Democrats’ Proposals Call for Defense Cuts, Tax Hikes : Senators Challenge Reagan Budget

WASHINGTON — Senate Democrats issued direct challenges to President Reagan’s fiscal 1988 budget Thursday, proposing spending plans that would cut into defense outlays and raise taxes, two topics considered politically untouchable by the White House.

“No plan will pass Congress or satisfy the country unless it has real spending cuts,” said Sen. Lawton Chiles (D-Fla.), chairman of the Senate Budget Committee, firing the opening salvo in what promises to be a tough partisan struggle with the White House.

Chiles proposed a budget featuring $18.5 billion in cuts, including a $6-billion defense reduction below current levels and significant cuts in spending for agriculture, foreign aid and Medicare. Revenues would be increased by $18.5 billion, including at least $5 billion in higher taxes.

White House Encouraged

“There’s a generally encouraging aspect to” the Chiles plan, White House spokesman Marlin Fitzwater told reporters on Air Force One as President Reagan returned from an appearance in Columbia, Mo. But he added: “The Chiles proposal was just his. The Democrats still haven’t produced their own budget yet.”

Another Administration official, James C. Miller III, director of the Office of Management and Budget, was not as receptive. He declared that the proposal consists of “more tax and spend and whack at the defense.” And he repeated the President’s promise to reject any tax increases.

Another Democratic budget plan was offered by Sen. Ernest F. Hollings of South Carolina, who called for cuts in defense and domestic programs, combined with an oil import fee to raise revenues. Hollings also proposed a separate 10% national sales tax, which would cover all goods except food and housing, to be used in part to help repay the $2-trillion national debt.

In the House, Budget Committee Democrats were having difficulty completing their plan, but panel Chairman William H. Gray III (D-Pa.) said that it would be “fairly close” to the package offered by Chiles.

The House Democrats will rely on tax increases in efforts to raise about $18 billion in revenues for fiscal 1988, which begins Oct. 1. President Reagan’s proposed budget, on the other hand, anticipates substantial revenues from the sale of government assets.

Sees ‘Realistic Budget’

Speaker Jim Wright (D-Tex.) predicted that the House plan would be “a realistic, honest budget” in which “the cuts are real cuts and the revenues will be real revenues.”

Although the Democrats control both the House and Senate, they will find it difficult to approve budgets without some Republican votes as legislators struggle to make additional spending reductions after years of relative fiscal austerity.

“We have the responsibility to get down and start making tough choices,” said Chiles, although he was quick to acknowledge that he is not sure whether a majority of the committee Democrats will back his plan. His proposal would cut $6.9 billion from the defense budget and $13.8 billion from domestic spending.

However, he proposed selective increases of $3.4 billion in outlays for job training and scientific research. These programs “will give back more than they take” by increasing the “competence and efficiency of our work force,” Chiles said.

His proposal, which would cut defense outlays $14 billion below the level proposed by the Reagan budget, immediately ran into trouble from both sides of the political aisle in his committee.

Later Challenge Seen

Sen. J. James Exon (D-Neb.), who is also a member of the Armed Services Committee, said that he would reserve the right to fight for higher defense outlays when the budget reaches the Senate floor.

Sen. Charles E. Grassley (R-Iowa) wants deeper cuts in defense, and Sen. Kent Conrad (D-N.D.) said that the $2-billion cut in farm programs proposed by Chiles could not be achieved in the next fiscal year.

“We can hardly point the finger at the Administration,” Sen. Paul Simon (D-Ill.) told Chiles, saying that Congress must share the budget responsibility. “I hope we can do better. I think we can do appreciably better.”

Voting will begin next week in the Senate and House budget committees as members decide on the details of individual budget resolutions, which provide general instructions for spending.

But the specific amounts allocated to each government program will be decided later by appropriations committees in the House and Senate. These panels can change the specific levels of defense and domestic outlays as long as they stay within the general guidelines provided by the budget resolution.

Sen. Pete V. Domenici (R-N.M.) said that the appropriations committees too often have raised domestic spending and cut defense in defiance of agreements reached by the Budget Committee. Domenici wants to see Congress adopt two-year, strictly written budgets.

Keeps to Target

The Chiles budget and the Reagan spending plan each would have a deficit of $108 billion for fiscal 1988, in compliance with the Gramm-Rudman deficit-reduction law.

However, the Congressional Budget Office has made less optimistic economic forecasts than the Administration, predicting that the federal deficit will exceed $130 billion for fiscal 1988.

“Let’s talk sense: We’re spending too much of our children’s and grandchildren’s money,” Hollings told the Budget Committee.

His ambitious plan calls for a 10% national sales tax, known as a value added tax, that would raise $133.5 billion over four years. The money would be used to replace the current Medicare payroll tax, to finance all hospital costs in excess of $1,000 a year for each Medicare beneficiary and to reduce the national debt.