President Reagan's closest ally in Congress predicted yesterday that Reagan will tackle the prospect of ever higher federal deficits by agreeing to slow defense spending now and endorsing a contingency plan for increasing taxes after 1984.
Sen. Paul Laxalt (R-Nev.) said he feels that Reagan has adopted "a wholly different perspective" of fiscal problems confronting his adminstration as a result of candid meetings in the last week with his economic advisers and Republicans from the House and Senate.
"He recognizes unless something bold and decisive is done, that we're going to have a terribly difficult couple of years in every way," Laxalt said on "This Week With David Brinkley" (ABC, WJLA.)
Asked if he thinks the president will move in directions being urged on him by senior Republicans, Laxalt added: "I think he's going to move. I predict that he will."
Laxalt advocated an economic game plan that would trigger higher taxes in the years ahead if they should be needed to overcome recurring annual deficits of $200 billion to $300 billion, a prospect that he has described as "a little terrifying."
The budget deficit for fiscal 1984 is expected to exceed $200 billion. Last week, the president was told that, without further action, this would rise to $288 billion by 1988.
Laxalt, soon to become general chairman of the Republican National Committee, said he would not favor higher taxes now, a step that Reagan seemed virtually to have ruled out when he described it last Wednesday as "the wrong thing to do when you're coming out of a recession."
The senator said, however, that business and financial markets need assurances that something will be done to head off even higher "out-year deficits" in case the economy does not improve sufficiently. Without such assurances, Laxalt suggested, interest rates never will come down to reasonable levels.
"If supply-side economics works, as we hope that it does," Laxalt said, "fine, that'll give you a given result. But if we get into that fourth or fifth year and those results haven't materialized, I think we should safeguard against that on a formula basis to trigger in some additional revenue in those years."
Sen. Daniel Patrick Moynihan (D-N.Y.), who appeared with Laxalt, objected to mention of what he called "supply-side quackery" and suggested that more direct government action is needed to bring down interest rates.
Moynihan said he feels there is little hope of making substantial cuts in the forthcoming budget. "The deficit is so big that no cut gets you much," Moynihan said.
Even if the president proposed abolition of the Defense Department, "all of it--the Marine Corps, Army, Air Force, Navy," Moynihan observed, all Reagan would accomplish is that "he might balance the 1985 budget."
Laxalt disagreed that budget cuts would be futile and called the currently projected 1984 deficit of $200 billion "intolerable." But he said Reagan's plan for a $33 billion cut in domestic spending would not work unless it were part of a broader-gauged program, including cutting the defense budget.
"I'm a hawk," Laxalt declared, "but I also recognize that politically, unless the defense budget comes in for a fair-share cut, without impairing the overall prorgram . . . we simply are not going to effect the budget cuts we need."
Laxalt said he favors a selective or "partial freeze" on government spending that would involve a hard look at all programs, but at the same time exempt or even allow increases in some, such as aid to the handicapped, that have been hit too hard already.
Some officials have suggested that Defense Secretary Caspar W. Weinberger may be trying to "stall" beyond this week's deadline for significant budget cuts.
In what may have been a warning directed at such reports, Laxalt said "the Pentagon has to address itself very quickly" to the need for substantial savings.
In an appearance on "Face the Nation" (CBS, WDVM), Sen. William L. Armstrong (Colo.), second-ranking GOP member of the Budget Committee, joined the call for cuts in defense spending. He said he hopes Reagan will propose a series of "very bold spending reductions, even abolishing whole programs like Amtrak and the Clinch River breeder reactor, and, if necessary, revenue sharing and subway construction and you name it" to reduce the projected deficit by at least half.
Armstrong, chairman of the Senate Finance subcommittee on Social Security, pledged opposition to bailing out the Social Security system by accelerating scheduled payroll tax hikes and imposing them in 1984.
He contended that "virtually all of the gap" can be closed by slowing cost-of-living increases, putting all new federal employes under Social Security and reducing cost-of-living payments for first-year beneficiaries according to the number of months they have been in the system.
Armstrong confirmed that a closed meeting of the president's advisory commission on Social Security broke up Saturday in light of his vociferous opposition to higher payroll taxes now.
The commission must file its final report by Saturday. Picture, Sen. William L. Armstrong . . . joins call for defense spending cuts.