President Reagan has decided tentatively to hold spending next year at this year's levels in an overall budget "freeze," but some expenditures -- such as Social Security payments -- would be allowed to increase, meaning that other programs would have to be cut or eliminated, administration officials said yesterday.
The decision came after congressional Republican leaders bluntly warned Reagan that his efforts to trim projected $200 billion deficits must include across-the-board spending cuts and some slowdown in his defense buildup. The Republicans suggested the president would run into stiff resistance on Capitol Hill if he attempted to abolish selectively or curtail sharply such programs as mass transit subsidies or farm price supports.
Office of Management and Budget Director David A. Stockman had prepared for Reagan a "black book" of deep cuts in these and other programs, but sources said the president had approved only some of Stockman's suggestions.
An informed official said the concept of a budget "freeze" is being actively studied in most programs, but pointed out that automatic increases in some items, such as Social Security, will not be subject to a freeze, and that interest on the national debt, one of the most rapidly escalating costs, cannot be frozen.
Overall spending in the current 1985 fiscal year is expected to be about $968 billion. Some officials said it would be very difficult to hold the fiscal 1986 budget to this level if defense and Social Security continue to rise. But others said even an overall freeze would be insufficient to reach the "working target" of getting the deficit to $100 billion in 1988.
These officials predicted that still deeper budget cuts and a possible slowdown in Reagan's defense buildup may have to be sought in the weeks ahead.
Also yesterday, officials said the president may propose canceling the annual pay raise for federal civilian employes due next Oct. 1, when fiscal 1986 begins, or alternatively may seek to hold the increase to perhaps 2 percent.
At a White House meeting yesterday, House Minority Leader Robert H. Michel (R-Ill.) and Sen. Paul Laxalt (R-Nev.) squared off with Defense Secretary Caspar W. Weinberger over the president's military buildup.
Michel suggested in the meeting that Reagan's planned five-year buildup could be slowed down because his reelection gives him eight years to complete it. "And that gives us a little bit of room," Michel said.
Laxalt reportedly also asked Weinberger to allow some slowdown in defense spending, but the defense secretary resisted, officials said. White House spokesman Larry Speakes quoted Reagan as saying he did not want to send the wrong signal to the Soviet Union prior to scheduled arms-control discussions in Geneva in January.
But the president has not yet decided on specific defense spending levels, Speakes said.
The open disagreement over budget priorities came as Reagan met for the first time with the new Senate Republican leadership, including Robert J. Dole (R-Kan.) and Bob Packwood (R-Ore.), who have been selected by GOP senators to be majority leader and chairman of the Finance Committee respectively.
Stockman gave the congressional leaders a summary of the "black book" plan he prepared for Reagan, including elimination of 15 or 20 programs, many of which enjoy powerful support in Congress, ranging from farm price supports to mass transit subsidies.
Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) said later that budget cuts of the magnitude contemplated in the Stockman plan will require slashing "60 to 70 percent of the farm programs, 40 to 50 percent of transportation funding and on and on. Several programs in the $3 billion to $5 billion range will have to be eliminated."
Michel said that he told Reagan that "to get some of the other cuts I think you just about have to help move that along with some give on the defense item . . . ."
The Republican congressional leaders also urged Reagan to take an across-the-board approach to spending cuts rather than target specific programs for elimination. "There was a lot of discussion today of a freeze of some kind," Dole said. "The feeling among Republicans on both the House and Senate sides is we need to develop a spending freeze package of some kind because it has bipartisan support."
Packwood quoted Stockman as saying that a freeze was acceptable as far as it went, but "the programs are still there and one day the programs come bobbing back up again -- and if you're going to cut it permanently, you've got to get rid of the programs."
An administration official pointed out that Congress has toyed with budget freezes on domestic spending for several years but always had a tendency later to roll back some cuts.
Speakes said that a budget freeze "across the board, on every program, from start to finish . . . won't work. But certainly an overall total in total government spending could work, because certain areas have to rise, by law. Other areas can be cut. And the whole thing comes out with a freeze, or standstill, or however you want to describe it."
Speakes said Reagan remains "firm" in his decision to keep Social Security off limits and would not freeze cost-of-living adjustments (COLAs) for recipients. But he said, "There may be other areas of COLAs that you can freeze."
With Social Security off limits and Reagan apparently committed to some increase in defense spending, White House budget-cutters have had to dig deeply into domestic spending programs in order to meet their goal of trimming the deficit by half.
The GOP congressional leaders were told the administration's goal is to get the deficit down to 2 percent of the nation's gross national product, or to about $100 billion, by 1988. This would mean cuts in domestic spending of about $45 billion in fiscal 1986, $85 billion in 1987 and $110 billion in 1988, officials said.
The deficit is estimated to be $206 billion this year and $210 billion in 1986.
Reagan has ruled out tax increases to reduce the deficit, and Packwood said yesterday "there will be no tax increase at all unless the president wants one, period."
Officials said Reagan may propose to cancel the annual pay raise for federal civilian employes due next Oct. 1. "We're 95 percent certain Stockman will propose a zero increase for next October," said one federal official.
But the administration may also propose to pay some increase but hold it down to a figure like 2 percent.
A rule of thumb is that every 1 percent increase in federal civilian pay costs the government $500 million to $600 million a year and every 1 percent increase in military pay adds $300 million or so. About 2.8 million federal civilian employes would be affected by a decision to cancel the increase, which would require congressional action.
The Reagan administration has proposed to freeze federal pay in the past, but Congress has not gone along.
If the president does propose a pay freeze, it would apply only to pay raises due next October. It would not affect the 3.5 percent raise scheduled to take effect Jan. 1, 1985.
If there is a freeze and it applies to both civilian and military personnel, savings to the government could be substantial. It is not known whether such a freeze is being contemplated for the military.