Reagan’s Budget: More for Defense and Less for Rest : $974 Billion Figure 1.5% Over 1985

President Reagan will propose a $974-billion budget for the 1986 fiscal year that calls for nearly $40 billion in new spending cuts from domestic programs while recommending an increase of $30 billion for the Pentagon, Administration officials said today.

The budget calls for a spending increase of only 1.5% over the current year, the smallest rise in years. The Administration currently estimates total spending for the current fiscal year ending Sept. 30 at $959.1 billion.

The plan forecasts a deficit of about $180 billion, added officials, who spoke only on condition they not be identified. But that assumes the President’s budget is accepted in its entirety by Congress, where opposition already is forming to many of the proposals.

The budget--the first of Reagan’s second term--contains no call for a tax increase, and the President is expected to send Congress a plan later this year to simplify the income tax code.

White House spokesman Larry Speakes said the overall plan is in keeping with the President’s wishes to freeze overall government spending.

“It’s a programmatic freeze, a freeze on program outlays,” after adjusting for an increase in interest payments on the national debt, Speakes said. He said the government would pay about $145 billion next year as interest on the national debt.

The President’s decision to raise Pentagon spending by nearly $30 billion within the context of a near-freeze overall means a reduction of an estimated $38.8 billion in domestic spending, including a freeze in numerous domestic programs and outright cuts and cancellations in others.

Officials have said previously the President would recommend a sharp reduction in student loans and farm programs, a 5% pay cut for federal workers, elimination of federal subsidies for Amtrak and other transportation programs, and canceling programs such as revenue sharing for cities and counties and the Urban Development Action Grant program.

The proposals, which run through 26 pages of program listings, also are expected to include denial of cost-of-living increases next year in federal pension programs.

The budget proposals are certain to set off a confrontation between the White House and Congress, where many Senate Republicans have taken the lead in urging the President to accept less spending for defense than he wants as a way of winning support for some of the more controversial cuts he is proposing in domestic programs.