President Reagan would have to resubmit to Congress all the budget cuts he proposed last February -- including $10 billion in domestic program reductions Congress rejected -- and toss in another $15 billion or more in cuts to meet the fiscal 1987 deficit target established in the Gramm-Rudman-Hollings bill to balance the budget.
That's the view from the Office of Management and Budget, which already is at work on next year's budget and was shooting to bring in a plan with a deficit of about $140 billion when the Gramm-Rudman-Hollings bill suddenly appeared this fall.
"It will take some real work over here," said another OMB official. "If the economy does not perk up pretty soon, you are going to have to make some very hard decisions."
Should Congress pass the Democratic alternative to Gramm-Rudman-Hollings, things would be even more difficult.
The Democratic plan, which was passed by the House and denounced by the White House, calls for a fiscal 1987 deficit target of $110 billion, not $144 billion. As a practical matter, there would be no way for the president or Congress to meet that target -- even on paper -- without either raising taxes, cutting Social Security benefits, slowing the growth of the defense budget or a combination of all three, a congressional budget analyst said.
The decisions are likely to be difficult in any event, particularly since the president has ruled out tax increases. Reagan has also put Social Security benefits off limits to cuts, and has indicated he wants the defense budget to rise 3 percent faster than inflation. In addition, interest payments on the federal debt cannot be cut.
Swelling farm surpluses also could push spending up by several billion dollars beyond earlier estimates, which would require offsetting cuts elsewhere.
The practical effect is that the remaining one-third of the budget -- such things as Medicare, highway construction, urban development programs and other income-support programs -- would have to absorb roughly $25 billion worth of cuts required to reach the targets of Gramm-Rudman-Hollings. That part of the budget would have to be trimmed by around 8 percent to achieve the needed savings.
Even if Reagan resubmitted the domestic program cuts rejected by Congress, they would be less helpful in reducing the deficit. In many cases, eliminating or drastically reducing a federal program provides a much bigger saving in the second year than in the first. Thus, if Reagan again proposes to cut such programs as Amtrak and Urban Development Action Grants, the 1987 savings will be smaller than if Congress had made the cuts beginning in 1986.
OMB, however, now plans to offer a budget next year that would fall within the Gramm-Rudman-Hollings targets. "There is every intention to make them and send up a budget within the Gramm-Rudman requirement, if there is one," one OMB official said.
OMB director James C. Miller III also has been urged by his staff to insist on a "hard-nosed" economic forecast for 1986 and 1987, the official added. The administration does not want overly optimistic economic assumptions to be the cause of across-the-board cuts that would be automatically required if the deficit falls outside prescribed targets.
There have been no meetings among economists at OMB, Treasury and the Council of Economic Advisers to discuss details of the economic forecasts for next year and beyond. However, an internal OMB forecast recently given to Miller showed GNP, adjusted for inflation, rising less than 4 percent in 1986, with inflation running about 4 percent.
Other economists think the OMB analysis of what it would take to get the deficit to that level in fiscal 1987 is optimistic.
Most private economists are less optimistic than that when contemplating 1986, with many forecasting an increase in real GNP of about 3 percent. That one percentage point difference in growth, if continued through all of fiscal 1987, would add about $17 billion to the deficit, according to OMB estimates. The result would be an even more painful problem for Congress and the administration to deal with.