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Reagan's '85 budget: optimism plus realism

By David T. CookStaff writer of The Christian Science Monitor / February 2, 1984



Washington

The Reagan administration's fiscal 1985 budget offers a generally optimistic view of the United States economy and of government finances - heavily seasoned with political realism.

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The budget takes a more upbeat view than do many private economists of how the economy will perform in coming years and of how long Washington can safely postpone action on reducing the deficit.

And the administration's proposals also assume Congress will be more willing this year than it was in 1983 to grant major increases in defense spending.

Of course, budget forecasting with the aid of rose-colored glasses is a time-honored tradition in both political parties. Election year budgets ''are partly forecasting and partly hope and aspiration,'' says Donald H. Straszheim, vice-president of Wharton Econometric Forecasting Associates.

The President's budget also exhibits some hard-headed political realism. For example, the social-spending cuts advanced this election year are much smaller than in previous Reagan administration budgets. And the total revenue additions and spending cuts the budget proposes are vastly below what would be required to eliminate the deficit. It is clear that ''big sweeping changes are not feasible or likely to happen in this Congress,'' says Budget Director David A. Stockman.

The President seems to have abandoned his call for a mix of $3 in spending cuts for every $1 in tax hikes in attempts to trim the deficit. The budget calls for $33.7 billion in tax boosts over three years, while suggesting only $26.2 billion in nondefense spending trims.

The fiscal 1985 budget that the President sent to Congress Wednesday:

* Calls for spending $925.5 billion, up $71.7 billion, or 8.4 percent, from 1984.

* Projects revenues of $745.1 billion, up $75 billion, or 11.2 percent, from 1984.

* Seeks $7.9 billion in new taxes, including levies on certain employer-paid health insurance premiums and steps to curtail tax shelters.

* Estimates a deficit of $180.4 billion, a reduction of $3.3 billion, or 1.8 percent, from 1984.

* Advocates spending $305 billion on defense, an inflation-adjusted increase of 13 percent.

* Proposes nondefense-program spending of $545.0 billion, a reduction of $4.6 billion, or 0.8 percent - much smaller than the cutbacks the administration called for in previous years. The biggest cuts would come in low-income benefit porograms like food stamps and medicaid.

* Shows the cost of servicing the national debt will be $116.1 billion in 1985, up $7.9 billion over 1984 levels. And the '84 costs, after adjustment for inflation, were triple those in 1971.

All budgets are based on assumptions about how the economy will affect the government's income and need to spend.

The President's budget assumes the economy will grow at an inflation-adjusted rate of 4.5 percent in 1984 and 4 percent in each of the following four years.

At the same time, interest rates (as measured by the rate on 91-day Treasury bills) are expected to average 8.5 percent this year and decline steadily for the next four years.