President Reagan is proposing an $848.5 billion budget for fiscal 1984 that would barely keep pace with inflation, make deep new domestic spending cuts while increasing military outlays and leave a deficit of $189 billion, congressional leaders were told yesterday by administration officials.
Under the plan that Reagan will submit to Congress Monday, overall spending in the fiscal year to begin next Oct. 1 would rise by $43.3 billion. Defense would account for roughly $30 billion of that even though the defense request was cut $8 billion earlier this year.
The anticipated $189 billion deficit for the 1984 fiscal year would follow a deficit of $208 billion now projected for the current fiscal 1983 and a deficit of $110.7 billion for 1982, which was a record-setter at the time.
The new budget envisions about $43 billion in cuts from the levels to which spending would rise under current law, including savings from a 6-month delay in cost-of-living increases for Social Security and other federal programs that are tied to inflation, a 12-month freeze of federal pay and retirement benefits and an "aggregate," or unevenly applied, freeze of many other domestic programs.
Some of the largest cuts would be in health programs, mainly Medicare. Medicare recipients would have to pay more of the cost of routine care. There would be a "workfare" requirement for food stamp and welfare recipients, and there would be a freeze on farm price support levels.
These cuts would save a cumulative total of $558 billion through 1988, according to administration estimates, although the fiscal 1988 deficit would still be $117 billion, nearly double any deficit that was recorded before Reagan took office.
The new budget proposal also embraces Social Security tax increases recommended earlier by a commission on Social Security financing and proposes what amounts to a tax on workers' health benefits by limiting tax-free employer-paid health insurance premiums to $175 a month per worker. Any premiums over that would be taxed as income rather than counted as fringe benefits.
For the future, the budget also proposes "standby" taxes that would start in late 1985 and last through 1988, including a 5 percent surcharge on individual and corporate tax liabilities and a $5-per-barrel excise tax on domestic and imported oil, which works out to about 12 cents a gallon at the gasoline pump.
These taxes--which would raise $41 billion in fiscal 1986, $46 billion in fiscal 1987 and $49 billion in fiscal 1988--would take effect only if Congress enacts Reagan's proposed budget savings, the economy is improving and deficits nonetheless continue to exceed a fixed percentage of gross national product. Under current administration projections, they would exceed this percentage throughout the entire period.
After briefings by administration officials, Republican and Democratic congressional leaders indicated they would insist on major changes in the budget, including bigger cutbacks in the huge military spending increase, but would not reject it from the start, as they did last year with Reagan's fiscal 1983 budget.
Reagan, talking with reporters about his budget, conceded that "you don't ever get 100 percent of what you ask for," but said he would be "just as stubborn as I ever was" in demanding cuts in what he called once "untouchable" domestic spending programs.
On Capitol Hill, there was praise for the economic candor with which the budget was constructed, if not agreement with the details of Reagan's proposals.
"I can't accuse it of being a smoke-and-mirrors budget," said House Budget Committee Chairman James R. Jones (D-Okla.) in acknowledging, as did other congressional leaders, that the budget is grounded in more realistic economic assumptions than Reagan's previous tax-and-spending blueprints.
Jones and Sen. Lawton Chiles (D-Fla.) said Reagan's proposed cuts in social welfare spending were less drastic than they had anticipated as well as less severe than those Reagan proposed over the last two years.
Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) said he was "quite pleased with what I've seen," but expressed hope that there is "room for negotiation" over defense and other matters. Senate Majority Leader Howard H. Baker Jr. (R-Tenn.) again predicted a "donnybrook" over defense but said he anticipated that the assorted spending "freezes" would be approved.
There was little enthusiasm for Reagan's standby tax proposal, and Republicans as well as Democrats suggested that Congress might repeal the existing law providing for indexing of income tax brackets to the rate of inflation after 1984 instead of enacting any standby taxes.
Although the budget was not scheduled for release until Monday, when it is presented to Congress formally, details leaked rapidly on Capitol Hill after the series of briefings for lawmakers.
Among them were a few surprises, but not many.
Although Reagan avoided some of the deep cuts in means-tested programs for the poor that marked his previous two budgets, he proposed again a "workfare" requirement for recipients of welfare and food stamps, which would force them to accept public service jobs or lose their benefits.
He also proposed a further tightening of eligibility standards for welfare-related programs and called for a cap on expansion of the subsidized housing program at 85,000 new units.
As expected, the president bore down on so-called entitlement or basic benefit programs, especially in the health area. In entitlement programs, spending is automatic; money goes out to all who qualify. They are distinct from the so-called discretionary programs subject to the annual appropriations process.
Reagan is proposing to fix hospital cost reimbursement on a per-case basis, freeze physicians' reimbursement for a year and increase out-of-pocket hospital costs for Medicare patients.
According to administration officials, the new rules would require hospital patients to pay 8 percent for their first 15 days and 5 percent for days 16 through 60. Funds saved from this cost-sharing would go in part to eliminate higher co-payments on care beyond the 60th day, creating the so-called catastrophic health care plan that Reagan promised in his State of the Union message.
In all, about $17 billion would be cut from guaranteed benefit programs, including $12.2 billion from Social Security under the rescue plan proposed earlier this month by a bipartisan commission.
Spending for hundreds of discretionary domestic programs would be "frozen" in the aggregate, resulting in savings of about $1 billion from current spending levels, although the impact will be felt unevenly among the programs.
The big winner among programs that would be expanded is assistance to displaced workers, which would be increased from $50 million to $240 million, in a move by Reagan to come up with a jobs program to compete with those being pressed in Congress by Democrats and Republicans.
Relatively smaller increases would go to the National Science Foundation, new science and mathematics block grants, college work-study assistance, Head Start, foster care, employment and training, veterans' medical care, law enforcement and transportation programs funded by the newly enacted 5-cent-a-gallon increase in the gasoline tax.
Among the losers are mass transit, postal subsidies and energy research and development, according to the fewer details that were made available on programs that will be proposed for cuts.
Child nutrition, which some members of Congress have vowed to try to keep at current levels, would be turned into a block grant to the states at 85 percent of current spending.
Farm target prices would be frozen for a year. This, along with other related savings, would yield anticipated reductions of $3.1 billion for next fiscal year and $29 billion over five years.
As for defense, despite the $8 billion savings from the government-wide pay freeze and a windfall from lower inflation, proposed spending by the Pentagon would rise from an estimated $208.9 billion for the current year to $238.6 billion in fiscal 1984 and $277.5 billion in fiscal 1985.
Many members of Congress, including Senate Republican leaders such as Baker, have been pressing for more cuts in the defense spending buildup, with Baker suggesting a cutback of $15 billion and many Democrats calling for even larger savings.
The proposed six-month delay for cost-of-living increases would affect Social Security, supplemental security income (SSI), railroad retirement, veterans' compensation, food stamps and nutrition programs.
Among Reagan's job-creating initiatives would be a voucher plan under which firms would receive tax credits for hiring the long-term unemployed.
To help finance college educations, the administration is proposing deferral of taxes on interest and dividends on savings accounts of up to $1,000 per year for families with annual incomes of up to $40,000.
Reagan's proposed new budget is based on an assumption of economic recovery at a rate of 4 percent for the fiscal years 1984 through 1988, following a 3.1 percent growth rate for 1983. These figures are considerably more restrained--some Republicans in Congress say even too conservative--than the growth figures that were used by Reagan over the last two years.
The result of the earlier rosy projections were higher-than-projected deficits. Hence even Democrats were saying yesterday that the new deficit projections are probably realistic.
The budget projects that unemployment will peak in the middle of the current calendar year and then start to decline but still remain in the double-digit range until well into 1984. By 1988, unemployment will have declined more, but to a 6.2 percent rate, according to the projection.
Inflation is figured to decline from 5 percent to the 4 percent annual range through 1988, and interest rates are also seen as continuing to decline from the 1983 three-month Treasury bill rate of 8 percent to 5.9 percent by 1988.
The cumulative deficit reductions proposed by the administration, adding up to $558 billion over the five fiscal years, show increasing declines, resulting in an annual savings of $83 billion by 1988. In that year, the deficit would be $117 billion instead of $300 billion.