Can’t Meet Deficit Goal, Reagan Says : His Budget Would Lead to $140 Billion in Red Ink in 1988

President Reagan, rallying support for a budget proposal that many say faces certain death in Congress, acknowledged Monday that the spending blueprint he will present formally next week will fall $40 billion short of his goal of cutting the deficit to $100 billion by fiscal 1988.

In a private meeting with savings and loan, home building and real estate executives, Reagan received assurances of what one termed “a grass-roots groundswell” behind the budget plan. He told the executives that the plan would cut $51 billion from the deficit that has been forecast for the next fiscal year, which begins Oct. 1, and leave a $140-billion deficit in 1988, confirming earlier reports that the Administration would not reach its target.

Interest Rate Cut Seen

“I don’t know that it’s realistic to expect any more,” John B. Zellars, chairman of the U.S. League of Savings Institutions, said as he emerged from the session with Reagan. Zellars and others who attended the meeting said the Administration predicted that interest rates could fall by as much as 2 1/2 percentage points if its proposals are accepted.

But Senate Finance Committee Chairman Bob Packwood (R-Ore.), coming out of one of two subsequent meetings between Reagan and congressional Republicans, said that GOP senators still are dissatisfied with the 6.4% increase in military spending authority that Reagan has said he will recommend. Moreover, Packwood said, the defense figure could doom overall efforts at significant deficit reduction.

Packwood said that the message to Reagan is: “We have one of two choices. Either we can have the military spending cuts you want--and, in that case, we cannot get a spending cut program--or the military has to take what is perceived to be a fair share of cuts.”

Pentagon Spending Dispute

Senate Republicans, led by Majority Leader Robert J. Dole (R-Kan.), are trying to draft a budget of their own that would meet the target of a $100-billion deficit within three years, but their efforts have been bogged down in disagreements over the Pentagon budget.

Rep. Trent Lott (R-Miss.) dismissed suggestions that the President’s budget will be “dead on arrival” when it is presented to Congress next Monday. Instead, he described it as “a starting point.”

“When all is said and done, we’re going to end up not far from where the Administration’s proposals are,” Lott predicted.

Packwood said there is wide agreement that Congress cannot turn its attention to tax simplification--proposals for which have been advanced separately by the Treasury Department, congressional Republicans and congressional Democrats--until it has finished cutting the deficit.

“Many of the allies we need to help us on spending cuts are going to be enemies on tax reform” because it eliminates a wide range of popular deductions, Packwood said. Proceeding with both, he explained, may “drain off” support for spending cuts.

While Reagan was trying to marshal his forces behind his budget, leading Democrats lashed out at his spending priorities, giving an indication that their party is not going to remain in the background of the budget debate much longer.

Warning by Hart

Sen. Gary Hart (D-Colo.) warned that unless the President’s defense spending proposals are cut, the nation faces deficits of $300 billion to $350 billion in the late 1980s.

Hart told reporters that the financing of such big-ticket defense items as the MX missile, B-1 bomber and two aircraft carriers with task forces, together with the purchase of F-18 jet fighters and other major weapons acquisitions, will mean “a procurement bulge” in a few years that will have “a monumental impact.”

The Administration, he maintained, is building up economic and political constituencies of labor unions, chambers of commerce, defense contractors, community representatives and conservative organizations to support its defense spending requests. He said he has been told that the so-called “Star Wars” program to develop a space-based anti-missile system, for example, has been spread among 15 to 20 defense contractors.

If huge deficits develop, Hart said, “even Wall Street will get nervous,” and pressure will build on Congress to end all social spending programs and cut back on such non-weapons defense spending as military personnel, pay and benefits. The Reagan plan, he added, is “to destroy the federal government as an entity to deal with social programs.”

McCarthyism Charged

And House Majority Leader Jim Wright (D-Tex.) said in a speech before a Democratic women’s organization that Defense Secretary Caspar W. Weinberger is using tactics “far too reminiscent of the McCarthy era” in arguing that those who oppose his defense buildup plans threaten national security. Wright referred to the late Sen. Joseph R. McCarthy (R-Wis.), who often used charges of being soft on communism to discredit political opponents.

“When we feel that we have to make some cuts across the board--not even cutting defense, but slowing the growth of defense--that doesn’t imply in my mind that we want to weaken the defenses of this country,” Wright said. “As much as we want to defend this country, let us not deceive ourselves that that is not one of the causes of the deficit.”