President Reagan is "facing reality" and appears more willing than before to propose tax increases to help reduce the 1983 budget deficit, House Republican leader Robert H. Michel of Illinois said yesterday after meeting with the president.
Michel said the president made clear he would rather stand firm against any tax increase, but "I think he's just facing reality."
Reagan is nearing a final decision on his 1983 budget with all his top advisers urging some tax increases in order to hold down a deficit that experts say could otherwise be in the neighborhood of $100 billion. The president has not made his final decisions, Michel said.
Michel said a deficit as large as even $90 billion would be difficult for Congress to swallow. "Any deficit over $75 billion or $80 billion presents a problem to the Congress," he said. But the House GOP leader said he was not happy with the consumer tax increases on alcohol, tobacco and gasoline the administration reportedly has under study. "The average working man has to pay these every day," Michel told reporters, saying that any such taxes should be accompanied by new taxes on "luxury" items.
An aide to Michel said that the Republican leader used the number $90 billion "as a worst-case scenario" because he had been assured by Office of Management and Budget Director David A. Stockman that the deficit would not reach three figures.
At Michel's most recent meeting with Stockman and presidential advisers last Thursday, the administration officials provided no numbers. "Stockman just backed off when he was asked for numbers," the aide said. "They were open for suggestions. They seemed to be all ears," he added.
Reagan and his advisers followed the same pattern yesterday, offering no numbers and mostly listening as the Republican leaders debated tax increases and suggestions to cut defense spending.
"Some of us felt the defense budget should be cut," Rep. Silvio O. Conte (R-Mass.) said. Reagan disagreed, Conte added; he is reportedly preparing to propose a 15 percent defense spending increase. Conte told reporters that the members of Congress were not agreed among themselves on what course to follow.
Rep. Barber B. Conable Jr. (R-N.Y.), the ranking member of the House Ways and Means Committee, agreed, saying: "All the things you do or don't do are unpleasant, so everyone told him Reagan not to do different things." Michel balked at taxes on beer and tobacco that would hurt the working man in Peoria, Rep. Delbert L. Latta (R-Ohio) opposed deregulation of natural gas while Rep. Jack Kemp (R-N.Y.) opposed all tax increases, Conable added.
"You feel as if you're ploughing in the sea," he said of all the different positions and Reagan "nodding and smiling" at them all. However, the members of Congress agreed that the president "shouldn't try to raise taxes unless he does it enough to make a difference," Conable said. The president and the GOP leaders are agreed that the basic personal and business tax cuts passed last summer should not be altered.
Kemp predicted Reagan will reject his advisers' recommendations that he increase taxes. "There will be 11 ayes and one no and Reagan will announce the nos have it," Kemp said.
Kemp said the way to help the economy is by "changing either the policy of the Federal Reserve or changing the chairman of the Federal Reserve." If the policy cannot be changed, then Chairman Paul A. Volcker should be replaced, Kemp said.
White House deputy press secretary Larry Speakes said later that he had never heard the president express such an opinion about the Fed.
Reagan apparently has already decided to ask Congress to approve nondefense spending cuts that will total more than $30 billion, plus tax increases similar to those he proposed last September that would be worth about $12 billion in fiscal 1983, administration sources said.
These proposals would reduce the deficit, on paper, to just under $100 billion. Treasury Secretary Donald T. Regan has said the deficit will be "much lower," however, and the only practical way to make it so would be by imposing tax increases. But some administration economists caution that large tax increases could further reduce the pace of economic recovery and thereby eat into revenues as well as enhance them.
The current version of the administration's economic forecast shows the recession hitting bottom this quarter with the beginning of a moderately strong recovery in the final half of this year. Gross national product adjusted for inflation would be rising at an annual rate of 5 1/2 percent to 6 percent.
But earlier versions of the forecast showing real output rising at more than 5 percent annually in both 1983 and 1984 have been toned down considerably, administration sources said. Growth, instead, is now pegged at between 4 percent and 4 1/2 percent for the latter part of the forecast period.
At the same time, inflation, as measured by the GNP deflator, will not decline as much as assumed earlier. A version of the forecast being used about a month ago showed the deflator rising only 5.5 percent in 1983 and 4.4 percent in 1984. Those rates have been raised by a percentage point or more, though they still rate as optimistic when compared to the inflation predictions of most private economists.
These changes in the forecast alone lowered the estimate of the federal budget deficit for 1983 from $152 billion to about $140 billion or so before counting additional nondefense spending cuts and any tax hikes that might be proposed.
Reagan also was visited yesterday by two governors--Bill Clements of Texas and David Treen of Louisiana--who favor accelerated decontrol of natural gas. The president shares their position, but there was no indication he gave the governors any specific encouragement.