President Reagan, determined to stick by his defense buildup and tax cut while launching another attack on domestic spending, is writing a budget for fiscal 1984 that may be stillborn when he sends it to Capitol Hill.
"If the president doesn't change his tax and defense positions, there's no escaping the conclusion the budget will be rejected by Congress," an administration official said.
"This is a budget for political advantage and not substance, as they all are," a congressional budget expert said.
Reagan's first budget in 1981 was greeted by howls of protest in Congress, but he won sizable spending trims. Last year's budget was again declared dead, but Reagan won spending cuts after long negotiation with Congress.
That Congress quickly will reject the third budget Reagan has submitted is viewed by some administration officials as inevitable.
These policy-makers are convinced that Congress is so wary of the president that any budget he submits would be pronounced dead on arrival.
But these officials also point out that his budget is likely to be realistic in at least one new respect: projections showing immense future deficits. They believe that even if Congress turns its back on Reagan's spending cuts, it still will be forced to confront the big deficits.
White House officials said that the president has not made final decisions on taxes and defense, nor has he heard all of the debate among administration officials about the fiscal plan he is to submit to Congress next month.
But Reagan has left no doubt about his basic desire to increase defense spending, preserve the tax cut and let domestic spending carry the burden of budget cuts.
The president's strong public statements on these points have fueled a growing consensus among his advisers that he has closed off consideration of changes in the fiscal 1984 budget.
Although it would run directly counter to the public and private advice he has been getting from Capitol Hill, Reagan seems determined to seek another round of budget cuts in so-called discretionary spending.
Some cuts proposed by the Office of Management and Budget, and leaked, include deep slashes in urban aid, fuel assistance for the poor and staffing of the Food and Drug Administration and the Centers for Disease Control.
This comes at a time when Republicans and Democrats have said that they think such domestic spending has been cut to the bone and the budget knife should be turned on the Pentagon.
By refusing to heed these congressional warnings, Reagan appears to be inviting a repeat performance of last year's "Gang of 17" negotiations between Congress and the White House over budget priorities.
Indeed, some administration officials, while preferring otherwise, think such drawn-out budget talks are unavoidable again next year.
The president "knows he is going to have to negotiate later," one White House aide said.
"I have lately been gravitating to this notion," said another administration official involved in budget preparations.
"It would be so alienating to really try and solve the big problem, we are better off with a solution developed collectively."
The "big problem" is the cavernous deficit that the administration and Congress see opening, even if there is an economic recovery. By internal administration estimates, even with a recovering economy and declining unemployment, deficits will remain in the $150 billion range through the latter half of the decade unless Reagan's defense and tax-cut policies change.
The more immediate deficit problem is a 1984 shortfall estimated by OMB at about $185 billion. Reagan tentatively has decided on domestic budget cuts of between $25 billion and $30 billion, irrespective of what solution is found for financing Social Security.
This suggests that without further policy changes, he will propose a record $150 billion deficit for fiscal 1984, the year in which he had promised to balance the budget.
Faced with such deficits, administration officials said, Reagan is not about to throw in the towel.
"It's wrong to assume he's comfortable or has come to accept the notion that you can tolerate continued high deficits," an administration insider said.
But the president's statements have contributed to a perception that even if he is not comfortable with big deficits, he understands they may loom over the rest of his presidency.
In his recent speech to the National League of Cities and in private talks with his advisers, Reagan has been testing the notion that part of the deficit is "structural" and therefore beyond remedy by budget cuts alone.
Asked in a recent interview by Time magazine whether the presidency had challenged some of his preconceptions, Reagan responded that it had regarding deficits, among others. He said: "I don't suppose that I had anticipated that there is . . . a structural part of the deficit that has nothing to do with the recession."
The president went on to say that "I don't think I was prepared for how much of the budget was built in by the original legislation. . . . " He said that a growing economy would shrink deficits in later years, so the nation should " . . . not let ourselves get so hypnotized with the deficit, serious though it may be . . . . We recognize that the way out of our problem today is an improved economy."
One senior administration official said the president believes "that you can't solve the structural deficit with budget cuts. You need to sustain and increase [economic] growth."
This official added that Reagan "recognizes and knows" that he must look at other initiatives to achieve that growth, besides his original tax and spending plan. He said that Reagan is looking at ideas being prepared for him on trade, high technology and employment as ways to expand the economy and thus control "structural" deficits.
The counterpoint is that Reagan has expressed no such doubts about his ability to control government spending. During his presidential campaign, he did not hesitate to promise that he could balance the budget, and at one point vowed to do it by this fiscal year. Reagan had based his promise on visions of economic performance that also proved optimistic.
Now, some of the president's advisers are talking openly about big deficits as a political fact of life for Reagan.
"I think we have to show that while we have high deficits -- we could possibly squeeze by with $150 billion deficit -- the key thing is to show a decline," pollster Richard Wirthlin said.
With an eye toward Reagan's 1984 reelection prospects, Wirthlin added: "I would feel comfortable -- not complacent, but comfortable" if inflation remains low, unemployment drops below 10 percent and "deficits are high, but show a move toward balance in the out years. I would feel comfortable on that record."
Not all of Reagan's economic advisers feel sanguine about the prospect of such massive deficits.
Martin Feldstein, chairman of the Council of Economic Advisers, and David A. Stockman, director of Office of Management and Budget, have expressed fears that such deficits will overshadow a recovery. Lawrence Kudlow, chief economist for the budget office, said that with such big deficits, "the chances of getting a stable monetary policy, falling prices and steady real growth are very, very low."
An administration insider who has participated in the early budget briefings shares these fears. "Nothing runs a greater risk" than the perception of big deficits in later years, he said. "It would make the Federal Reserve and the markets shaky."
This, he worries, might further jar the progress on interest rates and inflation that has been the centerpiece of Reagan's claims that his economic program is succeeding.
Some administration officials believe that the answer lies in tax increases. But there has been no concerned attempt to change Reagan's mind. "Nobody has got to the advocacy stage with the president yet," one official said. And he added that "I'm not at all certain" that Reagan will get unanimous advice on how "urgent" the deficit problem is.
Stockman and Feldstein believe it is of the greatest urgency, because it could slow recovery. But Treasury Secretary Donald T. Regan has been arguing that Reagan can assume that the deficits will recede as the recovery gets under way, an assumption that makes them seem less menacing.
If confronted in budget sessions in the next few weeks with divided opinions, Reagan is likely to "follow his instincts" and stick by the defense buildup and the tax cut, one official speculated. The result, he said, is that "we have a large 'structural' deficit" in the 1984 budget proposal.
For the current fiscal year of 1983, which ends next Sept. 30, the administration's original budget envisioned a defict of just under $100 billion. More recent estimates suggest that the red ink this fiscal year will exceed $150 billion.
For next year, Reagan has tentatively approved deep cuts in domestic discretionary spending, such as for parks or housing programs, and he is expected to see changes in so-called entitlements, the largest of which is Social Security.
Even though Reagan has been warned by congressional leaders that deep cuts in discretionary spending are unrealistic, the president is determined to ask for them, officials said.
"He knows he's not going to get it all," an administration insider said. This official recalled that Reagan has been told repeatedly that the administration won about half of the budget cuts it sought from Congress in the first two years. Thus, while Reagan may ask for another $25 billion to $30 billion next year, "it's going to be a hard fight to get even that," the official added.
But Reagan views the budget he sends to Congress as an opportunity to state his convictions, not compromise them. "It ought to be his statement," one adviser said.
The worry on Capitol Hill is that Reagan will attempt to turn the budget debate into an excercise for flogging Congress on spending.
"There's some concern that all Reagan is doing is setting up to run against the Congress," a congressional budget expert said. "But I'm hesitant to say it's all a throwaway. Whatever Congress comes up with, whatever horrid process we may have to go through, we're also going to have to show cuts, continuing high unemployment and high deficits.
"We'll have to look them in the eye. Things are orders-of-magnitude bigger. We got mad at Jimmy Carter for a $16 billion deficit. Now we're talking about $160 billion."