Can Reagan hold out against defense cut, new taxes?
Washington is waiting - with low expectations - for President Reagan to give in on defense spending or tax hikes, the two steps he could take in order to hold next year's budget deficit below $200 billion.
Yet no one is really pressuring Mr. Reagan directly or hard. Republican leaders from Capitol Hill visit the White House almost daily, repeating their case that domestic nondefense spending has already been cut enough. White House staffers present a worsening deficit picture as the lingering recession squeezes expected revenues.
But Reagan's fiscal 1984 budget position now appears pretty much frozen in place, and Washington professionals seem resigned that there will be no early thaw. The President will go for cuts of $30 billion in domestic outlays, leaving his big defense-increase and no-tax-hike positions untouched.
The expected scenario is that Reagan's budget will be set aside by Congress once it is introduced. Then serious negotiations between the White House and Congress will begin, with the prospect of a standoff until summer.
''There's no question they're going to have to give on taxes and defense spending later,'' says a congressional budget expert. ''The message the White House is giving now is that the President's budget is only the first step in the process. They're trying to reduce the element of surprise when the budget comes out showing a possible deficit of $180 or $190 billion or more.''
White House aides worry that both the financial community and the general public could react unfavorably to congressional rejection of another Reagan budget.
When his last budget was introduced last February, Reagan's approval rating plummeted some seven or eight points, White House pollsters found. The reaction this time could be worse, they warn.
The financial community's reaction could prove as troublesome.
The White House might prefer that budget cuts of $30 billion and deficits close to $190 billion be read as a mere bargaining position. But to the financial community it may send a different message.
''It would say essentially to be on the watch for significant crowding out for 1983,'' says Robert Gough, economist with Data Resources Inc. (DRI). He explains further, ''Presuming a recovery is coming in 1983, consumers and businesses will be entering the credit market as borrowers. Deficits of near $ 200 billion would put the government itself more deeply into the credit market to finance the federal deficit. In 1982, you didn't have that pressure. Consumers were cautious, and the business sector was down and out.