Reagan the realist
By all ideological counts, Ronald Reagan should not be calling for bipartisan congressional support for a $99 billion tax increase. Raising taxes flies in the face of supply-side economics, as some GOP conservatives logically argue. But it is not entirely surprising that the President has chosen pragamatism over ideological purity when faced with a seemingly intractable circumstance. He did the same thing as governor of California when, two years into his term, he reversed course and opted for income tax withholding. Now, about two years into his presidential term, he again is trimming his ideological sails.
That is a calculated political gamble. But the American people should be more reassured than not when their President shows himself to be, not a hidebound ideologue, but capable of flexibility and realism on an issue of overriding national importance. The tax-hike bill does indeed merit support from Democrats and Republicans because it is a creditable effort to help bring those skyrocketing budget deficits under control - both by raising new revenue and reforming elements of the present tax system.
This is not the sweeping tax reform that the nation needs. Indeed it is frustrating that the federal government has so long avoided attacking the budget deficits through fundamental reform of the complicated tax code. But closing even a few loopholes -- for instance, prohibiting tax leasing (under which companies are permitted to sell unused tax credits) and reducing some of the overgenerous tax breaks for business investment voted last year -- is a step in the right direction. Especially when considered alongside certain planned spending cuts in such areas as dairy price supports, veterans programs, and cost-of-living increases for federal retirees. These measures are worth adopting and, it is to be hoped, will be a harbinger of future bipartisan efforts to improve the tax system.
The public should not be misled, however, into thinking that the tax increases will be a quick solution to the budget mess. They will make only a small dent in the deficits. Even if the measure is passed by the Senate and the House, the government expects the fiscal 1983 deficit to reach over $100 billion. Some economists estimate it will be much higher -- a situation hardly likely to bring down interest rates enough to lift the country out of recession.
The question is whether President Reagan and the Congress, once the election pressures are behind, will have the courage to tackle the biggest items driving the budget deficits: entitlement programs and defense. Mr. Reagan has nationwide support for his effort to modernize and upgrade America's defense forces. But many economists now voice concern about relying too heavily on the military-industrial complex to generate economic growth. According to some estimates, military spending will rise from 24 percent of the total federal budget in 1981 to 32 percent in 1985 (if the tax increases and proposed spending cuts are passed), and that represents good business for many defense firms.
But is this the best business for the nation? Experts widely recognize that the benefit to the gross national product from defense production is far less than from the civilian sector. It could be a terrible mistake to pour so much of the nation's resources into the production of tanks and ships -- especially when there is tremendous waste in the defense establishment and when even the military does not want some of the items being foisted on it (such as the surplus Boeing 747s being voted for the Air Force). What the country needs is a rational defense not an inflated one.
There is, of course, bargaining leverage to be gained by voting funds for the development of new weapons. President Reagan no doubt calculates that the US must show it means business if it is to win concessions in arms controls talks with the Soviet Union. But, having won his battle for massive military increases, Mr. Reagan is now in a position to negotiate seriously for the arms cuts he wants and to look at his defense budget with fresh eye. Such a pragmatic course is necessary not only to reduce the danger of nuclear war -- but to help make the US government solvent and turn the US economy around.
By backing a tax hike, Mr. Reagan has demonstrated his capacity for realism. Will he prove equally as practical on the larger budget-balancing work still to be done?
