The Senate Budget Committee moved yesterday to head off possible use of an early revenue windfall from tax-overhaul legislation to help meet fiscal 1987 deficit targets under the Gramm-Rudman-Hollings budget-control act.
Alarmed that revenue gains in fiscal 1986 and 1987 would be exceeded by bigger losses in fiscal 1988 and 1989, the panel warned that deep cuts would be required in defense and domestic spending to meet the budget targets in the latter two years unless the revenue fluctuations are leveled out.
To avoid this, the committee agreed to try to craft a leveling-out arrangement with the Senate Finance Committee, which drafted the tax measure.
The Budget Committee did not specify how the problem would be solved, although Chairman Pete V. Domenici (R-N.M.) said that "at a minimum" it would preclude use of the initial windfall, estimated at $7 billion for this year and $23 billion for next year, to help meet deficit targets.
Senate Majority Leader Robert J. Dole (R-Kan.) had suggested using the windfall to avoid tax increases proposed earlier by the Senate over Reagan administration opposition, but the idea was opposed by Domenici and House Budget Committee Chairman William H. Gray III (D-Pa.) and drew criticism from the White House.
One option for handling the fluctuation problem, several senators said, would be to set aside the early windfall to offset later losses. Senators emphasized the changes could be made either on the Senate floor or in a subsequent conference with the House, which has approved tax legislation with less extreme revenue fluctuations.
The Senate panel's action came as President Reagan, in a meeting with Republican congressional leaders, reasserted his opposition to both defense spending cutbacks and tax increases while urging prompt action on a congressional budget compromise for next year, according to participants.
In a separate message, Reagan renewed his request for full funding of major weaponry initiatives, including his Strategic Defense Initiative -- or "Star Wars" missile defense program, 50 more MX missiles, a new small intercontinential ballistic missile, the Stealth bomber, Trident II submarines and improvements in command, control and communications systems.
He claimed that "every dollar taken from our strategic programs is a victory for potential aggressors" and a blow to arms control prospects. "We can strengthen the hand of our negotiators in Geneva to achieve deep, equitable and verifiable reductions or, by unilaterally reducing our forces, we can make a mockery of the only process that leads us toward meaningful arms control," he told Congress, which is showing signs of restiveness over his announcement last week that the United States will no longer be bound by conditions of the unratified SALT II treaty.
Weaponry programs are especially vulnerable to reductions by Congress this year as both houses appear determined to cut back severely the rate of growth in the military budget. Reagan proposed $320 billion in defense spending authority for next year, which the Senate would reduce to $301 billion and the House to $285 billion. Differences have yet to be worked out in a House-Senate conference on the fiscal 1986 budget, which resumed yesterday and passed a few minor nondefense compromises.
The Senate Budget Committee's action on the tax problem followed testimony by Congressional Budget Office Director Rudolph Penner that Congress would miss its fiscal 1988 deficit target of $108 billion by $38.6 billion if the Finance bill became law without a tax increase.
The Senate measure, like the House-approved tax bill, is expected to raise about as much money as the current tax code over five years. The problem is that, after a windfall in the first two years, it is expected to produce a revenue loss of roughly $21 billion in each of the two following years before leveling off and moving toward a surplus.
"It's supposed to be revenue-neutral. It's more like revenue-neurotic," said Sen. Lawton Chiles (D-Fla.), ranking Democrat on the budget panel.
The proposed accord on the revenue issue was included in a budget waiver needed for consideration of the tax bill since it changes revenue and spending estimates in the congressional budget for this year.