President Reagan's decision not to propose excise tax increases this year, as his advisers had urged, means the likely 1983 budget deficit will be more than $90 billion, administration sources said yesterday.
That would be the second largest deficit in U.S. history, surpassed only by the one for this year, which Reagan in the State of the Union address last night said simply will be "less than $100 billion."
The deficit for 1983 will be that large even though Reagan renewed his call, first made last fall, for closing a number of "loopholes" in the tax code. Together with a new proposal to impose a minimum tax on corporations, closing the loopholes would raise $24 billion in 1983 and 1984 combined. Details on Page D7
Reagan gave only a few details about the more than $30 billion worth of spending cuts he is expected to propose in the budget he will send to Congress Feb. 8. But he indicated, as aides have before, that he will offer cuts in entitlement programs such as food stamps, Medicaid and Medicare.
"The time has come to control the uncontrollable," the president declared. "The savings we propose in entitlement programs will total some $63 billion over four years and will, without affecting Social Security, go a long way toward bringing federal spending under control."
Reagan said that the forthcoming budget would show "major savings" from dismantling the departments of Energy and Education, and by eliminating "ineffective subsidies for business." Among the latter are energy tax credits for business--such as for construction of plants to produce alcohol for fuels--and limitations on issuance of tax-exempt industrial bonds.
A White House fact sheet said the budget will also include "tens of billions in additional savings through management initiatives over the next three years--including improved debt collection, surplus property sales, accelerated sales of offshore oil and gas leases, and strengthened fraud, waste and abuse prevention efforts."
"Overall," the fact sheet continued, "the growth rate of federal spending will decline from an average of 17 percent a year from FY 1979 to FY 1981, to 9 percent in the recession budget of FY 1982, to about 5 percent in the FY 1983-84 budget."
If achieved, that would mean that federal spending would be rising by less than the rate of inflation in 1983 and 1984 despite about a 15 percent increase in defense outlays each year. Such a slowdown in spending would be dependent not only on congressional acceptance of cuts in a wide range of domestic programs, but also in a sharp drop in interest rates.
Financial analysts, however, are concerned that the president's refusal to raise excise taxes, and the higher resulting deficits, will put added pressure on money markets and lead to higher interest rates. On Monday, Federal Reserve Chairman Paul A. Volcker pointedly said that "excessive" deficits are adding to such pressure.
Reagan generally defended his economic policies as being correct, but he acknowledged, "As it now stands, our forecasts, which we are required by law to make, will show major deficits, starting at less than $100 billion and declining, but still too high. . . . The policies we have in place will reduce the deficit steadily, surely and, in time, completely."
The president went on to assert that "higher taxes would not mean lower deficits," and he declared, "Raising taxes won't balance the budget. It will encourage more government spending and less private investment."
Many economists, including some in the administration, believe that unless the deficits are reduced substantially as the economy recovers from the current recession, interest rates will shoot up as private sector borrowers compete for the limited funds available. Among others, Murray L. Weidenbaum, chairman of the Council of Economic Advisers, and Fed Chairman Volcker have warned of this possibility.