President Reagan was told by leading senators from his own party yesterday that he must spread out or postpone some of his expensive military buildup to hold down ballooning federal budget deficits described as "a little terrifying" by Sen. Paul Laxalt (R-Nev.), Reagan's closest friend in Congress.
"The deficit numbers we are looking at now are huge and probably intolerable," Laxalt, who is shortly to become "general chairman" of the Republican National Committee, said after a breakfast meeting at the White House with Reagan and Senate GOP leaders.
Laxalt also said that to reduce deficits Reagan may have to consider freezing entitlement programs, in which benefits to the elderly, poor and others are automatically increased by law. But he added that the president will find it "exceedingly difficult" to get other domestic spending cuts through Congress.
Laxalt's comments came as administration officials said Reagan faces a projected deficit of more than $200 billion in fiscal 1984, growing to about $280 billion by 1988, unless he makes basic changes in his tax and spending plans. The officials said Laxalt is not alone in appealing to Reagan to take action to reduce the deficit before sending the 1984 budget to Congress on Jan. 31.
"People are getting real scared of the deficits," said one administration official. Among those who have expressed concern are Secretary of State George P. Shultz, Treasury Secretary Donald T. Regan, Office of Management and Budget Director David A. Stockman and Martin Feldstein, chairman of the Council of Economic Advisers.
Not all of them have spoken directly to the president, but they say they believe Reagan should consider some modifications in his tax and defense plans to head off big deficits looming in the future, administration officials said.
A senior administration official said Reagan has given his blessing to Cabinet members and aides to prepare a "menu of options" for reducing the deficit that he will consider this week and next.
Early last year, Reagan resisted efforts by his staff to convince him of the need for a tax increase, but by the late summer, he capitulated to congressional demands to raise taxes by $99 billion.
Reagan, going through the final week of budget deliberations this week, was described yesterday by White House spokesman Larry Speakes as "not inclined" to follow the advice of Laxalt and others to stretch out his planned five-year defense expansion. Speakes said Reagan also was undeterred in his intention to seek about $30 billion in domestic, non-defense spending cuts next year.
At a budget meeting Monday, the president was told by his economic advisers that without fundamental changes in policy, he faces rising deficits that could reach about $280 billion in 1988, administration officials said. A White House aide said Reagan was "taken aback" by the higher projections.
Speakes said yesterday that Reagan "is determined to show a declining deficit in future years," but he did not say how this would be accomplished except through more domestic budget cuts.
"He doesn't like deficits," Speakes said of the president. But Speakes contended "his hands are tied on 70 or 80 or 90 percent of the federal budget which is based on automatic increases that the president has no control over."
Reagan once promised to balance the budget by 1983 and has repeatedly endorsed the balanced budget constitutional amendment. But administration officials now admit it would be impossible for him to reach a balanced budget, even at the end of a second Reagan term, without fundamental changes in policy.
Laxalt told reporters after the White House meeting that he didn't think Congress would be willing to accept deficits in the neighborhood of $200 billion. "We're dealing with raw figures and those numbers have to come down dramatically, I think," Laxalt said.
The breakfast meeting with Reagan in the White House residential quarters, just two weeks before Reagan must approve the fiscal 1984 budget, included Senate Majority Leader Howard H. Baker (R-Tenn.), Senate Budget Committee Chairman Pete V. Domenici (R-N.M.), Senate Appropriations Committee Chairman Mark O. Hatfield (R-Ore.), Senate Finance Committee Chairman Robert J. Dole (R-Kan.), and Senate Banking Committee Chairman Jake Garn (R-Utah.)
"I think probably we're going to have to look at deferral of some military spending," Laxalt said. "We hope that eventually he looks at the broad range of defense spending and, really on a spread basis, that we can save an awful lot of money without impairing our security situation."
Laxalt mentioned as one deficit-trimming solution a possible "rearranging" of Reagan's plan to add $116 billion to the Pentagon budget over five years. But the Nevada senator acknowledged that Reagan wasn't enthusiastic about it.
"I must say he's not there yet at all, and I don't think Defense Secretary Caspar Weinberger is as well," Laxalt said. "I have a suspicion from our meeting today what we in the Congress have a lot of selling to do" on the defense spending issue.
Reagan is "very close to being in concrete on the defense issue," Laxalt added.
On Monday, some House Republicans suggested to Reagan a two-year freeze on both military and domestic spending.
"I think that's where you have to come from," Laxalt said. "We all recognize that politically, if you're going to effect a freeze on the domestic social side, you're probably going to have to effect something approaching a freeze on the military side. Otherwise, politically, it isn't going to fly in this Congress."
On domestic spending, Laxalt said Reagan might have to consider a freeze of entitlement programs in which spending is controlled by benefit formulas set in law. He mentioned automatic cost-of-living adjustments, which are built into programs such as federal pensions.
But Laxalt said other discretionary spending programs have been cut "very near to the bone" and that Reagan would have difficultly getting the $30 billion in domestic spending cuts next year that White House officials are contemplating in the fiscal 1984 budget.
Laxalt said the wide-ranging meeting with Reagan also touched on the possibility of eliminating the indexing of income taxes to inflation, scheduled to begin in 1985, as one way to control the expanding deficits in later years. But he said this was only discussed as "a possibility."
A congressional source familiar with the discussion at the meeting said indexing "is not off limits," to the Senate leadership.
The president was described by Laxalt and White House officials as "listening" to the advice from the Senate leaders, but not responding.
Officials said the budget debate has sharply intensified within the administration in recent days, with Cabinet members and Senate leaders warning that large deficits could soak up private credit, send interest rates rising again and choke off any sustained economic recovery.
The officials said Reagan has been listening particularly to the warnings of Shultz, who was treasury secretary and budget director in the Nixon administration. Shultz is said to share the fears of Regan, Feldstein and Stockman that huge future deficits could seriously impede an economic recovery.
Regan was said last week to be proposing some selective tax increases. But the president, reacting to news reports, quickly poured cold water on the idea.
Administration officials said yesterday that even with the $30 billion in cuts, the president would have difficulty keeping a 1984 deficit below $200 billion. They said that the latest estimates show that without offsetting actions, the 1984 deficit would be in the range of $215 billion to $220 billion, not including another $12 billion or more of so-called "off budget" items.
The comparable November estimate was a deficit of $180 to $190 billion with no offsetting action. The projections have grown because the administration now anticipates lower economic activity in 1983.