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Congress heads for collision with Reagan over tax boost. Democrats want higher taxes to avoid Gramm-Rudman cuts

For the past 10 months, the Democrat-controlled Congress and the White House have been on a collision course over the federal budget. The collision, it seems, is coming. President Reagan has proposed $6 billion in new taxes and has threatened to veto any bill hiking revenues further. But last week, Congress' two tax-writing committees crafted bills raising roughly $12 billion in new taxes.

The increased revenues would underwrite about half of this year's $23 billion federal-deficit reduction mandated by the newly-revised Gramm-Rudman balanced budget law. Without the taxes, argues Senate Finance Committee chairman Lloyd Bentsen, (D) of Texas, there can be no deficit-reducing package that meets Gramm-Rudman's specifications. Without the deficit-reducing package, Gramm-Rudman will impose automatic spending cuts to bring the deficit into line, a prospect Senator Bentsen terms ``disastrous.''

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These taxes - crafted by Democrats with little Republican support - are designed to be as politically palatable as they can be, hitting hardest corporations and the well-to-do. The Senate's tax bill would raise $11.6 billion, in part by raising Medicare taxes for comparatively well-off wage earners. The House Ways and Means Committee bill would raise $12.3 billion, relying in part on new limits on home-loan interest deductibility.

No matter, the President responded in a statement. ``Simple prudence - a simple sense of responsibility - would make it possible to meet the deficit targets with no new taxes,'' Mr. Reagan said. ``If reason should fail, if Congress should actually pass a tax hike, my anwser will be simply this: veto.''

With prospects of compromise fading, lawmakers are bracing themselves for $23 billion of automatic, across-the-board budget cuts on Nov. 20. Last week, the non-partisan Congressional Budget Office (CBO) officially launched a five-week countdown toward the cuts with a report detailing how a plethora of federal programs from AIDS research to air traffic control would be arbitrarily sheared if Congress and the Reagan administration fail to find another way to reduce the deficit.

As early as this week, Gramm-Rudman's pinch will be felt when the White House's Office of Management and Budget (OMB) releases its version of the CBO study. In anticipation of the automatic cuts, spending at federal agencies will be frozen tomorrow at levels set by OMB.

A variety of exemptions insure that only a fifth of the budget is actually vulnerable to the cuts. Otherwise, reductions will be apportioned equally among defense and domestic programs, with defense programs sustaining a 10.4 percent reduction and domestic programs an 8.7 percent decrease compared to what they would have received otherwise. Even so, because of the way the cuts are figured, spending this year will generally increase over last year's levels.

The $23 billion cut is fairly dwarfed by the $35.2 billion in spending reductions the administration pushed past Congress in its first year. Nevertheless, many lawmakers dread the havoc that automatic cuts will play with some programs. The cuts, if they happen, will represent the failure of the Democrats' strategy to force Reagan to accede to a tax increase.

Democratic leaders calculated that the President would ``cave in'' on taxes before presiding over a reduction in the defense budget. But they permitted Gramm-Rudman to calculate its cuts in such a way that the defense budget would be trimmed less than it might have been - thus making it easier for Reagan to stand firm on taxes and swallow defense cuts.

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