Five Republican moderates, who apparently hold the balance of power in the deadlocked Senate budget debate, yesterday proposed a possible compromise that would raise $14.3 billion in taxes next year, enough to accommodate a $300 limit on savings from the 10 percent income-tax cut scheduled July 1.
Sources said the five also proposed a 6 percent increase in defense spending, compared with the 5 percent proposed by the Senate Budget Committee, 7 1/2 percent recommended by Senate Republican leaders and 10 percent called for by President Reagan in his budget last February.
The plan, which would leave domestic spending at levels approved by the Budget Committee, with some add-ons from the entire Senate, projects a $181 billion deficit next year, compared with $192.4 billion in an alternative pushed by Majority Leader Howard H. Baker Jr. (R-Tenn.) and Budget Committee Chairman Pete V. Domenici (R-N.M.).
The five--John H. Chafee (R-R.I.), Mark O. Hatfield (R-Ore.), Charles McC. Mathias Jr. (R-Md.), Robert T. Stafford (R-Vt.) and Lowell P. Weicker Jr. (R-Conn.)--submitted their proposal to Domenici, who said only that he is still backing the Baker-Domenici alternative.
Their votes are viewed as critical to Baker's and Domenici's hopes for a GOP alternative to the Budget Committee's plan because the Senate is split 54 Republicans to 46 Democrats and five votes can deny a majority for any GOP initiative.
They have been holding out against the leaders' plan because it fails to include major tax increases to bring down deficits.
The tax increases proposed by the five--$14.3 billion next year, $22 billion in 1985, $34 billion in 1986, $47 billion in 1987 and $60 billion in 1988--would be enough to accommodate repeal of tax indexing, under which tax rates would be adjusted for inflation after 1985, and modification of the July tax cut.
The taxes they proposed for the next two years are about half of what the Budget Committee outlined in a plan Baker and Domenici are attempting to revive.
The five moderates originally proposed outright repeal of the July cut and indexing, which Reagan has vowed to preserve and which GOP leaders have been trying to protect in their plan. Although the moderates' plan would accommodate a cap on the July cut and repeal of indexing, they emphasized the revenue numbers over tax proposals that might appear to undermine Reagan's tax program, sources said.
Although the Republicans were reportedly not coordinating their effort with Democrats, Minority Leader Robert C. Byrd (D-W.Va.) appeared to be moving in a similar direction on taxes. Conceding that it is "unrealistic" to expect that Congress would repeal the July cut, Byrd suggested consideration of an income ceiling on tax savings as a "fallback."
Byrd also suggested that there may be negotiating room on defense, saying some Democrats could probably support "a little more" than the 5 percent increase recommended by the Budget Committee, although not the full 10 percent proposed by Reagan. An amendment proposed by Henry M. Jackson (D-Wash.) and Sam Nunn (D-Ga.) and scheduled for a vote today would sanction a 6 1/2 percent increase.
The Republican leaders' proposed substitute was criticized on the Senate floor by Daniel Patrick Moynihan (D-N.Y.) for inviting what he called an "unprecedented period of sustained government intrusion into the nation's financial markets."