President Reagan strongly opposes any increase in Social Security payroll taxes next year, including a more rapid imposition of increases scheduled for 1985 and later years, a senior administration official said yesterday.
Reagan previously said he opposes other tax increases in fiscal 1984 despite huge projected deficits. Raising payroll taxes next year by bringing forward future increases has been widely suggested -- by Senate Finance Committee Chairman Robert J. Dole (R-Kan.), among others -- as one way to help solve the Social Security funding crisis.
A presidential commission is due to report just after next month's general election on how to save money for the Social Security retirement trust fund, which otherwise would run dry next year.
Reagan is "in my judgment . . . totally opposed to any increase in payroll taxes," the official said, adding that the president "knows how the payroll tax has grown, what it costs the average worker each year." The payroll tax rate for calendar 1983 is now scheduled to be the same as for 1982 -- 6.7 percent on both employer and employee -- while the tax base rises from $32,400 to $35,100.
In a news conference last month, Reagan joked that "unless there's a palace coup . . . I don't see the necessity" for further tax increases.
The president's stiff opposition to raising taxes and unwillingness to scale back the planned military build-up drastically reduces the maneuvering room for those now working on the 1984 budget to be sent to Congress early next year. The deficit would swell to $175 billion in fiscal 1984 with no new tax increases or spending cuts next year, officials reportedly believe. Some private estimates put the likely deficit still higher.
Agreement among senior officials on a much gloomier outlook for the economy's growth than Reagan forecast earlier this year "closes off some of the exits" used by the White House in the past to lower its deficit projections, the official said. Slower growth cuts into government revenues, automatically driving up the deficit.
Nevertheless, the official indicated, the administration would like the 1984 budget document to project a balanced budget by the end of its five-year planning period.
This would require huge new budget savings and would be almost impossible without higher taxes and less defense spending than that agreed to by the president, according to most budget experts. Reagan's budget this year showed large deficits each year through 1987.
The push for a budget that would show deficits eventually shrinking to zero stems from Reagan's strong endorsement of a constitutional amendment to balance the budget. "Implicitly that will be one of the driving forces" in this fall's budget-making process, the official said, adding that the administration "simply can't walk away from" the call for a balanced budget.
The president has made the issue a major theme of the Republican campaign. The constitutional amendment passed the Senate but, largely because of Democratic opposition, fell short of the two-thirds majority needed to pass the House.
Asked if the White House realized the dimensions of the deficit problem, the official said "in a generalized sense, not in a sense of cold, hard facts." With many domestic spending programs frozen at 1982 levels, budget cutters are "getting closer to the bone" of federal spending, he said, adding that "the political system has an irreducible minimum" below which spending cannot be cut.
Major budget decisions will not be made until after the elections, and the White House has not thought out its political strategy for winning the huge deficit reductions sought by Reagan, the official said.
Senate Republicans took the lead this year in shaping a package of tax increases and spending cuts after Reagan's budget proposals were spurned. That "Ping-Pong" strategy of proposal and counterproposal "wasn't all bad," the official said, citing as a "nearly optimal" outcome the $200 billion, three-year cut produced in the deficit.
Reagan has steadfastly opposed cutbacks in planned defense spending, although many of his aides believe such spending should not be increased as much as the president would like.
One argument used to justify lowering projected defense spending is that inflation is expected to be lower so the Pentagon will not need as much money to achieve the same build-up in real terms. There is "a lot of sorting out of numbers to do" on defense, the official said.
Last year, the administration used optimistic economic assumptions to improve the budget outlook and shrink the deficit. But this year, senior officials have agreed on a much more cautious outlook, the official said. A 1 percent cut in the economy's growth rate next year would add about $28 billion to the 1984 deficit, according to the Congressional Budget Office.
Treasury Secretary Donald T. Regan said last Friday that he expects the economy to expand by 3.5 to 4 percent next year, after allowing for inflation. This is well below the 4.4 percent growth rate in the last official forecast released in July. Martin Feldstein, new chairman of the president's Council of Economic Advisers, is on record as seeing only slow to moderate growth next year.
The official agreed with Feldstein that the recession has been a major factor in reducing inflation. A second wave of recession since the summer has taken "a huge blow at embedded inflation," he said, forcing business to undertake "a relentless paring of costs." The pattern this year has been a "classic economic correction" of recession after a bout of inflation, he said.
A "general sobering experience is setting in," the official said, as the supply-side promise of rapid growth together with falling inflation has failed to materialize. "Some of the disbelievers" in the gloomier budget projections have "gone off to other endeavors in life," the official remarked. Two senior Treasury supply-siders left the administration this year.
Slower inflation and slower real growth cut the government's tax take by holding down profits and incomes. Next year's inflation rate is likely to be below the 5 percent or 6 percent now expected for 1982, the official said.
He congratulated the Federal Reserve, which is responsible for monetary policy, for doing a "pretty good job" of reducing inflation through tight monetary control.
On proposals for a flat tax, which would apply the same income tax rate across the board with many fewer tax deductions and was widely circulated this year, the official said there has been a "great sobering" in the White House and on Capitol Hill. This is no longer seen as a "panacea," he said.