Congressional Democrats involved in high-level budget talks with the Reagan administration yesterday offered a plan to reduce the fiscal 1988 federal deficit by $33.8 billion that appears to have propelled the discussions toward a critical juncture today.
Although House and Senate Republicans greeted the Democratic proposal warily, arguing that it calls for too large a tax increase and too few cuts in domestic spending, they said it also established an important marker that could quickly lead to a bipartisan agreement on an overall framework.
"Instead of talking about $6 billion in differences, we are talking about a billion or 2 billion in differences," said Rep. Trent Lott (R-Miss.), the House minority whip.
An administration official familiar with the talks said the two sides are "getting very close." White House officials said President Reagan could use a speech Thursday to the Chamber of Commerce to announce an agreement if one is reached by then.
Introduced on the 12th day of the budget summit that was convened in the wake of the Oct. 19 stock market collapse, the Democratic proposal calls for a $12 billion tax increase, roughly the amount included in separate tax bills that have passed the House and been approved by the Senate Finance Committee.
The proposal also calls for another $12 billion in savings from reductions in federal spending, $7.8 billion of it in annual appropriated accounts and $4.2 billion in entitlement programs, so named because everyone eligible for their benefits is legally entitled to them. The remaining deficit reduction would come from refinancing rural electric loans, user fees, enhanced income-tax collections and savings on interest payments.
Of the $7.8 billion in discretionary spending cuts that would come from savings in appropriations bills, $5.4 billion would come from defense and $2.4 billion from domestic programs. Defense spending would be about $284 billion for the fiscal year that began Oct. 1, the same level approved in the congressional budget in June and about $13 billion less than the level requested by Reagan in his budget.
The Democratic plan proposes an additional $55 billion reduction in the deficit in fiscal 1989. The federal deficit was about $148 billion in fiscal 1987.
Compared to a plan presented last week by House Republican leader Robert H. Michel (Ill.) and endorsed by the White House, the Democratic proposal calls for $6 billion more in actual taxes, $500 million more in defense cuts and $1.7 billion less in domestic-spending reductions.
Neither the Democratic nor Republican plan contemplates changes in cost-of-living allowances (COLAs) for Social Security recipients or other federal retirees, an issue that has frequently arisen in the talks but never been included in a concrete proposal.
Legislation calling for a one-year, across-the-board freeze on all salary and benefit COLAs paid by the government was introduced yesterday by Sen. Frank H. Murkowski (R-Alaska), who said the plan would save $12 billion the first year and $40 billion over three years.
Despite the differences that separate the Republican and Democratic deficit plans, members of both parties yesterday said the talks had suddenly entered a crucial stage where all sides could begin coming toward the middle, possibly as early as today when the discussions are scheduled to proceed throughout the day without interruption.
"We've staked out the outer edges," said Rep. Leon E. Panetta (D-Calif.), a member of the Democratic negotiating team.
White House chief of staff Howard H. Baker Jr. declined to comment on the specifics of the Democratic proposal but said "we're working hard and making good progress."
House Majority Leader Thomas S. Foley (D-Wash.) said the talks had made "substantial progress" and were "moving toward a bipartisan document . . . that reflects the agreement of all members."
With Republicans and Democrats having weighed in with partisan plans to achieve more than the $23 billion in deficit reduction required by the revised Gramm-Rudman-Hollings law, a number of negotiators said the key task left is to compromise the remaining differences and present the result to the president as a consensus choice of both parties.
"We'll never get a product out of there with a 'D' or an 'R' or just one name attached to it," said Sen. Mark O. Hatfield (R-Ore.).
Another key Republican, who asked not to be identified, predicted that the president would not object to any budget-cutting proposal that enjoys broad bipartisan support on Capitol Hill.
Staff writer Lou Cannon contributed to this report.