High Hopes Fill 1993 Budget Arena

IT'S budget season in Washington again.

The nation's policymakers are bargaining over the amount and the targets of federal spending cuts. And Capitol Hill is flooded with advocates and lobbyists trying to influence lawmakers' decisions on fiscal matters ranging from agricultural subsidies to naval bases.

What distinguishes 1992 from years past is that there appears to be broad bipartisan support for sharply reversing the upward trend in the budget deficit. The national debt stands well over $4 trillion.

Government reliance on borrowed funds, many economists say, has sapped strength from the United States economy by keeping interest rates high, discouraging new investment, and constricting growth in production and incomes.

Apparently aware of the political costs of conducting business as usual, lawmakers are anxious to shed the "reckless spender" stigma and to instead become associated with enacting responsible fiscal policy.

Senate Majority Leader George Mitchell (D) of Maine has labeled those who are fighting President Clinton's plans for tax increases, spending cuts, and tax incentives "the guardians of gridlock." Extended budget fight

Prioritizing federal spending is always a political struggle, but the current emphasis on health-care reform and slashing programs to realize substantial savings will produce a tough battle in the coming months.

Leon Panetta, director of the Office of Management and Budget (OMB), says that the vote on the reconciliation bill will prove whether or not Congress is serious about budget deficit reduction.

Facing charges that his plan imposes too many taxes and does too little to trim the fat, Mr. Clinton has been forced to consider a host of new ways to slash government spending.

The Congressional Budget Office says the White House plan falls $18 billion short of its claim that it will cut the deficit by $140 billion by 1997. The Joint Congressional Committee on Taxation says Clinton's proposed taxes on the nation's top income earners will fall $6.6 billion short of his estimated revenues.

In his own party, Clinton has heard from House Budget Committee Chairman Martin Sabo (D) of Minnesota, who pledges to come up with $3 billion in additional spending cuts over the next year. Some House Democrats are pushing for a plan to devote all of the spending reductions and tax revenues to chipping away at the federal deficit.

The 1990 budget deal struck between legislators and President Bush imposed strict spending limits on Congress. Additional budget cuts are needed before additional spending is approved, says Rep. Charles Schumer (D) of New York, a leading sponsor of the legislation.

Republican legislators have called for measures ranging from terminating subsidies for Amtrak and farmers to ending government programs for the space station and the Superconducting Super Collider. They have also recommended action on entitlements, ranging from capping cost-of-living increases for Social Security payments to more drastic reductions in welfare assistance. GOP politicians warn against cutting defense spending so deeply that the nation's security interests are compromised.

In an interview last week, California Gov. Pete Wilson, a Republican who presides over the country's largest and most economically troubled state, registered his concerns that instead of "cutting the fat, Clinton threatens to cut to the bone" with a proposed third round of defense cuts. Base closures and severed federal defense contracts in California will cost the state $6 billion in revenue and tens of thousands of jobs, he says. Budget approval plan

At a Monitor breakfast last week, Mr. Panetta sketched out an optimistic time line for budget negotiations. The House, he said, will pass Clinton's $30 billion-plus stimulus package this week, and the Senate next week. Both houses, he said, will likely pass the budget resolution - overall numbers and parameters for the budget - by Easter.

The House will cast its reconciliation vote by May, Panetta predicts, and the Senate vote will soon follow. The president could sign the bill by the August Congressional recess, if not by July 4.

Panetta says that the White House proposals have already signaled a strong commitment to deficit reduction. A 1 percentage point reduction in interest rates, he says, will provide $80 billion to $90 billion in stimulus to the economy through loan refinancings and other commercial transactions, he says. Support at the Fed Even Federal Reserve Board Chairman Alan Greenspan, who has for years admonished the White House and Congress for failing to control runaway government spending, testified before the House Budget Committee on Feb. 24 that "the President's budget proposals have prompted anticipation in the markets that there will be genuine progress in the reduction of federal deficits." Mr. Greenspan credits "this anticipation" with being "the most important factor behind the very significant recent decli nes in intermediate and long-term interest rates."

If fiscal policymakers successfully do rein in spending, Greenspan says he is ready to honor his stated intention to push interest rates down further and lessen the cost of capital if the economy falters. Lower interest rates are already reducing the cost of financing government debt.