President Reagan has tentatively decided on domestic spending cuts of nearly $30 billion for next year, but even if Congress concurs in these the federal budget deficit will be more than $175 billion, administration officials said yesterday.
Reagan yesterday began a final round of deliberations on the fiscal 1984 budget he will submit to Congress on Jan. 31 amid administration estimates that the deficit could exceed $200 billion next year if no offsetting action is taken. Just two months ago the same estimate was $180 billion.
The expanding deficit problem stems mainly from more pessimistic economic forecasts.
Administration economists have sent the president a forecast in which the economy starts growing again this year, but only at the slow rate of about 3 percent as measured from the fourth quarter of last year to the fourth quarter of this. Last year, by contrast, the economy declined 1 percent.
Even with this slow growth rate, the forecast shows unemployment dropping to about 10 percent late this year. Normally it would take a stronger recovery to cut joblessness, but the Reagan advisers say they believe for technical reasons that part of 1982's unexpectedly large unemployment increase will be reversed in 1983 even if growth is low.
The forecast has inflation running in the 4 to 5 percent range indefinitely, administration sources said.
On the deficit, administration officials explained that the fiscal outlook has deteriorated since November. At that time, Reagan tentatively approved about $26 billion in cuts in domestic spending, which officials said would bring the deficit down to $155 billion.
Since then, two developments have occurred. First, the administration has lowered its expectations for the level of economic activity in 1983 and 1984.
This had the effect of reducing expected tax revenues and increasing outlays for such programs as unemployment insurance, thus widening the deficit in both fiscal years. (The fiscal 1983 deficit is expected to be nearly $190 billion, administration officials have reported previously.)
Second, various Cabinet secretaries have successfully appealed to the White House the domestic spending cuts that were proposed by Office of Management and Budget Director David A. Stockman. This also widened the deficit somewhat. However, other cuts were substituted for the ones that were overturned, administration officials said. The bottom line now is that Reagan has decided on slightly less than $30 billion in domestic budget cuts, the officials added.
This total is likely to change in the final week of deliberations, one official predicted. While Reagan has already decided to seek budget savings in some of the government's basic benefit or entitlement programs, he has not decided yet on cuts in health-related entitlements.
Nor has the president decided how to deal with the question of the troubled Social Security system in the 1984 budget. He also must make some final Pentagon spending decisions.
But the recent economic projections made within the administration have left some budget-writing officials feeling they are "running in place," as several of them put it. This is because the 1984 deficit has swelled by about $20 billion since November's projection. "It has almost overwhelmed the savings" that Stockman was seeking, one official said.
Reagan originally promised to balance the budget in 1983. That was slipped to 1984 after he took office. Now, administration officials are saying that it is unlikely that he can propose a balanced budget at any time in the Reagan presidency, even during a second term running through 1988.
"We want to do that in the long run, yes," White House spokesman Larry Speakes said yesterday when asked if the president was still committed to declining deficits in later years. "But we have to deal with the realities of the current economic situation that drives the deficit up."
Speakes said such massive deficits as those being contemplated for this year and next would "not necessarily" interfere with economic recovery. He said the president has to also deal with "the realities" of "congressional reluctance to cut certain programs."
Yesterday, Reagan began to hear from members of Congress about the 1984 budget. He met with a group of Republican House members, some of whom urged Reagan to freeze all domestic spending for two years. Reagan told them at the session he remains opposed to any tax increases or slowdown in the pace of his Pentagon build-up.
Rep. W. Henson Moore (R-La.) told reporters that Reagan "listened to the discussion" as the GOP lawmakers proposed a freeze in broad terms as an alternative to additional cuts in domestic programs they said would have trouble passing Congress.
"Nobody wants to talk about cutting or freezing anything," Moore said. "But the point is we're facing tremendous deficits and we thought the president ought to simply hear from those of us in the trenches as to what we think is not going to pass the Congress and therefore urge him to begin to look at some things that might."
The latest economic forecast for the 1984 budget is somewhat less optimistic than those of a number of private economists who are predicting an increase of 3.5 percent to 4 percent in output during the four quarters of 1983. That is a sharp departure from the last two years when administration forecasts were far more optimistic than those of most private economists.
However, most of the private forecasters do not expect the unemployment rate, which was 10.8 percent in November, to come down as rapidly as do those in the administration. The private economists also generally think inflation will stay somewhat above the 5 percent level rather than below.
"It's a forecast that will not break any new ground or raise any eyebrows, and deliberately so," said one administration official involved. In particular, Martin Feldstein, chairman of the Council of Economic Advisers, said he believes anything other than a modest, realistic growth forecast will weaken administration credibility further.
While Feldstein has argued for this realistic forecast, other voices in the administration, including officials in the Office of Management and Budget and in the Treasury, have suggested in private deliberations that economic growth may be somewhat faster than the forecast indicates.
Beyond 1983, the forecast shows the economy growing around 4 percent or so a year but with unemployment coming down somewhat more slowly than in 1983, administration officials said. Feldstein has said that, all other things being equal, a 4 percent growth rate would reduce the unemployment rate by about one-half a percentage point a year. Such arithmetic would leave the politically sensitive rate above 9 percent on Election Day, 1984.
None of the Reagan economic advisers has proposed any action to stimulate the economy and speed the recovery. Feldstein, Stockman and Treasury Secretary Donald T. Regan have expressed some concern that faster economic growth than currently foreseen could rekindle inflation.