That $200 billion deficit
Congress returns next month and we must think about the astonishing $200 billion budget gap that projections indicate. Is the government going to do something about it or not?
The country has just ended the first year of a firm business recovery and the prospect is for continuance in months ahead which could take us through the election next November.Politicians don't like to talk about raising taxes and cutting expenses in an election year. But some people insist on talking.
One talker, to the surprise of Washington, is chairman of the Senate Finance Committee, Sen. Robert Dole (R) of Kansas. He has entered the dangerous political terrain and said we should strengthen federal finances now. His departure from the orthodox line is notable. The White House says it won't consider higher taxes or arms cuts for the time being. But Dole told the National Press Club this month that in preparing the fiscal 1985 budget he favored a "contingent" tax increase. What that means is that he favors an escape hatch to raise more money in the "contingency" that the deficit threat is too serious.
President Reagan told an informal press conference Dec. 14 that "there won't be any [new] tax in 1984." He, too, left an out: If things got "to the absolute point in which government cannot be any further reduced in size and cost, and then it is still out of line with revenues, you would have to make an adjustment on that side."
For some economists the forthcoming budget debate is not political. One is Martin Feldstein, picked by President Reagan from Harvard in 1982 to head the Council of Economic Advisers. Rather tactlessly, Mr. Feldstein made his views known at a sensitive moment. A budget deficit, he said in effect, stimulates the economy. If carried too far, it produces inflation are other ills. The Feldstein view appears to be shared by Paul A. Volcker, chairman of the Federal Reserve Board. The question of deficit is one of degree.
Feldstein indicated his views in a speech Nov. 30, which another prominent economist, Walter W. Heller of the University of Minnesota, has analyzed as boiling down to "five vital points":
First, the ballooning deficit comes from recent policy initiatives -- tax cuts, defense boosts, and big interest payments.
Second, as Heller summarizes it, "we cannot grow our way out of these deficits," not even with full prosperity. (Present signs indicate "a trillion dollars' worth of deficits in the next five years.")
Third, it's very risky to wait until 1985 to meet the problem. "It risks higher interest rates, higher inflation, a lopsided recovery, slower growth, and tougher sledding for the rest of the world."
Fourth, budget cuts alone can't do the job; tax increases must be part of the cure.
And fifth, Feldstein rejects the political charge that Congress not raise taxes because the money would just be used in more government spending -- it would go down the drain in federal extravagance.
Mr. Feldstein's presentation startled the President's spokesman, Larry Speakes, who implied that Feldstein didn't have much policymaking say anyway. Feldstein hasn't been saying must recently. But discussion of the issue continues anyway.
In his address Feldstein said: "I am convinced that the advantages of reducing the budget deficit outweigh the disadvantages of the proposed increase in tax rates." He urged action on the program that Reagan sought last winter -- a nearly $50 billion-a-year increase in income and oil taxes to go into effect in 1985 if big deficits persist.
Will Feldstein remain with the administration? We don't know. It is the deficit that remains the big economic question as Congress returns.