Reagan takes his inflation fight directly to US public
Washington — Aware that Congress is deeply tied to traditional views, Ronald Reagan has gone directly to the American people with his new, sweeping economic plans. The President used television to look his national constituency straight in the eye and tell it that the United States is facing an economic situation that demands radical remedies:
* Budget cuts that will touch just about everyone -- including some of the chief beneficiaries of past Democratic programs ranging from the New Deal to the Great Society.
* Tax cuts that reverse time-honored theories about the best ways to attack inflation.
Mr. Reagan and his advisers realize that two factors stand in the way of the drastic new turn they seek in US economic policy. They want to slash roughly $ 15 billion from spending in fiscal year 1981, and as much as $40 billion out of 1982 outlays.
The first roadblock could be the habitual timidity of Congress. The lawmakers are often most responsive to special-interest constituencies when it comes to budget trimming or tax changes.
Second, the public itself, polls indicate, believes that if budget cuts are not made before taxes are reduced, inflation will accelerate rather than subside.
The President says he has found conditions in Washington even worse than he expected -- a budget out of control, national debt soaring toward $1 trillion, federal outlays ratcheting upward because of inflation ever worse than expected.
The Reagan blueprint -- which will be released in detail on Feb. 18 -- carries with it substantial risks in the opinion of some leaders on Capitol Hill.
Rep. Henry S. Reuss (D) of Wisconsin doubts that Reagan will get all the cuts he wants in social programs, for example.
Here enters the risk, says Mr. Reuss, who is chairman of the Joint Economic Committee: If Congress passes major tax cuts without compensating budget trims, inflation may grow worse.
Conservative Republicans share this concern.
"If we pass a tax cut without spending cuts," says Sen. Jake Garn (R) of Utah , "I would advise the President to veto it," because of the inflationary danger. The deficit, he says, could balloon.
Balloons of another sort have been the talk of Washington this week -- trial balloons that reveal areas in which the Reagan White House is planning possible budget cuts.
Among the major ones:
-- Synthetic fuels. Slash about $12 billion out of the $17.2 billion authorized so far by Congress for spending in 1981, 1982, and beyond. Furthermore, most of the $71 billion in additional spending planned by the Carter administration for later years would be deleted from future budgets.
-- Food stamps. Reductions of $1 billion to $2.6 billion in 1981.
-- Public service jobs. Sharp reductions that would save over $4 billion in the next two years.
-- Child nutrition. Savings of about $1 billion this year.
A number of the "social" savings would be at the expense of middle-class families, such as college students who collect food stamps.
Nonetheless, sources concede that Reagan's pruning knife, wielded by his young budget director, David A. Stockman, will pare away at programs designed to help the needy.
Although corporations would get major tax gains under Reagan's separate tax-cutting plans, businessmen are expected to lose some benefits that cost the government money. For example, loan guarantees through the Export-Import Bank may be reduced.
Federal Reserve Board chairman Paul A. Volcker and former Fed chief Arthur F. Burns warn that budget trims must offset tax cuts, if further inflation is to be avoided.
Reagan Cabinet aides speak of having a "down payment" on budget cuts before Congress legislates tax reductions that might ignite inflation, now running in the 12 percent range.
Even if enacted, however, the kind of tax cut package proposed by President Reagan contains an element of risk, in the view of many experts.
A 10 percent across-the-board personal income tax cut, coupled with tax benefits for business, would increase savings and investment, according to White House officials.
This, in turn, would lead to modernization of US factories, greater output of goods, more jobs, and a richer flow of tax revenues to reduce budget shortfalls.
However, others believe that individual tax cuts, of the magnitude planned by Reagan, would stimulate consumer demand rather than add to savings and investments.
Lower-income Americans, already strapped financially, would spend their tax savings, Mr. Reuss believes -- a point conceded by the Reagan economic team. They argue, however, that upper-income Americans, who would get the greatest tax savings in dollar terms, would invest and save their money.
"What guarantee is there," asks Reuss, "that they would invest this money in ways that would stimulate business investment? They might spend it on hedges against inflation -- antiques, silver, and the like."
Everyone concerned -- Reagan, Stockman, and lawmakers generally -- agree that the budget trims must be perceived by the public as even-handed, or neither Congress nor citizens will accept them.
Paul Volcker says that White House estimates of how much savings would be generated by its tax cuts exceed the historical experience of the past. How much is $15 billion?
* If your salary is $15,000 a year, it would take you 1 million years to earn it.
* It is equal to the combined education expenditures of Maine, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont.
* It is equal to the combined 1980 corporate profits of AT&T, Getty Oil, Minnesota Mining and Manufacturing, Standard Oil of Ohio, RCA, Santa Fe Industries, Corning Glass, Martin Marietta, Kaiser Aluminum, Boise Cascade, Caterpillar Tractor, Georgia Pacific, and Colt Industries.
* It amounts to $66.67 for every person in the US.