, citing his campaign commitment to keep his hands off Social Security, the move fizzled. "He felt like his credibility was at stake," said Sen. Charles Grassley (R-Iowa).
"I plan to support the president . . .," said Pete V. Domenici (R-N.M.), who had earlier considered the idea of seeking savings from the cost-of-living increases.
"It looks like I can't get but one vote," said Ernest F. Hollings (D-S.C.), ranking minority member on the committee and its main champion of scaling back cost-of-living increases. Hollings indicated he may still push for the savings but without much hope of success.
In recommending spending cut instructions for other committees, the Budget Committee departed from the Reagan script in only a few instances, involving relatively little money.
It recommended raising Reagan's proposed $100 million levy on pleasure boat owners by $50 million, adding $25 million for storefront counseling centers for Vietnam veterans and converting $143 million worth of small-business loans to loan guarantees. But many of the big-ticket items, including the multibillion-dollar entitlement programs, were still to go as the committee worked to finish the instructions list by tonight if possible.
The committee rejected several Democratic proposals to soften the impact of domestic spending cuts and shift the burden of the cuts to the rich. The $50 million add-on to the plesure boat levy was proposed by Domenici in place of a $300 million increase advocated by Sen. Howard M. Metzenbaum (D-Ohio). A proposal by Sen. Daniel P. Moynihan (D-N.Y.) to raise $100 million by closing a tax loophole for commodity buyers known as the "butterfly straddle" was rejected, 14 to 7. A bid to soften Reagan's proposed cutback for Amtrak and provide some funding for the Contrail network was also rejected.
Although support for major cost-of-living changes appeared to be dwindling, the committee went along with Reagan in proposing annual instead of twice-a-year pension adjustments for military retirees -- a proposal that was embraced by the Senate and killed by the House last year.