Budget talks haven't broken down, just moved to new place

All was not lost in the search for compromise on the 1983 budget, despite the failure of President Reagan and House Speaker Tip O'Neill to initial a pact at their summit meeting last week.

In the broader Washington context, the negotiations move this week to a different setting. They have not broken off.

At 10 a.m. Wednesday, May 5, Treasury Secretary Donald Regan testifies before the House Ways and Means Committee on the tax aspects of reducing the 1983 deficit. At the same hour, White House budget director David Stockman appears before the House Budget Committee. The Senate, too, begins work on a revised budget - with the President and Speaker's emissaries active behind the scenes in private caucus rooms to help shape the outcome.

To experienced Washington hands, such negotiations can and do take place all over this town. A ''breakdown'' can simply mean a shift of focus to another venue.

On the minus side, the breakup of talks between Reagan and O'Neill likely means the total 1983 deficit has probably slipped upward, from a $100 billion deficit target to something closer to $130 billion to $150 billion, say many analysts. This is disappointing but not catastrophic, many budget experts say. What concerns them most is the direction of deficit growth in coming years. And so far the two political camps have shown enough give to make some sort of a post-election pact at least thinkable.

''The most constructive thing is that in terms of substance and philosophy, they are very, very close together on a lot of issues,'' says Rudolf Penner, federal budget and tax policy analyst with the American Enterprise Institute.

''The irony is that the President's rhetoric may be partisan, in blaming the Democrats for the breakdown,'' says a Senate-House tax committee official. ''But he's doing what the Democrats wanted - throwing away his old budget and coming up with a new one. There will be a new 'Reagan' budget, just as the Hance-Conable budget (conservative Democrat-Republican budget tailored by the White House) became the President's budget last year.

''The focus always shifts to the hill when something must be enacted. I don't see not reaching an agreement at the so-called summit as that crucial.''

''It was not a catastrophy,'' agrees a Congressional Budget Office official. ''My (deficit reduction) number has always been in the range of $40 billion to $ 50 billion. We will get the '83 deficit down from $182 billion by that much, leaving a $130 billion to $140 billion deficit. The big question is what they will do for '84 and '85.

''There the issue is defense. The defense department will yield $5 billion, say, on readiness. But that won't give much in '84 and '85. They'll need major weapons program changes.''

The Senate will try to fashion a preliminary budget proposal by the end of this week and report a bill to the Senate floor by May 15.

''It's tough, but they can do it in two weeks,'' says a Senate aide. ''(Kansas Republican Senator Robert) Dole is likely to get $15 billion in revenue changes. They can get another $15 billion from discretionary spending and defense. Everybody agrees you can freeze non-defense spending at '82 levels - that gives you $5 billion. Another $4 billion from a pay freeze, $9 billion from defense, and that means a minimum of $30 billion off the deficit.''

''We already have a more realistic assessment of where we are,'' the aide says. ''Reagan's sitting down now with Senate Republicans, having his input. What happens next is, with a number of test votes, we will be able to see what will pass.''

''This process of negotiation, breaking down or not, has forced Ronald Reagan to come back with a second budget - whether formal or not,'' observes Norman Ornstein, Catholic University congressional affairs analyst. ''Now they'll work from that.''

''All the budget process is is a working out of consensus,'' Mr. Ornstein says. ''The White House-Hill negotiations were not likely, from the start, to result in a compromise. No compromise could come out without getting to the across-the-board tax cut. Given Reagan's base position, there wasn't much of a chance on that.

''At the same time, there's a consensus in Congress that you can't go back to the (spending cut) well continually without getting to Social Security. The Democrats don't want to give the issue up, where they have the advantage, and the Republicans didn't want to reinforce their own problems with Social Security.''

''The process has moved back to where it should have been in the first place, '' says Rep. Donald Pease (D-Ohio), member of the House Ways and Means committee and the Democratic whip organization.

Achieving even a more modest deficit reduction than the $70 billion or $80 billion earlier talked about may prove difficult.

''It's hard for me to think the financial markets would do a hoop-de-do if our deficit is down to $130 billion,'' Pease says. ''But maybe that's the best we can do in an election year.

''I think it's going to be extremely difficult in the House to put together a new budget at that deficit level. The 'boll weevils' (conservative Democrats) will not want to vote for a deficit of $130 billion. If you get below $130 billion you get into areas that lose more votes than you gain. Cutting entitlements loses northern liberals. Cutting defense loses votes in the South and Southwest. I can't see Republicans voting for deferral of third year tax cuts.''

Mr. Penner, a former Republican administration budget official, sees a less than 50 percent chance that a full budget compromise will emerge. Part of the problem is technical. Long lead times are needed to write regulations and meet deadlines.

''Prospects for cutting '83 spending are diminishing hour by hour,'' Penner says. ''It's really '84 and '85 that are worrying people. I am not persuaded a recovery cannot start with the interest rates we have. The economy can muddle through.''

Without changes, official projections peg deficits at $182 billion in fiscal 1983, $216 billion in 1984, and $233 billion in 1985. ''I would like to cut at least $100 billion by '85,'' Penner says. ''At the least, Congress will,m even without a new budget, cut defense and raise revenue as summer goes by, reducing the '83 deficit to $170 billion,'' he estimates.