President Reagan's senior advisers, at work on what one aide agreed could be the first trillion-dollar budget in federal history, have adopted a "working target" that virtually concedes the president will not achieve a balanced budget in his second term, White House officials said today.
Their goal, instead, would be to reduce the budget deficit from the roughly $200 billion expected next fiscal year -- fiscal 1986 -- to $100 billion, or about 2 percent of gross national product, by 1988.
Officials stressed that Reagan did not approve the target before leaving the White House today for a Thanksgiving vacation here, and he could decide to shoot lower.
But, given the parts of the budget Reagan has put off limits -- no tax increase, no Social Security cuts, no serious interference with the defense buildup -- even the $100 billion figure would involve spending cuts on a scale far greater than were achieved in Reagan's first term, and would likely require the elimination of entire programs.
The parts of the budget Reagan has exempted, together with interest on the debt, add up to about two-thirds of the spending total. Thus, to reduce the deficit to $100 billion over the next three years, the budget for the rest of the government would have to be cut by more than a third.
The working target was set at the end of an inconclusive first week of budget meetings at the White House that underscored the still-divergent views of senior administration officials about the agenda for the second term.
One source said the target was adopted to "discipline" the process, so that officials would have a goal to shoot for in reviewing major programs and budgets of the individual departments as they compile the spending plan the president will send Congress early next year for the fiscal year beginning Oct. 1.
A $100 billion deficit would be higher than Reagan inherited in 1981, when he was still holding out the prospect of a balanced budget by the end of his first term. But a White House official said enunciation of the 2 percent-of-GNP goal might still reassure the financial markets that a sharp decline in the deficit lies ahead.
Some administration officials and many economists fear that without a cut in the deficit, increased government borrowing could drive up interest rates over the next several years and retard economic activity.
Such a slowdown would further complicate the budget problem, since lower rates of economic activity tend to drive up spending, while reducing revenues. The target assumes an average of 4 percent economic growth each year after inflation and GNP expanding to about $5 trillion in fiscal 1988.
Although Reagan's aides agreed Friday on the interim target, their five days of jockeying last week suggests that they are still divided about how to reach it and, more broadly, about what Reagan's second-term agenda should be.
From what has emerged:
* White House counselor Edwin Meese III, whom the president is expected to renominate for attorney general early next year, is using his remaining time in the West Wing to urge a clear shift to the right in the second term, in which policy would be driven by conservative philosophy, rather than the need for deficit reduction.
Meese and subordinates outlined for the Cabinet a list of long-range options on such varied subjects as space, world hunger, crime, trade, federalism and governmental efficiency, among others. But few of the still-undisclosed, and in some cases still-undeveloped, Meese ideas are designed to fit into next year's spending plan.
* Treasury Secretary Donald T. Regan appears to be leading resistance to a tax increase. His cause was reinforced again by Reagan last week when the president admonished aides not to submit a budget that would encourage anyone to think he would "acquiesce" to a tax increase. Regan is also the point man for the president's tax-simplification drive, which will pick up steam next month when the Treasury's recommendations are due at the White House.
* Office of Management and Budget Director David A. Stockman is preoccupied with reducing the deficit, even if it takes a tax increase. Stockman was again the bearer of bad news last week, when he told Reagan and the Cabinet that the red-ink projections were not growing smaller with economic growth, as Reagan had forecast during the campaign, but were increasing.
* Defense Secretary Caspar W. Weinberger remains determined this year, as in the past, to fend off nips at the defense budget by others in the Cabinet who see slower growth in defense as a way to take pressure off their departments. Repeatedly in private cabinet meetings this week, other Cabinet members, including Regan, pressed Weinberger to give ground, but "Cap just rolled his eyes at them," one official said.
When Reagan returns Nov. 25, a "core group" of budget advisers is expected to present him with the first round of budget options.
The most recent so-called current-services budget estimates for next fiscal year by the White House put likely spending at just over $1 trillion, if there are no changes in current law. It was just 20 years ago that President Lyndon B. Johnson was playing games to keep his budget under $100 billion. An administration official said Friday that the White House may finally propose a budget just under $1 trillion, but only symbolically so.
The $200 billion deficit means that 80 percent of total spending will be covered by taxes; the rest will be borrowed.
As a practical matter, Reagan long ago abandoned the goal of a balanced budget anytime soon by insisting on tax cuts and higher defense spending. But a balanced budget is still part of his campaign rhetoric, and he said in his news conference the day after his reelection that he would press again for a balanced budget constitutional amendment when Congress reconvenes.
Reagan won big domestic spending cuts his first year in office. He proposed further cuts in the next three years, but won fewer. To achieve the new target adopted on Friday, he would now have to win cuts in domestic spending more than twice as large as any achieved in his first term.
Few congressional observers see that as likely.
The frustration of other Cabinet officers over the deficit problem spilled over last week into demands that Weinberger agree to slow the defense buildup. Both Regan and Commerce Secretary Malcolm Baldrige are said to have made such appeals to Weinberger.
However, Weinberger resisted, and officials said he is expected to press for the full $334 billion in Pentagon spending for next year that was envisioned in the August budget update. Although this would not recover cuts made in compromises with Congress this year, it would keep the buildup on a steadily climbing path.
A recent study by the Congressional Research Service found that inflation-adjusted growth in defense spending was an average of 9 percent a year in Reagan's first term. A senior administration official said recently that Reagan might be willing to live with 5 percent in a second term, but the president has yet to send such a signal.
Administration officials point out that much of the big defense buildup is locked in, and that while some savings may be possible in the short-term, a "bow wave" of spending approved in earlier years is reaching a peak. The nature of Pentagon budgeting is such that dollars are often spent on weapons systems many years after Congress appropriated them. A surge of this spending -- money appropriated but unspent until now -- is expected this year and next, and will serve to drive up the deficit, officials said.