Office of Management and Budget Director David A. Stockman bluntly warned President Reagan and the Cabinet yesterday that failure to reach a budget compromise with Congress could abort economic recovery within the next two years and produce $200 billion deficits "as far as the eye can see."
With "powerful stalemating forces . . . dug in" on taxes, defense and domestic spending, Stockman said, "almost none of the huge policy savings" that the administration is advocating to produce lower deficits over the next five years "can be achieved without congressional-administration agreement."
Stockman's warning, contained in a document that was leaked to the press only hours after it was presented to Reagan and the Cabinet at the White House, appeared to be part of a renewed effort by compromise-minded forces in the administration and Congress to reach a budget accord on terms acceptable to the White House before the budget spins out of their control in Congress.
Reagan so far has resisted tax increases for next year and any major cuts in his defense buildup, and congressional sources say there are some in the administration, including Defense Secretary Caspar W. Weinberger, who do not appear that worried about the prospect of a budget stalemate.
The warning came only a day before the Republican-controlled Senate Budget Committee, which already has broken with the administration on defense and domestic spending, meets in an attempt to end a deadlock on taxes that is holding up passage of a budget for fiscal 1984.
The Democratic House earlier approved a budget resolution that defies Reagan on all key elements by proposing tax increases of $30 billion, big domestic spending increases and less than half of the defense spending increase he wants.
In this climate, Stockman warned Reagan and the Cabinet that there is a "high chance" that Congress may fail to approve a budget or that the administration may lose "control" of it unless some agreement is reached.
It could die in the Senate, in conference with the House or in floor votes on a conference agreement, he said. Or "a runaway anti-administration resolution could emerge through de facto Democratic dominance over [a] split GOP in [the] Senate Budget Committee and through further compromise in budget conference."
Such a "runaway" budget would "self-destruct . . . if [an] administration attack mobilized congressional supporters to impede further action," meaning the budget would be meaningless if the administration could forestall its implementation.
Stockman listed several possible results, including failure to pass the new "contingency" taxes that Reagan has recommended if the deficit stays high in fiscal 1986, 1987 and 1988, a defense buildup of 5 to 6 percent after inflation instead of the 10 percent Reagan has proposed, essentially no savings from the big domestic entitlement programs and only modest savings from discretionary domestic spending.
Under such a "stalemate scenario," Stockman said, federal deficits would be "stuck at $200 billion per year as far as the eye can see," the "national debt would expand by $660 billion over 1983-85 and $1.3 trillion over 1983-88" and "economic recovery would be eventually aborted--possible within [the] next two years."
Under Reagan's recently revised budget, deficits would decline from $190 billion next year to $102 billion in 1988. But if Congress could not agree on tax increases and refused to go further than the House or Senate Budget Committee has recommended in cutting domestic spending, deficits would still exceed $200 billion through 1988, as calculated in Stockman's report.
In the past, Stockman said, Reagan won his budget victories by "orchestration of congressional machinery to implement 'our' policy through [the] framework of 'their' budget," a strategy that does not appear to be working this year.
Scattered through the document were numerous clues as to why, including "powerful counterattacks" against previous spending cuts and Republican as well as Democratic resistance to further cuts in programs for the poor.
At one point, Stockman said, House Democrats had launched a "misleading scare campaign" contending that food stamp, school lunch and welfare cutbacks were "harmful and should be repealed" and added that there is "widespread GOP feeling" that further reductions are "not warranted in light of [the] Democratic attack."
As for defense cutbacks, Stockman attempted to throw cold water on congressional hopes for big military savings in reducing the deficit. "Much of the administration defense outlay level is built in for pay, operations and procurement programs already under way," he said, "and will be difficult for the Appropriations Committee(s) to significantly reduce--despite congressional rhetoric about deep cuts at this stage."
Meanwhile, conservative Senate Republicans, led by Sen. Orrin G. Hatch (Utah), plan to unveil a budget alternative today that would hold the line on taxes, reduce the defense increase to 7 percent and sharply curtail domestic spending growth, including Medicare and Medicaid cuts even deeper than Reagan has proposed, in order to produce declining deficits.
Among its provisions is a 1 percent reduction-in-force for the government work force for each of the next three years.