The MacNeil/Lehrer Report; Budget Battles in Congress

ROBERT MacNEIL: Good evening. President Reagan got some good news and some bad news when he woke up today. His doctors told him he will probably be well enough to go home from the hospital tomorrow afternoon, but his political advisors had to tell him that his plan to revitalize the economy had run into a surprising hitch in the Senate. Last night, the Senate Budget Committee -- which had approved all the separate elements of Mr. Reagan`s plan to cut taxes and government spending -- rejected them when they came together as a package. Three Republican Senators joined all the Committee Democrats in voting against the White House package. Meanwhile, in the House, Democratic budget and tax writers have come up with a package of their own to challenge the President`s. But Democratic leaders face a battle with conservatives in their own party. Tonight, as the Congress adjourns for a two-week Easter recess, the coming budget battles in both houses. Jim?

JIM LEHRER: Robin, it was alternative week for the Democrats in the House. Yesterday, Congressman Dan Rostenkowski, Chairman of the House Ways and Means Committee, put out the tax plan alternative. Instead of the Reagan 10-percent-a-year, across-the-board tax cut for three years, he wants it for only one year, and reshaped a bit to give a bigger advantage to lower and middle income taxpayers. Earlier in the week the Democratic alternative to the Reagan budget was put on the table by Congressman Jim Jones, Chair- man of the House Budget Committee. It differs with Reagan`s in several respects: more domestic spending, less defense spending, and a quicker move toward a balanced budget -- by 1983 instead of `84, per the Reagan plan. There are Democrats and there are Democrats, of course, and all are not of one mind on either proposal. The big problem for the House leadership -- Rostenkowski, Jones, et al -- is how to keep conservative Democrats on board without losing the liberals, and so on, and so on. And we`ll be getting to all of that in a few minutes, but first, the saga in the Senate. Robin?

MacNEIL: What helped to push the Senate story into the headlines was the surprising defection of three Republicans who voted against the President`s budget. One of them was freshman Senator Charles Grassley of Iowa. He`s with us tonight in the studios of the Iowa Public Broadcasting Network in Des Moines. Senator, why did you vote against a package that was essentially the Reagan program?

Sen. CHARLES GRASSLEY: It was only half the Reagan program. Because you want to remember that President Reagan campaigned on a promise of a balanced budget during his first term of office. The resolution we were voting on showed a $44-billion deficit for fiscal year 1984. So those of us who were voting want to help the President with his program. There`s no three of us -- no Republican Senators other than us three who have so consistently supported the President`s program totally. We`re supportive of the President`s tax cuts programs; we`ve been supportive of the President`s position on the $36-billion cuts for fiscal year `82 that was part of the reconciliation bill; and we`re going to be supportive of the President throughout. But the President`s program is a program of a balanced budget during this term of office, and this budget resolution didn`t provide for a balanced budget.

MacNEIL: I see. The Wall Street Journal today in its story called the vote "a startling rebuff of the President." Is that the message you intended?

Sen. GRASSLEY: Absolutely not. The President in no way should consider this as bad news for his program; he should only consider it as an effort by conservative Republicans who want to make his economic program work to see that it does work, and to get this package worked out today for the long- term as well as for the short-term. We`ve done half of the job -- during the budget cuts -- of working out for fiscal year `81 and `82 the short- term adjustments that need to be made. But we also need to make long-term adjustments for `83 and `84. Those long-term adjustments are basically cutting out 29 billions of dollars for `83, and 44 billions of dollars for 1984 in order to produce the balanced budget -- so that the program that the President wants is complete. And finally, the three of us that voted the way we did -- Armstrong, Simms, and myself -- are also members of the Finance Committee, and we`re going to be working for the President`s tax cut program as a member of that committee as well as trying to bring about the budgetary changes that he thinks, and we all think, are necessary, to bring fiscal responsibility to the federal government, and win the war against inflation.

MacNEIL: How would you propose paring down those deficits for `83 and `84? By reducing the promised lax cuts, or by further cuts in government spending?

Sen. GRASSLEY: No, we feel that the tax cuts are the very backbone of the President`s program; that the tax cuts must go through, and that they must be long-term tax cuts so that people know what the tax policy of the federal government`s going to be for the next several years. And his program is the only program that`s been presented in the Congress -- at least in the seven years I`ve been there -- that has been a long-term tax program. So we`re going to be for it, and that`s why we feel that we need to move forward, now, with the spending cuts so that we can not only have the tax cuts, but we`ll bring the fiscal responsibility to the federal government that we feel is necessary to produce confidence in the economy that we need, particularly because of the tax cuts.

MacNEIL: Where would you find more spending cuts now?

Sen. GRASSLEY: Well, what do you say, "find more spending cuts now?" We need to go through the same process of bringing about the fine-tuning of the budget that we did for fiscal year `81 and `82, but just continue that for `83 and `84. For instance, Senator Hollings` amendment was one that was adopted that we need to look at. I don`t think we need to be so direct in exactly what we want to cut because we don`t want to infringe upon the prerogative of the appropriations committees and the authorizing committees. But we do need to make a determination that in certain categorical areas, specific funding cuts must be made, and that`s what our job is as a budget committee, but we did not do that because we left hanging a $44-billion deficit. And finally, I think that we need to consider the timing of the whole thing. When the Wall Street Journal suggests that this is a defeat for the President -- which it isn`t -- it was merely a decision that somebody felt needed to be made by 6 o`clock on Thursday before the Easter recess. It was only three or four days earlier in this week that we were anticipating coming back on April the 22nd and April the 23rd to finish the job, and do it in a calm and collected environment where these things could be worked out. It was somebody else, other than the three of us, who felt that we needed to get done by 6 p.m. so we could have a two-week Easter break. We do not feel that a two-week Easter break is necessary when we have 12 percent inflation and 17 percent interest. We feel like the Congress ought to be back there working the week after next to get the President`s economic program on the road, and to get it done quickly so that the business community, the taxpayers, as well as those people that are administering the government programs know what the future holds for them, and we need to make those determinations very certain. That was the very climate that we used during the reconciliation bill; it needs to be continued.

MacNEIL: Well, thank you, Senator. We`ll come back. All of the Democrats on the Budget Committee also voted against the White House proposals, but for different motives. One of them was Senator Donald Riegle, a liberal Democrat from Michigan. Senator, why did you vote against the budget proposal?

Sen. DONALD RIEGLE: Well, the reason, I think, that all of the Democrats voted that way, as well as the three Republicans that you mentioned, is that in the course of the last campaign President Reagan, as a candidate, made a number of very expensive promises in the course of that campaign. One was the big increase in the defense budget; another was a very substantial cut in taxes. And that was all well and good as a campaign promise, but when it actually came to costing out the dollar-and-cents effect of that -- which happened yesterday in the Senate Budget Committee - - it turns out that it produces massive deficits which clearly would be inflationary. And I think that not only did the Democrats feel that that was not a responsible course of action in terms of real economic recovery for the country, but I think the three Republicans also started to get cold chills when they actually saw the massive size of the deficit: even four years from now, something on the order of $50 billion.

MacNEIL: Are you talking about the same deficits that Senator Grassley is? Those for `83-`84, or are you more worried about the immediate ones?

Sen. RIEGLE: Well, I`m worried about all of them because they`re massive. As a matter of fact, the numbers are: in 1981 it would be $63 billion; in `82, $67 billion; in `83, $59 billion; and then it only drops down to $49 billion in `84. So we`re talking about a total over the four years of $214 billion. So the problem is that when you put the entire package together, it just does not achieve what it was advertised to be able to do -- namely, to reduce inflationary pressure, move us toward a balanced budget, and this is one of the -- really, the central reason why we felt we could not support it.

MacNEIL: So what is your solution to those deficits that you consider too large and inflationary?

Sen. RIEGLE: We offered several in the course of the Budget Committee proceedings itself. One thing that we thought was critical -- we supported the notion of setting a spending ceiling; in fact, all the Democrats on the Budget Committee, and 38 out of the 47 Democrats in the Senate as a whole, voted to agree to put a ceiling on spending although we had very sharp differences with the Reagan administration as to where those spending cuts should be made. And that`s a decision that will be made later on. We haven`t settled that as yet. But in the tax area there is a fundamental disagreement. We think that the total amount of dollars involved is larger than we can afford, and that the tax package is not sufficiently targeted. The Roth-Kemp proposal, which is the 10-percent-across-the-board, we think distributes too much money -- and in fact, too much of it to people at the very high income levels, and not enough is targeted either for business investment, for savings incentives for individuals. It doesn`t deal with the marriage tax penalty which many of us feel it is time to correct. And things of that sort. So we feel strongly that there is a way to target the tax cut, and actually get to a balanced budget sooner. We think more like 1983, and we would like to see the country on that kind of fiscal path.

MacNEIL: But you would like to reduce the total amount of the tax cut this coming year. Is that correct?

Sen. RIEGLE: Yes, that would be correct. We think it`s larger in the aggregate that we can afford, but we think that by targeting it better, we can provide tax relief for middle income people; we can provide a specific incentive for savings -- we`re thinking of something like a $1,000 exclusion on interest and dividends for a person, or $2,000 for a couple -- which we think would actually move money into capital investment, and reinvigorate the economy so we can reindustrialize -- get people back to work.

MacNEIL: What do you think about Senator Grassley`s idea that there should be an examination of more spending cuts down the line in order to get rid of those deficits?

Sen. RIEGLE: Well, we offered one yesterday. In fact. I offered one in the defense area because the defense area is ballooning beyond anybody`s imagination. In fact, if we support the Reagan proposals -- and I hope we will not in this area -- he is proposing to increase the defense budget by $71 billion over a two-year period. And much of that is needed, but I think an amount that high is excessive. And so I myself yesterday in the budget committee offered an amendment to reduce that by a significant amount and still provide a lot of money. And as a matter of fact, Senator Armstrong -- one of the Republicans that ended up voting against this package -- supported the proposal that I made to moderate the increase in the defense budget. But I think that`s one place where we could scale back, and more prudently still keep the country strung and, I think, do more for economic stabilization and inflation fighting here in the United States.

MacNEIL: Senator Grassley, you have a fundamental difference at the ends of the political spectrum, here.

Sen. GRASSLEY: Fundamental difference here.

MacNEIL: How`s that going to get resolved? I mean, you want more spending cuts down the line to get ride of the deficits; Senator Riegle and his colleagues want a smaller tax cut.

Sen. GRASSLEY: Well, first of all, let me make clear that there`s not going to be any cooperation between Senator Riegle and Senator Grassley or any -- or most of the liberal Democrats and the conservative Republicans on the Budget Committee. They are committed to the proposition that the government can spend money and our tax money better than individual taxpayers can; they`re committed to the proposition --

Sen. RIEGLE: That`s not my view, I might say.

Sen. GRASSLEY: They`re committed to the proposition that we shouldn`t have a revolutionary tax reform, or that we should have long-term tax cuts, and that more of the resources of the federal government ought to be run through the federal treasury. We reject that. We reject that on the proposition that the federal government and these programs that we`ve been following for the last 10 or 12 years are bad for the economy; they brought 12 percent inflation, 17 percent interest, and we`ve got to reject them. And in that respect, we`re very supportive of the Reagan tax program. In fact, the Reagan tax program`s only going to get through with the support of the Republicans because most of the Democrats have rejected it totally because they do not like this concept of diminishing the income of the federal government to let the people spend their own money. So to answer your question. I can only say that we`re going to have to do it through maximum cooperation of the Republicans on the Budget Committee. That cooperation can come when we`re all working the same direction; when we`re all committed to the same program, and that commitment must come to -- to commitment to the Reagan program which is for a balanced budget during this term of his office.

MacNEIL: How do you --

Sen. GRASSLEY: We intend to help him accomplish those goals.

MacNEIL: How do you think it`s going to come out, Senator Riegle?

Sen. RIEGLE: Well, first of all, when I hear this it doesn`t square with what I saw happen yesterday in the Senate Budget Committee, and with Senator Grassley`s vote, because the Reagan package, in terms of the numbers that he has sought on the spending side and on the revenue side, were what the Committee had put together. After all, the Republicans run the Senate now; they run the Senate Budget Committee, and Senator Grassley yesterday had the chance to vote for the Reagan program, but when he took a hard, cold look at it, it scared him so much that he decided to vole no. And I don`t blame him; I did, too. And so we are together on that issue. But I want to strongly disagree with two things that he said. First of all, this Democratic Senator -- and I think most Democratic Senators -- are not in favor of unlimited federal spending. As I said, and as Senator Grassley knows, on the Budget Committee, all Democrats on the Committee voted to establish an overall spending ceiling. And it was the one that the President sought. Now. within that ceiling we have strong disagreements as to where the priorities should lie, and where the cuts should be made. And that`s something that will be settled in the future. That hasn`t been settled yet. But we have agreed on that principle. And as a matter of fact, I think we feel more I strongly, actually, about the two issues of fiscal restraint -- getting the government on a path toward a balanced budget sooner -- as well as revitalizing the economy. The tax cut can`t just be spread over a 10-acre lot. It`s got to be targeted into industries that are in trouble; we`ve got to provide savings incentives so that we can actually accumulate capital for capital investment and for job production and for better efficiency in our economy. And if we don`t meet that goal with this package, the entire country will suffer. And so our intent is to work with the President. We`ve been very supportive. But we know this package has to be fine-tuned, and I dare say that`s why the three Republicans yesterday jumped ship -- because they know the package as it`s been put together now will not work, and it`s inflationary.

MacNEIL: Well, we`ll come back to this aspect of the dispute in a moment. Jim?

LEHRER: Now, to the budget battle in the House where there is a Reagan plan, a Democratic leadership plan, and maybe one in between -- a plan worked out by conservative Democrats who at this point are being courted heavily by all others. There are 43 Democratic conservatives in the House, and how they go, many believe, will decide how the budget goes. One of the key figures in that group is Congressman Phil Gramm, Democrat of Texas, a member of the Budget Committee and an economist. Congressman, you were the only Democrat on the Budget Committee not to vote for the Jones alternative yesterday. Why not?

Rep. PHIL GRAMM: Well I think the obvious reason is, I didn`t like it. It took only about a third of the President`s cuts and the 1981 recissions. It took only about two-thirds of the overall cuts. If you convert to common standards of assumptions to make a legitimate comparison, it cut defense by $4.3 billion below the Reagan package, and added back about $7 billion to social programs. So underneath all of these figures is basically a difference in philosophy. The Reagan budget is aimed towards strengthening defense, cutting social programs, and reordering national priorities. The Committee budget is basically a retreat from that position. That`s why I opposed it. I think the American people do not support this retreat, and I think it`s going to be rejected on the floor of the House.

LEHRER: Now there are reports today. Congressman, that you personally have been working on some kind of middle ground between the Jones approach and the Reagan approach -- a plan that would go to the floor of the House. Is that true?

Rep. GRAMM: Well basically we started a bipartisan dialog about three months ago when 40 Democrats went to the White House and said, "Mr. President, we applaud your efforts to cut. We want to suggest some additional cuts.`` The President took about 40 percent of those cuts at that time. In the last week we`ve had an intensification of communications as it became clear in the Budget Committee that we weren`t going to come out with a budget that most conservative Democrats could support, and we had all of yesterday an effort to put together a coalition package which I finally introduced with Mr. Latta at the conclusion of deliberations yesterday. It took the Reagan budget --

LEHRER: Latta is a Republican, right?

Rep. GRAMM: Right. Ranking Republican. So it basically took the President`s initial position which put back the defense that Jones had cut; took out the social programs Jones had added; and it made an additional $6.1 billion of cuts to give us a spending figure slightly below $690 billion. I think it represents a bipartisan effort that will have support. I think we`re going to have a tough fight. I think we`re going to see immense pressures. But I think ultimately the American people support the President`s program, and I think it`s going to be accepted.

LEHRER: Is it true, what I read, that you were on the phone yesterday and the day before or whatever with David Stockman and Vice President Bush putting this whole thing together?

Rep. GRAMM: Well, there were a lot of people involved other than just me. But there were communications to the Vice President, and we had a continual dialog with David Stockman.

LEHRER: You`re going to continue to push this on the floor, though, right? I mean, you`re not giving up with this --

Rep. GRAMM: Well, basically, the substitute that I --

LEHRER: Can we call it the Gramm plan, or what should we call it?

Rep. GRAMM: No, this is the President`s plan. What it is, is simply an updating of the President`s plan with an additional $6.1 billion of cuts which brings us below $690 [billion].

LEHRER: And the President -- you have been assured that the President will support this new plan, right?

Rep. GRAMM: Well; this plan is an update. It is a bipartisan support. It is the administration`s proposal as of right now. We`re going to do some more fine-tuning before we go to the floor, but Del Latta will offer this as the President`s plan, and I believe there`s a strong base of support within the conservative Democratic ranks for this proposal.

LEHRER: Well, thank you. But there are other kinds of Democrats with other ideas. And one of them is Congressman Thomas Downey, Democrat of New York, a member of both the House Budget and Ways and Means Committees. Senator, now -- Congressman, you are supporting--

Rep. THOMAS DOWNEY: I`ll take the promotion.

LEHRER: Okay, fine. I`m not empowered to do that, but I am empowered to ask you why you`re supporting the Jones plan, which you are doing as of now, right?

Rep. DOWNEY: I suppose the simple answer is that it is a better plan than what the President has proposed to us, we feel. It is an updated plan; it is a plan that considers what is happening in the economy as of last week, and as of a few days ago. So it`s assumptions are far more realistic than President Reagan, or, I dare say. Representative Gramm`s alternative. And what we`ve tried to do is strike a balance. What the President wants to do is cut by a certain amount. Well, the Democrats give him basically 75 percent of those cuts. Out of $190 billion that the President wants to spend for defense, Democrats in outlays give him almost exactly that number, so we`re not going to be weakening defense by any stretch of the imagination. What we`ve done is we`ve taken a look at inflation, and recognized that the government has something to do with it, and we need to increase productivity, and that means better plant and equipment. But it also means better people -- people who get trained for jobs, people who get a chance to go to college, people who are able to work their way out of welfare. So what the Democratic plan -- the Jones plan -- basically says is, "Mr. President, we`re going to give you almost everything that you want, but based on the latest statistics, we think inflation may be a little higher than you predict; we think interest rates are going to be a little higher. We have to take that into account in our plan. We`re going to modify your tax cuts so that rather than having a $50-billion or $60~billion -- if you use the Senator`s figure -- deficit for 1982, we`re going to have a $30- or $25-billion deficit. So it`s a different plan. It`s structured differently, and it`s structured in such a way to take into account not only the physical, capital needs of our country, but the human ones as well.

LEHRER: Sounds to me, Congressman, like your problem, though, is not with the President and Stockman. It`s with Phil Gramm and his folks, called Democrats.

Rep. DOWNEY: Well, I think that`s right. There are, as Phil mentioned, about 43 or 44 Democrats who went to the White House not too long ago and wanted $11.8 billion -- if I remember the figure correctly -- in additional cuts. So the House leadership -- moderate, liberal and conservative Democrats -- are going to have to coalesce behind what Chairman Jones has done. I would add parenthetically --

LEHRER: But you`re going to lose, aren`t you, if Gramm and his folks go off and support the President in this new plan, you`re going to lose?

Rep. DOWNEY: Well, I`m not quite so sure that Phil commands all 43 of those Democrats. I think that there are lots of Democrats who are concerned, for instance, in the South about food stamp cuts. I think there are lots of Democrats who are prepared to accept a little lower defense number. After all, I don`t think there`s enough titanium sponge in this country to build all the airplanes that the President would like to see built. I don`t think there`s enough skilled manpower to do all that. A lot of our conservative friends we`ve been talking to recognize those realities.

LEHRER: Do you recognize those realities?

Rep. GRAMM: Well, I think I recognize the realities that we face, an immense challenge in the world. I think the American people support defense. If you use the same figures as a basis of comparison, the Jones budget cuts defense by $4.3 billion. If you use different figures, and take each plan on its own assumptions, as Tom did in making the comparison a minute ago, the Jones plan increases spending $25 billion above the revised Reagan plan. So you`ve got to take it one way or another. And either way it`s bad.

LEHRER: Would I be a bad reporter to surmise from what the two of you have said that there is not going to be any compromise between the moderate and liberal Democrats and the conservative Democrats? You all are going with the President? You all are going on your own?

Rep. GRAMM: I can`t speak for everybody. I think there is a significant number of people in my group that have decided that we`ve got to make a hard choice. And it`s tough to vote against your party and its leadership. But we think this is going to be the number one issue in the 97th Congress. And we think it`s a critical vote that the future of the country is going to hinge on. and I think many people that are Democrats -- and a Democrat represented my district before there was a Republican Party, and he was a conservative -- that we`ve come to a point where partisanship has got to be set aside to reflect the national interest.

Rep. DOWNEY: I don`t think there`s any question about that, and we feel that with the plan that we`ve worked up, that there`ll be probably a lot of Republicans who would be attracted to it. There are a lot of Republicans who are very concerned about the Gramm plan that speeds up, for instance, the removal of mass transit operating subsidies.

LEHRER: So you would view the Gramm plan as the Reagan plan, only worse, from your perspective, right? It`s more cuts. Is that true?

Rep. DOWNEY: Well, it is -- I don`t know that the Gramm plan and the Reagan plan are all that different. There are a few things that Phil does that are far more onerous to the Northeast and the Midwest, and that affects Republicans as well as conservative Democrats. And what I would add -- and I think it`s very important because we tend to be more rhetorical than anything else here -- ? is that we want a strong defense, and we want a bipartisan operation. And Chairman Jones, who is one of the most conservative Democrats in the House, has fashioned this plan. It`s not as though we have a bunch of wide-eyed, starry-eyed liberals putting together this package. There are very conservative, moderate Democrats doing it.

LEHRER: Back to you quickly. We just have a minute left. Senator Grassley. starting with you. you don`t see the Reagan plan off track at this point, right?

Sen. GRASSLEY: I absolutely do not. The President`s plan is the hope for the future. And it`s the only way J know to get America back to work, and it isn`t off base, and it`s going to be --

LEHRER: And it`s right on track? It`s going to survive?

Sen. GRASSLEY: Well, absolutely it`s going to survive. We Republicans that control the Senate are going to see that it survives.

LEHRER: Congressman Gramm, do you think --

Rep. GRAMM: I think the President is going to win on the spending cuts.

LEHRER: Senator Riegle?

Sen. RIEGLE: Well, I think what we need here is not a plan for either party or for the President. I think we need a plan for the country. And I think the Democrats in the Senate -- and I think in the House as well -- would like to work with the new administration. We agree on goals, and if we can start there, and work and debate this thing, and come up with a plan that`s good for the whole country, I think everyone will come out ahead.

LEHRER: We have to leave it there. Robin?

MacNEIL: Thank you. Senator Grassley, for joining us from Des Moines. Senator Riegle, in Washington, and Congressmen, thank you both. Good night, Jim.

LEHRER: Good night, Robin.

MacNEIL: That`s all for tonight. We will be back on Monday night. I`m Robert MacNeil. Good night.