Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) yesterday proposed radical revision of President Reagan's budget for next year, including larger tax increases, a smaller increase for defense spending and a freeze on most domestic programs.
In the sharpest criticism of the budget so far from a Republican leader, Domenici said Reagan's budget "fails to do enough to cut spending and accepts almost benignly what are malignant deficits" that threaten to "crush any hope of economic recovery."
Coming as they did from the Senate Republican majority's point man on the budget, Domenici's criticism and counterproposal gave new force to the congressional budget rebellion.
Domenici unveiled his plan as congressional Republican leaders, in what a White House spokesman called "some plain talk among good friends," put Reagan on notice to expect major bipartisan surgery on his budget, which they indicated is unacceptable to Congress in its present form.
Asked if Reagan had shown any flexibility toward congressional budget proposals, Domenici said "none at all." But he indicated this would not stop him from pushing for major revisions, including possible deferral of next year's tax cut. "At this point, I don't rule out anything," said Domenici when asked specifically about the tax cut.
It also appeared that the critical budget showdown may come in April or May in connection with legislation to raise the federal debt ceiling.
Senate Finance Committee Chairman Robert J. Dole (R-Kan.) said he and other Senate leaders may use the debt bill as a vehicle for enacting tax and spending revisions to reduce deficits and thereby help bring down interest rates.
This not only would provide a vehicle for a package of proposed deficit reductions but also might defuse conservative opposition to the debt limit extension, which is necessary to keep the government operating on a daily basis. Without this kind of "sweetener," some congressional leaders believe the debt bill may fail, plunging the government into another of its periodic flirtations with insolvency.
As Congress continued to churn up at least one new idea a day for rewriting Reagan's budget, the White House stuck by Reagan's plan but appeared to be bowing to the inevitable, even with some humor.
Asked if any retreats were contemplated, White House spokesman David Gergen said no "fundamental retreats." Asked what constituted "fundamental," Gergen said: "I guess it's like obscenity: you'll know it when you see it."
In a more serious vein, Gergen quoted Reagan as cautioning the congressional leaders against piecemeal proposals for budget changes, but he added, "If you want to present a comprehensive proposal, then we'll be happy to talk." However, Reagan predicted that Congress, after looking at the "hard choices" that the administration faced in drafting the budget, will arrive at similar conclusions.
A similar note was struck by David A. Stockman, director of the Office of Management and Budget, in testimony before the Senate Budget Committee, where Republicans as well as Democrats pounded away at Reagan's proposed budget. While urging the committee not to give up on Reagan's proposals and predicting it eventually will embrace many of them, he said, "I would dispel the notion that somehow we have said some things are nonnegotiable in any absolutely rigid sense."
Domenici's proposal, in a speech prepared for the Conference Board, a business research organization in New York, is the most comprehensive alternative proposed by a GOP leader. It comes on the heels of a similarly dramatic but less comprehensive proposal Monday by Senate Majority Leader Howard H. Baker Jr. (R-Tenn.) for a federal income surtax to finance the Reagan military buildup while holding down budget deficits. It also embodies aspects of a plan advanced earlier by Sen. Ernest F. Hollings (D-S.C.), ranking Democrat on the Budget Committee.
As described by Domenici, the plan would save $320 billion over the next three years, in comparison with Reagan's projected savings of $240 billion, by:
Reducing defense outlays by $20 billion to $25 billion through fiscal 1985 by restricting growth to 5 percent after inflation.
Freezing federal pay in fiscal 1983 and limiting 1984 and 1985 raises to 5 percent, saving $25 billion over the three years.
Freezing other domestic appropriations at 1982 levels for three years, saving $34 billion.
Eliminating 1983 cost-of-living increases for entitlement programs such as Social Security, which would save $60 billion over three years.
Limiting Medicare and Medicaid increases in l983 to the rise in the consumer price index, saving $22 billion over three years since health costs otherwise would rise more than inflation.
Enacting tax increases yielding $18 billion, $49 billion and $55 billion, respectively, over the next three years, "preferably," as Domenici put it, "by closing existing tax loopholes."
However, in regard to taxes, Domenici appeared not to rule out a change in Reagan's three-year tax cut program, saying it was "simply silly" to suggest that a slight stretch-out of the program would be unacceptable.
Domenici's assessment of the economy--and the economic stakes in the budget fight--was as blunt and bleak as any that have poured off Capitol Hill in recent weeks.
Repeating his prediction that Congress won't pass Reagan's budget in its present form, Domenici said, "The most likely result of the debate in Congress, in fact, is no definite action at all on the budget," which he said would mean deficits of up to $200 billion during the next three years.
"Such deficits, hitting credit markets already constrained by tight monetary policy, would further erode corporate profitability, stymie new business investment and sap the economic vitality of this nation," he said.
Added Domenici: "Our situation is more than serious--it is frightening. And political leaders do all a disservice by pretending that we can swallow $100 billion deficits as though they were aspirin tablets."
Domenici's proposal would produce a fiscal 1983 deficit of $90 billion, only slightly less than Reagan's projected deficit of $91.5 billion for the year, although Domenici contends that Reagan's deficit actually would be higher than that.
Domenici's deficits for the next two years would be considerably smaller than Reagan's, adding up to a cumulative three-year deficit of $210 billion compared with Reagan's projected cumulative deficit of $246.3 billion. However, Reagan's deficits would be substantially higher without spending cuts that congressional leaders have said probably will not pass.