Caution is the byword in Reagan's 1984 budget plans

By , Senior economics correspondent of The Christian Science Monitor

For the first time in Ronald Reagan's presidency, Democrats and Republicans, White House and Congress, will begin the annual budgetary process agreed on the underlying economic assumptions.

Gone from Mr. Reagan's fiscal 1984 budget is the rosy glow of overblown economic assumptions that distorted the President's earlier budgets.

The 1984 Reagan budget that travels to Capitol Hill today is rooted in sober, pragmatic expectations of what the battered US economy will achieve this year.

Recommended: Default

Some private economists, in fact, believe the administration has bent over backward to be cautious, especially where projections of economic growth are concerned.

''I would not be surprised,'' says Barry P. Bosworth of the Brookings Institution, ''if, in a couple of months, there was an upward revision by the White House.''

The 1984 budget builds on the assumption that the economy will climb slowly out of recession in the first half of 1983, then grow more quickly, to achieve 3 .1 percent growth from the fourth quarter of 1982 to the last quarter of 1983.

Inflation will rise 5 percent, as the White House sees it. Unemployment, now 10.8 percent of the work force, is expected to average nearly 11 percent during 1983, dropping to 10.4 percent by the end of the year.

The budget deficit for fiscal 1983 is projected at a whopping $208 billion, compared to $110.7 billion in fiscal 1982. The deficit will drop to $189 billion in fiscal 1984 - if Congress gives the President everything he asks for in his new budget.

Much of the White House realism is credited to two newcomers to the Reagan Cabinet - Martin S. Feldstein, chairman of the Council of Economic Advisers, and Secretary of State George P. Shultz.

The latter, a former Treasury secretary and budget director himself, plays an unusually large role for a secretary of state in forging domestic economic policy.

This realism on numbers eliminates one element of friction between the White House and Congress as the President's 1984 budget begins its bumpy course through the lawmakers' hopper.

Battles there will be, however, over the spending priorities advanced by Mr. Reagan, who emerges in this budget document as a man still convinced that the defense side of the budget should grow and the nondefense part shrink.

At the heart of the 1984 budget lies the President's proposed spending freeze , first advanced in his State of the Union message Jan. 25. The freeze is selective.

Defense spending, under the Reagan plan, would climb by 9 percent in real terms. Nonmilitary items would shrink by 3 percent, with the emphasis on programs generally beneficial to low-income Americans.

Overall, the budget for fiscal 1984 - Oct. 1, 1983, through Sept. 30, 1984 - calls for total spending of $848.5 billion, a $43.5 billion increase over fiscal 1983. In real terms, according to White House officials, the budget is frozen at the current level. In other words, the $43.5 billion increase simply accommodates enough higher spending to keep pace with inflation, estimated at 5 percent.

Philosophically, Mr. Reagan appears to have made little, if any, substantive shift away from the goals he brought into office, though he now realizes they will take longer to achieve than he had hoped.

The President blames the prolonged recession for a large chunk of the budget shortfall. The recession, which began in July 1981 and which may or may not have ended, has caused tax revenues to shrink and government outlays to grow.

Reagan's own policies, however, in the view of his critics, add to this recessionary deficit a structural element which economic recovery will not eliminate. This stems from a widening gap between the amount of tax money the Treasury collects and the bills which government must pay under the mix of policies which Mr. Reagan and Congress have put into place.

Spending is calculated to remain at 23 percent of gross national product (GNP) in the years ahead, while tax revenues decline to about 18 percent.

This could produce, according to White House documents, yearly budget deficits mounting to $300 billion by 1988. To prevent this, the President's 1984 budget centers on four areas of reform:

* The spending freeze, including no pay raise for government workers, civilian and military, in fiscal 1984. There would be a similar freeze on federal pensions, and a six-month delay in cost-of-living adjustment for 36 million social security recipients.

* Major changes in social security (already proposed by a bipartisan presidential commission), medicare and medicaid, and reform of the civil service retirement program.

Congressional leaders already have endorsed the social security package. No consensus has emerged, however, on health care and civil service reforms.

* Defense spending will continue its upward climb, although President Reagan proposes $55 billion worth of trims over 5 years, mainly in pay, fuel, and inflation savings.

Key Republican as well as Democratic lawmakers regard these trims as too small. Critics charge that a slowdown in pay is no way to tackle soaring defense costs.

* Reagan proposes a ''deficit insurance policy'' - namely, standby tax increases - to take effect in fiscal 1986, if Congress approves all his reform measures and the deficit still remains above 2.5 percent of GNP. Currently the deficit approaches 7 percent of GNP.

The tax increase would consist of a $5 a barrel excise tax on oil, which would raise gasoline and home heating oil prices by 10 to 12 cents a gallon, and a 1 percent surcharge on corporate and individual taxable income.

Share this story:

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...