House and Senate set to lock horns over '86 budget deficit trims

After clearing major hurdles in Congress, the campaign to cut federal deficits now faces its toughest test yet. The House and Senate must now find a compromise between their two widely differing versions of the nation's budget. When asked how the two sides can reconcile the two proposals that are as different as apples and oranges, House majority leader Jim Wright (D) of Texas joked yesterday: ``Then we'll make fruit salad.''

He spoke just before the House passed its version of the 1986 budget bill Thursday.

Both House and Senate versions of the budget aim to reduce red ink by $56 billion next year, but that is almost where the common ground ends. The Senate would freeze social security checks and give more money to defense, while the House version leaves entitlements untouched and squeezes the Pentagon more.

Leaders in both houses have dug in their heels on those two crucial areas.

House Speaker Thomas P. O'Neill Jr. (D) of Massachusetts told reporters repeatedly this week that he is ``bitterly opposed'' to the one-year freeze on social security cost-of-living adjustments, or COLAs. He charged that senators would regret their vote on the social security issue.

``That fellow from California will wish he had stayed in the hospital,'' Mr. O'Neill said yesterday, referring to Sen. Pete Wilson, a Republican who earlier this month left his hospital bed to vote for the GOP budget in the Senate.

Democratic Party leaders are distributing copies of a Harris poll that found 80 percent of Americans oppose altering social security payments.

The Senate GOP leadership held out hope that the House might go along on the COLA freeze for all federal pensions, which would yield about $7.5 billion in savings next year. Senate majority leader Robert Dole (R) of Kansas said this week that he would even accept a minimum corporate tax in exchange for a COLA freeze. House leaders, however, have not accepted the offer.

If the House is adamant on COLAs, the Senate leaders have been adamant on their defense spending totals.

House Democrats have ``mutilated'' defense, Senator Dole charged after he reviewed the House Democratic plan.

The Senate proposal provides just enough in defense budget authority to compensate for inflation. This would be the lowest increase for the Pentagon since President Reagan launched his military rebuilding program four years ago, and Senate Republicans have said they will go no lower.

The House budget would impose a freeze on budget authority for defense next year.

Although the difference between the House and Senate in defense spending is only $6 billion in an overall federal budget of nearly $1 trillion, the issue will almost certainly be hotly contested when the House-Senate conference committee meets.

The conference is expected to begin during the first week of June, when Congress returns from a week-long break.

The two houses may find some agreement in domestic spending programs. A House budget aide said members had already built in some padding in that area, realizing that the Senate would seek more cuts.

Among the biggest sticking points is the Senate's intention to abolish about a dozen federal programs. While the House calls for freezing or cutting most programs, it eliminates none.

The Senate would cut $3.3 billion from farm programs next year, while the House would cut $2 billion.

The Senate version includes tougher language requiring congressional committees to conform to the budget caps.

Despite the daunting differences, lawmakers expressed optimism that Congress will reach a compromise on the budget.

``I think both the House and Senate are serious about having a budget this year,'' said Rep. Martin Frost (D) of Texas, a member of the House Budget Committee. ``It's not going to be easy.''

Rep. Jack Kemp (R) of New York, also on the Budget Committee, told reporters yesterday that he saw ``vexing'' problems in working out a budget agreement. He predicted, however, that the two houses would reach an agreement, and that final passage ``probably would have a favorable'' impact on the economy.

Already, stock analysts have credited progress on deficit reduction for helping boost the stock market averages this week.