Administration budget officials, in a new and gloomier assessment of where the economy is headed, said yesterday that the rapidly worsening recession will be severe enough to send the 1982 federal budget deficit soaring to nearly $100 billion if there are no more spending cuts.
Forecasters at the Office of Management and Budget now expect economic activity to fall off at an annual rate of 4 percent or more this quarter, followed by further declines early next year before a recovery begins sometime in the spring.
The unemployment rate for October, due to be reported this morning, could approach 8 percent, some private economists predict.
This grim news sharpened the already open conflict between Treasury Secretary Donald T. Regan and OMB Director David A. Stockman over whether President Reagan should seek large new tax increases to hold down the budget deficit in 1983 and 1984, as Stockman recommends.
However, the economic outlook for the short term has worsened to the point that Reagan's advisers all now agree there be no tax increase in 1982.
The high level of interest rates, the primary cause of the recession, are beginning to fall along with the economy. Chemical Bank of New York, the nation's sixth largest, cut is prime lending rate yesterday to 17 percent from 17 1/2 percent.
Reagan met again yesterday with his economic advisers on the question whether he should expand his most recent proposals for additional budget cuts and some small tax increases for 1982 and beyond. Administration sources said the most likely outcome was a compromise, but that its details might not become clear until a new economic forecast and the 1983 budget are sent to Congress in January.
Meanwhile, Reagan summoned House and Senate Republican leaders to the White House at 10:30 a.m. today to discuss the escalating budget dilemma. Both the House and Senate Budget committees stopped work on the second 1982 budget resolution for lack of guidance from the administration.
"It's obvious the committee is not ready to go forward," Rep. James R. Jones (D-Okla.), chairman of the House Budget Committee, said. Pressed by Democratic members to spell out GOP budget policy, Rep. Delbert L. Latta (R-Ohio), the ranking committee Republican, responded, "Until the administration passes the word to me, I'm not in a position to take a position."
The administration and congressional leaders are each hoping the other will take the lead, and the political heat, in making a set of new proposals to close the yawning budget gap.
Several administration sources said the president was not ready to choose what tax and spending proposals he would make in January.
In the meantime, it was not clear, even to most of his advisers, how he would deal with Congress' immediate need for guidance in shaping its revised budget resolution setting spending ceilings and revenues floors for this fiscal year.
If there are no more spending cuts and Congress passes only the small tax increases Reagan proposed in September, OMB projects a 1983 deficit of $125 billion and a 1984 deficit of $145 billion.
Treasury officials, however, accuse OMB of inflating the deficit estimates to win the president's support for major tax increases.
"As long as you are going that route, why not double the numbers," exclaimed a high Treasury official. "If you are going to scare people, why not really scare people."
The president had committed himself to a balanced budget in 1984, a goal clearly out of reach. Several outside advisers this week urged the president to acknowledge that fact rather than increasing taxes sharply or making large cuts in defense spending in pursuit of a balanced budget.
Murray L. Weidenbaum, chairman of the Council of Economic Advisers, was working to try to reconcile the differences between Regan and Stockman and their aides, administration sources said. As of yesterday, he had not had much luck.
"We think these large deficits are a menace to the president's own goals and we think they're Treasury Department missing something on this," one OMB official argued. "There is a genuine fear that deficits of more than $100 billion a year will wreck the president's goals."
Treasury officials fear raising taxes will take the heat off Congress to cut spending and not reduce the size of the federal government relative to the economy.
By seeking to balance the budget with tax increases, OMB is "saying the Carter budget strategy was the right one; let's go back to it," the official gibed.
Weidenbaum was described by one OMB official as a "peacemaker" in the policy debate, a debate so intense that on occasion it has been marked by shouting matches.
Yesterday the CEA chairman said reports of a "victory" by Treasury's Regan were "premature. The package of policies to be unveiled in January has not yet been decided."
Nor is there agreement among Treasury, CEA and OMB on the economic outlook, though all expect at least a "standard recession," as a Treasury official put it.
The key question, however, is how rapid and how long-lived the recovery will be.
Treasury still believes the large personal and business income taxcuts passed this year will lead to large increases in economic activity in 1983 and beyond.
OMB economists expect the recovery beginning next year to be somewhat muted by a resurgence of high interest rates if the Federal Reserve continues to reduce growth of the money supply to fight inflation.
One administration official predicted that in January the president would offer a "blend" of the Treasury and OMB recommendations.
"Are you are going to get large budget cuts as part of the package?" he asked rhetorically. "Is some revenue package in the cards for 1983 and 1984? And significant budget deficits?" He answered, "Yes," in every case.