An uncompromising President Reagan, in his first such speech since the election, said today his tax cuts and defense buildup are not responsible for the soaring federal deficit, and that domestic spending programs must bear the burden of bringing that deficit down.
Speaking to the 90th annual convention of the U.S. League of Savings Associations, Reagan indicated that he will not yield to the growing post-election pressure from Democrats and many in his own party to change course as he works on next year's budget, which will have a deficit in excess of $150 billion unless Reagan acts.
"A propaganda campaign would have you believe these deficits are caused by our so-called massive tax cut and defense buildup," the president said. "Well, that's a real dipsy doodle, because even after our tax cuts are fully in place, they will barely neutralize the enormous Social Security tax increases approved in 1977."
Likewise, Reagan said his planned $1.6 trillion, five-year military spending program would "come to less than 2 percent" of the gross national product, less than the level in 1960, before the Vietnam war, and "more importantly, before the unprecedented Soviet buildup."
There has been speculation that Reagan will ultimately bend on taxes and defense in the next budget, and he himself has said he is considering one tax increase, of 5 cents a gallon on gasoline, to pay for a road-building program. But today there was no flinch in him. "Compromise must not mean incremental retreat on principle," he said.
The president said retrenchments to reduce what he acknowledged are "large projected budget deficits" must come mainly from domestic spending. While members of Congress have said that there is no room for cuts in this area of the budget, Reagan countered, "There is simply no escaping the truth: current and projected deficits result from sharp increases in non-defense spending. If the United States is to meet its investment challenge, we must get the growth of non-defense spending under control once and for all."
Just hours before Reagan spoke here there was new evidence of the rebellion he faces even within his own party, as Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) warned in a speech here that it would be "destructive" for Reagan to pursue a "collision course" with Congress over taxes and spending.
Domenici said that "in light of the extraordinary deficits we face" Congress may have to consider a revenue-raising oil import fee, "review the prudence of indexing the tax system" to offset increases due to inflation after 1985, and perhaps moderate the defense buildup as well as make some further cuts in domestic spending.
The president, by contrast, said that elimination of the third installment of the tax cut, due next July, or the indexing provision that begins in 1985, would "send up the white flag of surrender to the big spenders."
Reagan claimed that elimination of the tax cut and indexing would mean a net tax increase of about $3,000 over the next five years "for a typical working family."
The president said the budget he is now writing would bring down deficits "without violating our goals of reducing the burden of taxation, protecting the needy and moving forward with our program to rebuild the nation's defenses."
To some extent Reagan may be staking out a bargaining position; he may compromise later. But aides said he was in no mood to start compromising now. "If somebody comes to him with a deal now, I don't think he would take it," White House spokesman Larry Speakes said.
Reagan was especially critical of public works programs of the sort the Democrats and some Republicans have discussed since the election as a means of reducing unemployment, now 10.4 percent.
"Let's quit kidding ourselves," he said. "We will not solve the problems of unemployed auto workers and steel workers with another giant, temporary public works program."
Although he is now considering a road and bridge repair program financed by a 5-cent-a-gallon increase in the federal gasoline tax that would create an estimated 320,000 jobs, Reagan said the nation's "decade-long trend of rising unemployment was not caused by highway potholes."
What the unemployed need most is a broad-based economic recovery, Reagan said, urging as he did throughout the campaign that his listeners be patient and give his policies more time to work. "The answers to the challenges of the 1980s do not lie in the make-work programs of the '60s and '70s."
In his speech today, Domenici said that while the government has "made great strides in the battle against inflation," it "must now balance that battle with the equally important battle for economic vitality."
He added that the "major task" for Congress and the president in 1983 "is restoring economic growth and putting Americans back to work, without rekindling inflation."
Domenici predicted that federal deficits will range between $180 billion and $200 billion in fiscal 1984 through 1986 if present policy continues and the economy grows at no more than the likely 3 percent to 4 percent a year after inflation.
"In short, despite our work, we face high deficits and high unemployment," he said. He proposed freezing discretionary domestic spending through 1986; reducing the growth rate in defense spending; restraining so-called entitlement or basic federal benefit programs; enacting an oil import fee and infrastructure rebuilding program; keeping the president's individual tax and business cuts in place for next year; reviewing tax indexing, and finding some solution to the problems of Social Security.
After his speech here, Reagan flew to Miami where on Wednesday he is to examine the federal war on drugs.