Senate Preparing for new U.S. Budget Battle

Congress returned from its Easter recess ready for the annual Spring budget battle that promises to be a partisan dispute.

The budget fight pitting Democrats against President Reagan and Republicans is expected to get underway this week in the Senate late this week and last at least another week. It is taking on new prominence because of current trade woes.

That is because the budget problems and its associated huge deficits are said to be at the root of related international trade friction currently worrying financiers.

As the dollar slides downward on global markets and stock exchanges gyrate wildly, the trade dispute involving the United States and Japan once again is spreading fears of a major trade war between the two trading giants for the first time since World War II.

Ostensibly that dispute is over U.S. charges that Japan is refusing to open its markets to semi-conductor chips and the resulting U.S. tariffs doubling prices of Japanese televisions and small computers.

Behind the elements of a brewing trade war which neither side wants, is the dilemma of the U.S. budget and its deficit.

Some analysts say the financial markets may be waking up to the economic realities that the huge debt cannot continue to grow without repercussions.

A large portion of the U.S. debt has been financed by foreigners from their accumulated trade surpluses. But if they withdraw this support the result can only be further problems, including higher interest rates for Americans.

In a nutshell, the U.S. budget process has now moved to the showdown stages in Congress. Reagan’s own trillion dollar spending budget for the government year 1988, starting Oct. 1, was trounced badly in the House on April 9.

The Senate takes up a plan similar to one that passed the House, calling for slashing the deficit from its estimated 171 billion dlr level next year to about 134 billion dlrs, through defense and domestic spending cuts and about 18.5 billion dlrs in new, unspecified, taxes. As the Senate prepares to take up its own budget plan, majority Democrats predict there will be passage of a bill, only after a protracted partisan battle.

In the House, not one Republican voted for the budget, which passed by 230 to 192. In the Senate, none of Reagan’s Republicans voted for the budget as it passed out of the Senate Budget Committee for full Senate consideration.

A key Senate Budget Committee source told Reuters he believes this very unusual unanimous opposition was by design among congressional Republicans, perhaps with the tacit approval of the White House.

“Republicans want Democrats to take the heat for any tax hikes and defense cuts,” he said.

In the coming weeks, the source said, Democrats will press for a bipartisan budget and seek a negotiated budget with Reagan – who already is opposed to the idea. But “it is not clear how the Republicans will act,” he added.

He said Republicans may propose their own plan for lower taxes and more defense spending, which they did not offer after Reagan’s budget was clobbered in an early vote in the House.

When Reagan entered the White House in 1981, he inherited what was labelled a huge deficit from Jimmy Carter that wound up to be nearly 79 billion dlrs that year.

Despite Reagan’s promise to balance the budget by 1983, critics note that his administration’s record of accumulated debt is estimated over one trillion dlrs, or 1,100 billion dlrs.

That is money the government must borrow, and pay back, and many analysts say it is what kept the dollar high and caused the worst U.S. trade deficit ever.

Last year the United States bought goods from the world worth 169.8 billion dlrs more than what it sold, including purchases of 58.6 billion dlrs in Japanese goods.

While Congress is trying to attack the trade deficit on one front through a get-tough trade bill promising retaliatory measures unless all markets are opened, its success so far against the budget deficit has been marked by limited progress.

Congress, which controls the pursestrings, has put the deficit on a downward path from its record high of 220.7 billion dlrs accumulated in fiscal 1986, which ended Sept. 30.

Because of the Gramm-Rudman-Hollings balanced budget law enacted in late 1985, there has been pressure on Congress to do more than talk about deficits.

That law, named after Republican Senators Phil Gramm of Texas, Warren Rudman of New Hampshire and Democrat Ernest Hollings of South Carolina, calls for a balanced budget by 1991 through a series of set deficit targets that Congress must meet.

The law has been followed, even though an enforcement mechanism to mandate automatic across-the-board cuts if Congress misses its goal was stricken by the Supreme Court.

The legislators have followed the targets – on paper. But in reality, the goal has actually been missed. For example, Congress last year approved legislation to meet the 1987 target of a 144 billion dlr deficit. But even after approving the numbers, the deficit for 1987 is estimated at over 170 billion dlrs – far off the target.

This year the target is 108 billion dlrs and that goal is expected to be missed widely.