President Reagan today is sending Congress a $973.7 billion budget for next fiscal year that would fundamentally alter the government's relationship to important sectors of the population and economy while continuing to shift federal resources from domestic programs to the military.
Under the plan, spending would rise next year for defense, Social Security and interest on the national debt, which make up about two-thirds of the budget. To offset these increases while also making some inroads on the projected deficit, sharp spending cuts and outright elimination of many programs are proposed in the budget's other third, which finances most of the government.
There are hundreds of programs in this residual third of the budget. Spending on them would be held 10 percent below the level needed to maintain current services next year. In some ways the new spending plan would cut even deeper than Reagan's first in 1981.
The president would eliminate federal revenue sharing, the Job Corps, the Small Business Administration, the Economic Development Administration, the Legal Services Corp., mass transit subsidies, sewage treatment construction grants and federal support for Amtrak.
He would sharply curtail farm price supports, college student aid, veterans' health care, Medicare, the lending programs of the Export-Import Bank and rural electrification subsidies.
He would cut federal workers' pay 5 percent, scrap next year's scheduled inflation adjustments in payments to military and civil service retirees, restrict such adjustments in the future and wipe out 35,000 federal jobs in two years.
He also is proposing a one-year moratorium on subsidized housing starts and would require a "workfare" program for mothers receiving welfare. But having cut social programs most sharply in his first term, Reagan is shifting emphasis at the outset of his second. The new budget would make some of its largest reductions in programs that generally have benefited the middle class, and in business subsidies.
Even so, the budget documents report that there would be a 5 percent cut in services for the poor, and a quick analysis yesterday by the Center on Budget and Poli- cy Priorities concluded that "low- income programs would be subject to a disproportionate share" of Reagan's spending reductions.
The plan's fate in Congress is uncertain. There is great concern in both houses about cutting the deficit, which would be $180 billion next fiscal year even if all the cuts Reagan proposes are approved. But congressional leaders already have indicated that they are disposed to cut domestic spending less and the military buildup more than Reagan is recommending. There is also the question of taxes, but Reagan has vowed to resist an increase and in fact is proposing small tax cuts in the form of enterprise zones, tuition tax credits and new college savings accounts on which interest would be tax-exempt.
Reagan says in his budget message that tax rates are still "too high" and promises to propose a tax-simplification plan later in the year. "The proposals will not be a scheme to raise taxes -- only to distribute their burden more fairly and to simplify the entire system. By broadening the base, we can lower rates," he says.
The budget shows that the tax cuts that were the signature of Reagan's first year were heavily offset by the four tax increases that followed in his first term. The tax cut by itself would have reduced federal revenues about $211 billion next fiscal year, the documents show. But after the increases, only about $131 billion of the original reduction remains; more than one-third of the tax cut is gone.
Reagan also is proposing a host of new "user fees" for items such as Coast Guard services, recreational use of national parks, federal meat and poultry inspection, Veterans Administration and Federal Housing Administration mortgages and commercial use of inland waterways.
He has proposed such fees before and been rebuffed in Congress. The same is true of many spending cuts in the budget.
The budget originally was embargoed -- given out in advance with the understanding that no stories would be published until it was sent to Congress today. But when several news organizations published articles yesterday, the embargo fell apart.
Reagan succeeded this year in stopping short of an important bench mark by holding total spending below $1 trillion, which the budget documents say it would exceed next year if no intervening cuts are made.
The budget contemplates total spending of $973.7 billion and receipts of $793.7 billion, leaving the deficit at $180 billion for the fiscal year that begins Oct. 1.
About 41 percent of the budget would be in the form of transfer payments, benefit checks sent to individuals directly or through the states. Social Security is the largest program in this sector. Another 29 percent would go for national defense, 15 percent for interest on the national debt and 10 percent for other grants to state and local governments. Only 5 percent of the budget goes for "other federal operations," meaning maintenance of the bureaucracy.
On the revenue side, 37 percent comes from individual income taxes, 30 percent from the Social Security tax and other such social insurance receipts, 8 percent from the corporate income tax, 3 percent from excises, 4 percent from miscellaneous other sources, and 18 percent -- almost a fifth -- from borrowing.
The budget predicts deficits declining to $164.9 billion for 1987, $144.4 billion for 1988, $107.5 billion for 1989 and $82.4 billion for 1990. Reagan originally had promised to balance the budget by the end of his first term.
Reagan fell short of the original goal this year of reducing the deficit to 2 percent of gross national product, or $100 billion, by 1988. The budget would cut the deficit to 4.3 percent of GNP next year, 3.6 percent in 1987, 2.9 percent in 1988 and 2 percent in 1989. Spending next year would be 23.3 percent of GNP, and revenue 18.9 percent.
Without action this year, deficits would remain above $230 billion for the rest of the decade.
"This is unacceptable," Reagan says in his message accompanying the budget, adding that his proposals would reduce spending from what it otherwise would be by $51 billion next year, $83 billion in 1987 and $105 billion in 1988.
The result is "still a far cry from our goal of a balanced budget," Reagan said, but is a "significant step in the right direction."
Having agreed to a "down payment" on the deficit during the election campaign last year, Reagan says his new budget "commits the government to a second installment."
Reagan took the lead in proposing spending cuts at the outset of his first term. But this time, with the cuts hitting politically sensitive middle-class programs, he says "I hope" Congress will advance "other spending reduction ideas."
"There will be substantial political resistance to overy deficit-reduction measure proposed in this budget," Reagan says. "Every dollar of current federal spending benefits someone, and that person has a vested self-interest in seeing those benefits perpetuated and expanded.
"Prior to my administration, such interests had been dominant and their expectations and demands had been met, time and time again. At some point, however, the question must be raised: 'Where is the political logrolling going to stop?' . . .
"The single most difficult word for a politician to utter is a simple, flat 'No.' The patience of the American people has been stretched as far as it will go. They want action; they have demanded it.
"We said 'no' frequently in 1981, and real spending for discretionary domestic programs dropped sharply. But we did not accomplish enough. We now have no choice but to renew our efforts with renewed vigor. The profusion of federal domestic spending programs must be reduced to an acceptable, appropriate and supportable size."
However, the president has nev- er said exactly what size that should be.
"If we fail to reduce excessive federal benefits to special interest groups, we will be saddled either with larger budget deficits or with higher taxes -- either of which would be of greater harm to the American economy and people," his message says.
Reagan's budget is based on forecasts of continuing economic health. Any faltering in the economy next year would widen the deficit because government revenues would decline while the cost of social programs such as unemployment insurance would automatically rise.
The administration assumes that the economy will expand at a 4 percent rate after inflation next year, that inflation will remain moderate at about 4.3 percent; that unemployment will decline slightly to about 6.9 percent by year's end and that interest rates also will fall.
Reagan opens his budget message by extolling the current expansion. "The prospect of a substantially brighter future for America lies before us," he says. He cites a list of favorable economic developments, the most marked of which date from 1982. That was the low point in the recession that marked his first two years in office, the worst downturn since the 1930s. He does not mention the recession in his remarks.
The president said his policies "were designed to restore economic growth and stability. They succeeded."
But elsewhere in the budget is a warning that, unless reduced, future deficits could crimp economic growth because the government would compete with and "crowd out" private borrowers seeking funds for economic expansion, thus driving up interest rates. So far, private investment "has not been crowded out," the budget points out, partly because of a "large net inflow" of foreign funds that have financed the U.S. recovery.
The president also proposes new "management improvements" in government operations, including a 10 percent cut in administrative overhead in many federal agencies. A program to increase federal productivity by 20 percent by 1992 is being started, Reagan said.
During his reelection campaign, Reagan frequently maintained that the budget could be reduced largely through the 2,478 recommendations of the Grace Commission on government efficiency. But the budget says that "there was some overlap" and that savings were identified in only 1,635 recommendations. The budget says 879 have already been implemented and 269 others are being submitted to Congress.
Reagan's package of domestic budget savings this year, amounting to about $39 billion, is somewhat less than the $49 billion he sought from Congress four years ago. That year, according to the Office of Management and Budget, Reagan won $36 billion in savings. Later, he got smaller cuts from Congress.
This year, the White House hopes to take advantage of a six-month "window of opportunity" from Reagan's landslide reelection to push a new package through Congress. The strategy is to reach a compromise agreement with Senate Republicans, who have started writing their own budget, then drive it through the Democratic-controlled House.
Jockeying over this continued yesterday. Senate Majority Leader Robert J. Dole (R-Kan.) said on ABC's "This Week With David Brinkley" that he would like to see a 3 percent defense spending increase, after inflation, instead of the 5.9 percent Reagan seeks.
House Majority Leader James C. Wright Jr. (D-Tex.) said House Democrats "surely can" live with that. But Wright noted that when Democrats wanted 3.5 percent last year, the Republican-controlled Senate and the White House "would not accept that" and wanted 7.5 percent.
Reagan's proposed budget cuts this year range across almost every domestic program, with the exception of Social Security benefits, which the president vowed last year not to alter.
Among the proposals:
* Major changes in Medicare and Medicaid, the giant health programs for the elderly and poor. The government last year set various limits on what it would pay hospitals under Medicare for different illnesses. The budget would freeze these next year instead of letting them rise with inflation. It also would freeze Medicare rates for physicians, and cap payments to the states in the Medicaid program.
* A major reworking of farm price supports to reduce record-high costs. The dairy program would be phased out, honey price supports eliminated and peanut and tobacco allotments terminated.
* Freezes and cuts in programs for the poor. Food stamps, Supplemental Security Income and the feeding program for women, infants and children would remain at the levels set in current law, but there would be freezes in such areas as education of the disadvantaged and handicapped, Head Start, social services block grants to the states, employment and job-training programs, and low-income energy assistance.
There would be cuts in Aid to Families with Dependent Children, a tightening of eligibility requirements for child nutrition programs, a moratorium on new subsidized housing, and elimination or phasing-out of the Legal Services Corp., Job Corps and other programs.
* Ending mass transit and Amtrak subsidies, plus freezing federal highway aid at its current level for two years.
* Cutting college student aid by nearly a quarter, partly by denying it to families above certain income levels and limiting total aid per student in any school year.
* Limiting free health care for veterans to those over 65 with incomes under $15,000, except for veterans with service-connected disabilities. The president's budget would also cut construction funds for new Veterans Administration hospitals.