On Verge of Accord, Deficit Talks Adjourn in ‘Frustration’ : Budget Negotiations Hung Up Over Last Few Billions

Only a day after declaring themselves on the verge of a major deficit-reduction agreement, White House and congressional negotiators hit a series of snags Thursday as they haggled over a final few billion dollars.

“Yesterday, it looked like we were going to take the pen out and sign” an agreement, said Rep. Silvio O. Conte of Massachusetts, one of the Republican negotiators. “. . . Everything’s gone up in smoke again.”

The talks adjourned until today amid what one Democratic negotiator termed “frustration and fear of failure.” No one predicted an agreement before next week at the earliest.

Painful Spending Cuts

Unless they can come up with at least $23 billion in deficit reductions by next Friday, the Gramm-Rudman law could take the decision-making out of their hands by imposing painful spending cuts in most federal spending programs except Social Security and a few other benefits programs.

That could cause another major upheaval on Wall Street, where nervous investors are looking for a sign that Washington has regained control of a budget deficit that is projected, in the absence of the across-the-board cuts or some other budget-cutting package, to hit almost $180 billion this year.

Negotiators said they are only about $1 billion apart in the critical areas of tax increases, defense spending cuts and reductions in domestic programs. Small as these amounts may be in a trillion-dollar federal budget, each side says it has already stretched to the breaking point in trying to accommodate the other.

Thursday’s session began in what House Majority Leader Thomas S. Foley (D-Wash.) described as “a sense of euphoria that we were going to write the final postscript to the agreement.”

But Wednesday’s tentative accords aimed at producing $30 billion in deficit reduction were quickly torn apart by political crosscurrents that proved how fragile those early deals had been.

Expressed Dissatisfaction

Sources said President Reagan had expressed dissatisfaction Wednesday night with a plan to hold defense outlays to $285 billion, which is more than $4 billion lower than they would be under current policies. Reagan reportedly demanded that his negotiating team extract another $500 million to $1 billion from the other side.

But Democrats, noting that they had already agreed to spend about $8 billion more than was already approved by the Democratic-controlled House, feared major defections in their ranks if they went any higher. They reminded Republicans that the House’s most recent deficit-reduction legislation passed by only one vote.

One participant said that when Treasury Secretary James A. Baker III and Budget Director James C. Miller III “told us of the White House objections, the meeting almost collapsed, with critical (committee) chairmen saying, ‘I’m out of here.’ ”

At the same time, a Republican analysis showed that where the Democrats had claimed to offer $5-billion worth of reductions in entitlement programs, their specific proposals would actually save only $3.8 billion. That jeopardized a basic agreement by the two sides that spending cuts would equal revenue increases, and Republicans quickly cut their tax-increase offer by about $1 billion, to $9 billion.

By the end of the day, sources said, negotiators were discussing what some have dubbed “the unmentionables”--reducing politically sensitive cost-of-living increases in government salaries and federal retirement programs, including Social Security. Specifically, they began talking about saving $2 billion by delaying next year’s scheduled increases by three months.

Each Side Blames the Other

Each side angrily blamed the other for the apparent disintegration of the talks. “There must be some disagreement down at the other end of Pennsylvania Avenue,” House Budget Committee Chairman William H. Gray III (D-Pa.) said, referring to the White House.

Republicans insisted, however, that Democrats were asking them to accept too much in taxes without offering enough in spending cuts. “The mix is not right now. It’s just not right,” House Minority Leader Robert H. Michel (R-Ill.) insisted.

The negotiators have also argued over how specific the agreement should be. It must be specific enough to be enforceable but not so specific that the House and Senate committees that must write the actual spending and tax legislation have no flexibility to make decisions of their own.

If the negotiators reach agreement by next Friday’s Gramm-Rudman deadline but the necessary spending and tax legislation is not yet in place, both Democrats and Republicans believe they can win congressional approval to postpone the deadline.

Federal agencies are already getting a taste of what it would be like to live under Gramm-Rudman’s reductions of more than 8% in domestic programs and 10% in the Defense Department’s budget, excluding personnel.

Under an Office of Management and Budget directive that took effect Tuesday, those agencies have been allocated only the amount of money they would get after the law’s automatic cuts took effect. That directive will be withdrawn if the negotiators find another way to cut at least $23 billion from the deficit.