1985 budget dodges deficit action

By , Staff writer of The Christian Science Monitor

Huge federal budget deficits may scare economists and corporate executives. But Ronald Reagan apparently has decided the United States can tolerate them for at least one more year.

The President's proposed budget for fiscal year 1985 will not be officially unveiled until Feb. 1. But leaks from a variety of meetings the President has held make it clear that Mr. Reagan will propose only very modest spending cuts and no significant tax hikes for the coming budget year.

The bottom line on the administration's budget projections shows deficits hovering in the $200 billion range through fiscal 1987.

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The President's well-advertised plans make chances for congressional action on the deficit even more remote than was already the case. For example, Senate Finance Committee chairman Robert Dole (R) of Kansas, a key advocate of congressional deficit-trimming action, is considering scaling back the scope of a Finance Committee package to clip the deficit by $150 billion over four years, aides say.

But Senator Dole warned this week that deficits ''must be faced before they consume the country in an ocean of red ink and debt-service costs.''

Although some conservative supporters of the President oppose tax hikes, bipartisan support for comprehensive deficit-trimming action appears to be growing. A call for quick action to control the deficits - using a package of spending cuts and tax hikes - was issued Thursday by the Committee to Fight Inflation, a bipartisan group of former government officials whose co-chairman is Herbert Stein, chairman of the Council of Economic Advisers under President Nixon.

''In my opinion,'' Dr. Stein says, the deficit situation ''is really frightening and deserves urgent consideration.''

And a new Wall Street Journal poll found that six out of 10 executives at large- and medium-size companies think the deficit is the nation's biggest economic problem, and a majority think the President should do more to tackle the problem.

However, the President's decision not to attack the deficit in his 1985 budget probably will not have any sharp pocketbook impact on the average citizen this year, economists say.

''The chickens don't come home to roost in the full sense in 1984,'' but probably will in 1985, says Jerry Jasinowksi, chief economist for the National Association of Manufacturers.

While in the short term the deficit will nudge up interest rates, ''the main effects will be later on,'' adds David Berson, financial economist at Wharton Econometric Forecasting Associates.

In the short run the deficit, by boosting government spending, has actually helped the recovery, economists say. But in the longer term, government borrowing to cover the deficit is expected to deprive business of needed investment funds, push up interest rates, and thus keep the dollar so strong that export industries suffer.

One way the President may tackle the deficit issue is to propose a bipartisan commission to study the problem and issue tax and spending cut proposals after the 1984 election. Reagan has used such commissions in the past to wrestle with tough issues ranging from social security to the MX missile.

At this writing, the President had not made his final decision on revenue measures, though he was expected to decide Friday. Those who have met with him recently, however, say he plans to side with Treasury Secretary Donald Regan in his policy tussle with Martin Feldstein, chairman of the Council of Economic Advisers.

The Treasury secretary wants a budget ''that does not have any tax increases at all . . . and leans hard on spending cuts,'' an administration source says. By contrast, Mr. Feldstein has urged Reagan to call for $50 billion in temporary new taxes for three years starting in 1985.

Mr. Regan's reasoning, sources say, is that Congress is not likely to take any action on deficits in an election year, so proposing painful remedies is not wise. However, the administration probably will resubmit some miscellaneous tax-law changes it suggested last year, none of which affects tax rates for individuals.

The Treasury secretary also thinks the administration will be in a better position to tackle the problem - and overhaul the tax system - with a fresh reelection mandate. And he feels some deficit predictions overstate the problem.

Feldstein takes the more widely held view among economists that administration forecasts of $200 billion deficits may understate the problem, since the projections are based on the administration's relatively optimistic economic assumptions. ''The risk on the upside is large,'' especially if corrective action is not taken quickly, Feldstein says.

''There is a good risk that if nothing is done (now), that it will be too difficult to do in 1985,'' especially if the economy weakens, he says.

The final figures in the President's fiscal 1985 budget probably will differ only slightly from numbers now circulating in Washington, administration sources say.

For the coming budget year, the administration will propose spending $924 billion, a figure that assumes the Congress will approve roughly $8.5 billion in domestic spending cuts. The spending target also assumes defense spending of $ 305 billion, a 13 percent increase after adjustment for inflation. Revenues to pay for the spending are put at $738 billion, leaving a deficit of $186 billion.

TWO VIEWS OF THE FEDERAL BUDGET In billions of dollars Reagan Congressional Numbers in parentheses Administration Budget Office represent dollar figure as a percent of gross national product FISCAL YEAR 1983 Receipts $601 (18.6%) $601 (18.6%) Outlays 796 (24.6) 796 (24.6) Deficit 915 (6.0) 195 (6.0) 1984* Receipts 669 (18.8) 665 (18.7) Outlays 853 (24.6) 850 (23.9) Deficit 184 (5.6) 185 (5.2) 1985* Receipts 738 (19.0) 733 (18.8) Outlays 924 (24.1) 925 (23.8) Deficit 186 (5.1) 192 (4.9) 1986* Receipts 805 (19.0) 796 18.9) Outlays 1,000 (23.9) 993 (23.5) Deficit 195 (4.9) 197 (4.7) * Projections Sources: Congressional Budget Office, Lawrence Kudlow & Associates.

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