Reagan, Democrats Agree They Must Work on Deficit

President Reagan and Democratic congressional leaders offered conflicting views Saturday on the state of the economy and the meaning of the stock market plunge last week, but both sides agreed they must now work together to reduce the huge federal budget deficit.

“The American economy is sound and strong,” Reagan said in his weekly radio address, noting that the economy has grown for 59 months in a row, a peacetime record. Moreover, he said, government statistics released Friday show that inflation is slowing while economic growth is steady.

“As long as consumers do not overreact by losing confidence, our expansion will continue,” he said. But Senate Majority Leader Robert C. Byrd (D-W.Va.) said the stock market plunge forebodes an “economic winter” unless the government changes direction quickly.

‘Plastic Prosperity’

“Wall Street has come to the conclusion that the days of plastic prosperity, of borrow and debt, are over,” Byrd said in the Democratic reply. “We cannot keep living off our national credit card.

“It is time to get our economic house in order,” he added. “Unless Wall Street gets back a message from Washington that shows us working together, this week will come back to haunt us.”

Reagan and Byrd, along with House Speaker Jim Wright (D-Tex.), House Minority Leader Robert H. Michel (R-Ill.) and Senate Minority Leader Bob Dole (R-Kan.), plan to meet Monday at the White House to try to work out a plan for reducing the budget deficit.

Before last week’s stock sell-off, Reagan and the Democratic-controlled Congress were at an impasse on the budget. Under the Gramm-Rudman budget balancing bill, Congress must trim the deficit by $23 billion this year. Congressional Democrats proposed to do that through an even mix of spending cuts and tax increases, but Reagan had promised to veto the tax increases.

Monday’s stock crash spurred a new willingness at the White House to try again to reach a budget compromise. At a press conference Thursday, Reagan took a somewhat more conciliatory tone by not ruling out all tax increases.

Reagan and Byrd maneuvered Saturday for position on the tax issue.

Fuel for Expansion

Reagan said the tax cuts enacted in 1981 helped to fuel the long economic expansion, and tax increases could choke it off. “So, let’s keep the stock market healthy and sound, and let’s do it . . . by keeping taxes and spending down so we can keep interest rates and inflation rates low,” Reagan said. He said tax collections rose by $255 billion between 1981 and 1987 despite lowered rates under the Administration’s program.

Without specifically mentioning new taxes, Byrd said Reagan must not “get stuck in political ruts. We cannot rule out any options.”

House Budget Committee Chairman William H. Gray III (D-Pa.), speaking at Harvard University in Cambridge, Mass., on Saturday, said Reagan must agree to some tax increases.

‘A Warning Shot’

“We can’t do it with spending cuts alone,” Gray said. The stock market plunge, he said, was “a warning shot across the economic bow of America (which shows) our fundamentals are out of order.”

Although the mandated $23-billion deficit reduction represents a tiny portion of a $1-trillion budget, it has become a symbol of Washington’s resolve to get the budget under control. If Congress and the President cannot agree by Nov. 20, the Gramm-Rudman law will impose automatic budget cuts in both defense and domestic programs.

In the fiscal year that ended Sept. 30, the federal government ran a deficit of $148 billion, down sharply from $221 billion the previous year.