President Reagan was dealt a second budget blow in as many days from Senate Republicans yesterday as five moderates, enough to shift the Senate's balance of power, proposed the cancellation of this year's 10 percent income tax cut and the repeal of future indexation of income taxes to adjust against inflation.
The five--John H. Chafee (R.I.), Mark O. Hatfield (Ore.), Charles McC. Mathias Jr. (Md.), Robert T. Stafford (Vt.) and Lowell P. Weicker Jr. (Conn.)--also called for the restoration of $7.1 billion in domestic spending that Reagan does not want and endorsed the Senate Budget Committee's decision Thursday to cut Reagan's proposed military buildup by half.
But the tax defections could be the most important to Reagan. Nearly all Republicans, including some of the new group of five, have loyally stood up for his tax cut and indexation over the past two years. And he has needed this solid support to protect the provisions against attacking Democrats.
The back-to-back blows from the Budget Committee and the five moderates, some of them powerful committee and subcommittee chairmen, gave Reagan his worst week so far in the Republican-controlled Senate, which has been the mainstay of support for his economic program.
But the next week or two offer several opportunities for him to regain momentum, especially for his embattled defense program.
They include muddying amendments that could take the edge off a nuclear freeze resolution that the House will take up next week, a Senate vote on confirmation of Kenneth L. Adelman to head the Arms Control and Disarmament Agency and the possibility still of a belated compromise over military spending levels.
Senate Republicans, who angrily blamed administration intransigence for the Budget Committee's 17-to-4 vote Thursday to cut by half Reagan's proposed 10 percent increase in defense spending for next year, have held open the possibility of a compromise--either in committee or later on the Senate floor--if the administration takes the lead and offers more than token concessions.
A compromise level of 7 to 7.5 percent had been suggested previously by both Majority Leader Howard H. Baker Jr. (R-Tenn.) and Budget Chairman Pete V. Domenici (R-N.M.). But sources said yesterday that it may be difficult to budge the committee from 5 percent now that members have publicly committed themselves to it and in some cases will be spending a weekend at home defending their votes.
The "alternative budget" proposed by the Republican moderates compounded Reagan's problems by adding to the growing mood of independence and assertiveness on the part of Senate Republicans, raising the prospect of further challenges to Reagan's policies.
Republicans have an edge of 54 to 46 in the Senate, so a defection of five GOP members would be enough to crack their majority. Even though the Democrats can rarely be counted on to vote in a block, additional Republican defections--some speculated yesterday there might be as many as a dozen on key budget issues--could make the Senate a lot more doubtful for Reagan than it was over the last two years.
It has generally been assumed that repeal of indexing would be easier than repeal of the third year of Reagan's tax cut, scheduled to take effect July 1, although neither is by any means assured. Sentiment for repeal of both tax measures is strongest among Democrats. Reagan strongly opposes repeal.
All of the five new budget rebels denied they were out to thwart Reagan but made it clear they were open to cooperation with the Democrats as well as the president in their effort to provide what they called a "more equitable and balanced set of priorities" in the budget.
"We are anxious to cooperate with either the president or other members of Congress . . . to get America back to work," said Weicker. "We're looking for practical ways to get our program adopted," said Stafford.
The problem is that "we went too far" in tax cuts and other aspects of the Reagan fiscal program over the last two years, said Mathias. The tax cuts "had a trial run and they're getting us in trouble," he added in underscoring the group's theme that tax increases are necessary to help bring down deficits as a way of encouraging lower interest rates and thereby spurring economic recovery. The group's proposals for increased domestic spending of $58 billion over the next five years would be more than offset by defense cuts of $93 billion over the same period.
The budget proposed by the five senators would produce a 1984 deficit of $149 billion, $27 billion less than congressional reestimates of the deficit in Reagan's budget. Over five years, the group said its budget would reduce deficits by a cumulative total $209 billion more than Reagan's plan and $103 billion more than the House-approved budget. The five senators would add considerably less to social welfare spending than the House proposed, but would nevertheless pump more money than Reagan has proposed into education, health, social services, energy and federal pay.
In contrast to Reagan, who proposed no federal pay increases for next year, the five senators would give government workers an increase equivalent to one-half of the Consumer Price Index this fall, a 4 percent raise the following year and raises equal to the full CPI in future years.