Reagan's tax battle: explaining a three-layer chess match

Washington is reaching hard for ways to describe the economic-political drama fast intensifying here. "It's sort of three-dimensional chess," says one expert of the actions stirring in anticipation of President Reagan's economic plan, to be announced Feb. 18.

"There's one chess game seen on one level between the Office of Management and Budget, the White House, and the agencies; another between the executive and Congress; then a third between the committees of Congress, the separate fiefdoms on the Hill, and the special-interest groups," says Stephen Hess, a White House- watcher at the Brookings Institution. "It's very complicated."

White House spokesman James Brady cautions that the "black book" tallies of potential budget cuts -- leaked to the press by congressional sources and listing possibly two-thirds of the targets of an eventual $40 million in trims -- are preliminary.

"The process is not complete yet," he says. "As you go into final budget review, it's like an Apollo [space shot] countdown. The people get into the chute. And you get toward what is called the final racking of the numbers -- and that's when all of it comes together. Only then, when it's complete, do you have the final set [of cuts]."

This week the White House will try to reconcile its spending cut totals and its three-year, 10 percent-a-year personal tax cut plan with its forecasts of what will happen to the economy if the package is passed by Congress.

"There's going to be a melding of [Treasury Secretary Donald] Reagan's numbers and [OMB director David] Stockman's numbers," Brady says.

The initial Reagan forecasts picture very, very optimistic and fast results if Congress buys the program. Inflation would be cut almost in half in a year, and the gross national product would leap 7 percent.

Mainstream economists say they are unsettled by such claims. Where a Reagan OMB forecast reportedly puts inflation at 6.5 percent next year, Otto Eckstein's private econometrics firm, Data Resources Inc., sees inflation at 10.2 percent next year, 9.5 percent in 1983. It expects GNP (gross national product) growth to average about 3 percent in 1982 and 1983.

"Iths very hard to deal with," says Brookings budget analyst Robert Hartman of the rosy Reagan forecast. "They're going to assume growth rates that are verym high, and inflation rates that are verym low. the combination of those two things, by themselves, even without the program change [spending cuts], will cut the budget enormously by '83 and '84."

White House sources say they anticipated challenges to their forecasts.

One observer calls Reagan's optimistic budget- balancing timetable the "mirage effect" common to every White House budget. "Out in the third and fourth year in everym administration's budget projection, Republican and Democrat alike, it shows the budget lines come together and shows it balanced out there," he says. "Some administrations say they'll balance it the first year. But it's always the mirage effect."

Meanwhile, President reagan will continue his unexpectedly active selling job on his economic program this week. He will be meeting with members of Congress and key groups -- state legislators, county executives, the bipartisan executive committee of the National Governors Association, and platoons of labor leaders. This is part of the "consultation" process he has been carrying on since before he took office and which he carried to the public last Thursday night -- talking of sacrifices but not in detail.

The anticipated Reagan economic forecast will itself be an important part of the President's sell to the nation. White House spokesman Brady points out that the first projection of what the economy would look like under a Reagan imprint - - released last Sept. 9 when candidate Reagan first outlined his package of tax and spending cuts and regulatory reforms -- helped dispel the "voodoo economics" label of Reagan's opponents.

But the forecasts are still expected to launch a second fire line on Capitol Hill, as crucial as the debate over program spending cuts.

With strong irony, Mr. Hartman of Brookings says: "They're going to take an 'optimistic' view of the world. They're going to say it's not going to happen by a miracle -- it's going to happen because of the tax cuts, and people will understand this is new regime, that inflation is going to disappear and everybody is going to work hard."

This line of reasoning will make the spending cuts more palatable to the public, Hartman feels. Skeptics will be dismissed for old-fashioned thinking -- echoing the debate so far over Reagan supply-side economics. "'We haven't tried this sort of thing before,' they'll say. 'It's going to change the price at which people can take risks, can make savings, can make investments. And we think there are a lot of people just waiting for a signal.'"

Optimistic Reagan economic forecasts will make the federal budget look better even without spending cuts, experts say. Lower inflation and greater growth would mean less of a boost in federal entitlement programs linked to inflation, lower interest payments on federal borrowing, greater federal receipts, less unemployment compensation paid.

But, adds Hartman: "If Congress asks for outside witnesses, it's going to be hard for anyone to give a high probability to the outcome that the administration's going to bring in, that's for sure."

In any event, members of Congress are likely to seek their own counsel on the economic impact of the Reagan plan, and temper their judgment with more traditional models.

For the public trying to penetrate all this, the picture of what Congress will do -- as district from what Reagan wants -- should be fairly clear about six weeks after Reagan's Feb. 18 speech, or by April.

Details of the Reagan spending cuts are not likely to reach Congress until March, although the categories of cuts should be outlined next week.

Under a new "reconciliation" budget process adopted last year, Congress should approve a first concurrent budget resolution through the committees in April and the full House and Senate in May. This would instruct key committees to cut programs, so that by April it should be known which Reagan cuts have survived a first reading by committees and leaders.

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