Reagan and Congress scuffle over '83 budget

A stagnant US economy prods budget negotiators from the White House and Congress down that last mile toward compromise, but the outcome remains very much in doubt.

The reason: Politics and economics collide in Washington, where all House members and one-third of the senators face the ultimate test of the ballot box this November.

Politics aside, all economic signs -- plus the public interest -- dictate that something be done to bring the 1983 budget deficit down from a prospective

Only then, experts say, will the nation's financial community gain enough confidence in the future to allow interest rates -- the key to economic recovery -- to slide from their current, dizzying height.

''Bringing interest rates down,'' says Murray Weidenbaum, ''is the single most important contribution'' that can be made at this juncture to lift an economy that now is ''standing still.''

''A drop of 2 percent in interest rates,'' the chairman of the Council of Economic Advisers (CEA) told reporters at breakfast, ''would start the upward growth of the economy.''

The nation's gross national product, or total output of goods and services, dropped 3.9 percent in the first three months of 1982, the Commerce Department reports. This followed a 4.5 percent decline in the last quarter of 1981.

Much of the decline, government officials said, stemmed from a sell-off of inventories -- notably automobiles, but also elsewhere throughout the economy -- that was not matched by new production.

Businessmen have been working down heavy inventories of unsold goods and have not yet begun ordering in volume to replace them.

''If that very substantial inventory reduction process has been completed,'' said Mr. Weidenbaum, ''then the second quarter (of 1982) should be flat, maybe even slightly up.'' He predicts stronger growth in the last half of the year.

Consumer spending, the main engine of the economy, dropped slightly in March, according to government figures. This indicates that recovery has not yet taken hold.

Progress against inflation, meanwhile, continued to be dramatic. Prices throughout the economy during the first quarter, measured broadly, rose only 3.6 percent. This is the lowest level since the first quarter of 1976, and is down from 9.5 percent during the fourth quarter of 1981.

Against this economic background, says Mr. Weidenbaum, President Reagan is ''very sincere and very anxious'' to achieve a compromise on the 1983 budget.

But does that imply flexibility on principles that Mr. Reagan holds dear? Speaker of the House Thomas P. O'Neill Jr. (D) of Massachusetts, keeper of the Democratic flame in Congress, expresses doubt. For that matter, no one in the White House appears to know what elements of a possible budget compromise Mr. Reagan might accept.

''So far,'' said Weidenbaum, ''the President is listening to options. Things are not at the stage for him to indicate what he will accept or reject.''

What about Mr. O'Neill? Is he ready to yield on principles that he and other liberal Democrats hold dear? Republicans express doubt.

A budget compromise sufficient to carve more than $80 billion out of the fiscal 1983 deficit will step hard on a lot of political toes.

Many experts say that to achieve that savings, defense spending must be trimmed, taxes must be raised, and social security payments will have to be restrained.

Huge groups of voters feel very strongly on all these issues and neither party -- or no legislator up for election -- wants to be blamed this fall for unpopular decisions.

Beyond this, a clash of fundamental principles is involved. The President insists that defense spending must be sharply higher to offset what he perceives as the Soviet Union's military advantage. He insists also on a three-year tax cut program as the foundation stone of his program to get the economy moving.

Mr. O'Neill and his Democratic cohorts believe just as profoundly that social programs -- meaning those that help elderly and poor Americans -- bear an unfair share of the burden in the President's effort to shave government spending.

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