BUDGET PLAN IN LINE WITH 'SUMMIT' DEAL

BUDGET PLAN IN LINE WITH 'SUMMIT' DEAL

President Reagan gave Congress a $1.09 trillion budget proposal that met the terms of a recent economic summit accord, but some wrangling with Congress is likely over domestic spending plans.

The budget for fiscal 1989, which begins in October, is the last blueprint the Reagan administration will negotiate with lawmakers. It is generally viewed as much less controversial than past Reagan budgets.That is mainly because its broadest outlines were already determined by the two-year budget accord worked out in the wake of the stock market collapse.

It limits military spending increases and social program cuts and restricts new taxes to the $14 billion for 1989 already passed late last year.

President Reagan said his proposal adheres to the accord, and initial reviews from Capitol Hill supported that contention. He urged Congress to keep its part of the bargain.

Congress plans to do just that, but it will also rework some of his budget figures, congressional sources said.

The White House budget proposed some big increases for a few popular domestic spending areas, at the expense of sharp cuts elsewhere.

Defense outlays would rise to $294 billion from $285.4 billion. Domestic spending would hit $169 billion after the $160 billion for 1988. International assistance is proposed at $16.1 billion, down from $16.5 billion in fiscal 1988.

Overall spending for the Department of Transportation would be held to $26.4 billion after $26.3 billion this year, with more spending for air safety but an end to Amtrak subsidies.

The budget estimates assume an inflation-adjusted economic growth rate of 2.4 percent this year, somewhat higher than predicted by most private analysts and the Congressional Budget Office.

Lawmakers can again be expected to complain the Reagan budget is too optimistic, but congressional sources say they will probably use administration assumptions.

One aide said since most of Congress is up for re-election this year, lawmakers will be anxious to avoid becoming bogged down in budget fights that would eat into campaign time.

The White House counts on avoiding a recession, partly as it expects the Federal Reserve to supply enough money and keep interest rates down.

According to the budget document, recession alarms after last fall's stock market crash now seem greatly exaggerated. Treasury Secretary James Baker, on Thursday, called Fed policy adequate.

The administration projects a deficit for fiscal 1989 of $129.5 billion in its budget plans, compared with a Gramm-Rudman-Hollings deficit-reduction-law target of $136 billion. However, the White House projects deficits in coming years to exceed those legal targets.

The budget estimates the current-year deficit at $146.7 billion, after $150.4 billion for 1987.

A Democratic aide to the Senate Budget Committee said while the budget proposal is much more in reality than past offerings, it also presents a Trojan horse situation.

The Reagan budget includes large spending increases in non-defense programs such as education, space and science (including the superconducting super collider project), and the Superfund for hazardous waste cleanup.

Those are initiatives Democrats tend to favor, but the big gains for a handful of programs would mean big cuts for many other domestic programs, and so Congress is expected to rearrange budget priorities.

House Budget Committee Chairman William Gray, D-Pa., said Congress had major differences with the White House on proposed domestic spending.

He said income from asset sales and privatization went well beyond last year's budget accord, and would be examined to make sure there was no fire sale.

As in the past, the administration proposes to offset some spending hikes by ending programs that continue to enjoy support.

This year's hit list includes the Commerce Department's Economic Development Administration; the Interstate Commerce Commission, which regulates surface transport; urban mass transit grants; urban development grants; and economic development efforts of the Tennessee Valley Authority.

The administration proposes pilot projects to privatize some government functions, including commercial cargo inspection and Coast Guard buoy maintenance.

Farm program costs would be cut, with an improving farm economy. Changes are envisioned in some crop programs and sharp cutbacks would be made in rural housing programs.

Direct loans by the Rural Electrification Administration to electric and telephone borrowers would be replaced by 70 percent- or 80 percent-guarantee s of private loans. Existing REA loans could be prepayed at discount.

Proposed sales of real government assets include the oil fields at Elk

Hills, Calif., and Teapot Dome, Wyo., and the Alaska Power Administration .

The president said he would ask lawmakers to exempt from taxes the interest on savings bonds redeemed to finance education after high school. The tax break would be limited to lower- and middle-income families.

PROPOSALS MADE IN 1989 BUDGET

Here are some key items in the Reagan administration's $1.1 trillion budget proposal for next year:

*SPENDING CHANGES

DEFENSE: Total spending authority of just under $300 billion. Cuts fall

mainly in personnel, with elimintion of about 34,000 jobs, of which 10,000 would be civilian.

SOCIAL SECURITY: Grows to $235 billion because of required cost-of-living hikes and new beneficiaries.

SPACE and SCIENCE: Up 20 percent over 1988 spending.

EDUCATION: Increased by 7.7 percent over 1988.

AIDS PROGRAMS: Total spending $2 billion, up 38 percent.

MASS TRANSIT: Decrease by $200 million from 1988 to eliminate 'unjustifiable ' costs

*REVENUE CHANGES

INCOME TAXES: Will make up 4.7 percent less of total revenue than in 1980

ASSET SALES: $8.6 billion.

USER FEES: Fund the Nuclear Regulatory Commission and emergency planning partly with fees on nuclear power plants.

*BUDGET DEFICIT

Estimated at $129.5 billion

(Source for PROPOSALS: Office of Management and Budget. Knight-Ridder Graphics Network)

SHORT-RANGE ECONOMIC FORECAST

(Calendar Years; Dollar Amounts in Billions)

Actual Forecast

Item 1986 1987 1988 1989

Major economic indicators:

Gross national product, percent change,

fourth quarter over fourth quarter:

Current dollars 4.5 7.2 6.4 7.3

Constant (1982) dollars 2.2 3.8 2.4 3.5

GNP deflator (percent change, fourth quarter over fourth quarter) 2.2 3.3 3.9 3.7

Consumer Price Index (percent change,

fourth quarter over fourth quarter)* 0.9 4.6 4.3 3.9

Unemployment rate (percent, fourth quarter) 6.7 5.8 5.8 5.5

Annual economic assumptions:

Gross national product:

Current dollars:

Amount 4,235 4,486 4,779 5,113

Percent change, year over year 5.6 5.9 6.5 7.0

Constant (1982) dollars:

Amount 3,713 3,820 3,932 4,054

Percent change, year over year 2.9 2.9 2.9 3.1

Incomes:

Personal income 3,534 3,746 3,978 4,245

Wages and salaries 2,089 2,213 2,344 2,502

Corporate profits before tax 232 275 310 353

Price level:

GNP deflator:

Level (1982=100), annual average 114.1 117.5 121.5 126.1

Percent change, year over year 2.6 3.0 3.5 3.8

Consumer Price Index:*

Level (1967=100), annual average 323.4 335.0 349.3 363.5

Percent change, year over year 1.6 3.6 4.3 4.1

Unemployment rates:

Total, annual average 6.9 6.1 5.8 5.6

Insured, annual average 2.8 2.4 2.2 2.1

Federal pay raises, January (percent):

Military -- 3.0 2.0 4.3

Civilian -- 3.0 2.0 2.0

Interest rate, 91-day Treasury bills (percent)** 6.0 5.8 5.3 5.2

Interest rate, 10-year Treasury notes (percent) 7.7 8.4 8.0 7.4

* CPI for urban wage earners and clerical workers. Two versions of the CPI are now published. The Index shown here is that currently used, as required by law, in calculating automatic cost-of-living increases for indexed federal programs.

Percent of total labor force, including armed forces residing in the United States.

Unemployment under state regular unemployment insurance as a percentage of covered employment under the program; does not include recipients of extended benefits under the program.

** Average rate on new issues within period, on a bank discount basis.

Source: The Budget of the U.S. Government for Fiscal 1989.